Charlotte is ranked third in the nation for paying its bills on time. Not just any bills – pension bills. That's according to a new report by The Pew Charitable Trusts. They found that the country's largest cities have an unpaid tab of more than $200 billion when it comes to retirement benefits promised to employees. And it turns out Charlotte has been preparing for retirement relatively well when it comes to pension plans.
Researchers looked at 61 cities – the most populated city in each state and all of cities with more than half-a-million people.
Charlotte, the largest city in North Carolina, was ranked third in the country for the funding of its pension system, even though its pension plan is underfunded by $96 million. The shortfall more than doubled between 2007 and 2010, but other cities are doing so poorly that Charlotte looks like a shining example, says David Draine, a lead researcher of the study.
"Our main conclusion is that fiscal discipline is what really matters in keeping cities out of trouble," Draine says. "Cities that have been able to consistently put money aside to pay for the promises that they were making and that didn't raise benefits without paying for them, were able to offer these retirement benefits in a sustainable way."
In the case of Charlotte, that fiscal discipline comes from the state because city employees, with the exception of the police and fire department, participate in the state's retirement program.
Retiree Healthcare Funding
The Pew Study also looked at funding for retiree health care plans for a city's public workers.
Charlotte falls short when it comes to putting money into its retiree health care savings plan. Charlotte has its own Employee Benefit Trust Plan that funds health care and other non-pension benefits for its retirees. Charlotte puts in 16 percent a year and has a funding shortfall of $174 million. The state makes a 3 percent contribution per year. Many states make no contributions at all to their retiree health care plans.
"Ultimately, retirement plans both pensions and retiree health care, should aim to be 100 percent funded," Draine says. "These are for services already been done. So if you're forced to pay it off in the future, you're asking taxpayers years or decades from now to pay for services that we're getting today."
Draine says budget pressures make it difficult for lawmakers to find funding for their worker's retirement plans, but there is a way for cities to gradually make up their funding shortfall over time.
"It's going to require closing funding gaps that they have -- whether it's by raising revenue, cutting spending in other areas, asking employees to contribute more, or in some cases having to cut benefits," Draine says. "And second, they need to make sure, in the future, they're not going to get into the same kind of trouble and make sure that their retirement plans are going to be sustainable and affordable."
Albequerque, New Mexico and Baltimore, Maryland top the list and the worst performing city is Charleston, West Virginia with an unfunded liability of $274 million.