Pension debt is driving up the cost of providing retirement benefits to workers, causing governments’ pension payments, as a percentage of payroll, to nearly triple since 2001. This problem has been compounded by the fact that government revenue growth has stagnated, leaving officials with less money to cover day-to-day operations and to invest in infrastructure, public safety, and education. Despite the fact that cities and states are allocating more taxpayer dollars to pensions each year, these government contributions are still falling short of the amount needed to fully fund pension promises—and, as a result, debt continues to increase. In an effort to contain these costs, many cities and states have reduced benefits for new and current workers. Not only has this placed an unfair burden on public workers, it has done little to actually solve the problem.
Nearly every state and local government in the country has a significant pension funding problem, and if politicians continue to kick the can down the road, the consequences will be disastrous for the millions of firefighters, police officers, teachers, and other public servants who are counting on pension plans for their retirement. While some believe that pension funds are too big to fail, places like Chicago and Detroit demonstrate the very real and crippling impact of runaway pension debt on local economies and communities. Without comprehensive reform, more governments could find themselves facing a financial crisis. The good news, however, is that such a scenario is not a foregone conclusion for most cities and states. By taking action now to fix their pension problems, local leaders can protect workers and taxpayers and ensure that governments remain financially stable for years to come.