The Detroit of Tomorrow?
The Detroit of Tomorrow? by Jeff L. Yastine – Banyan Hill
Say the words “big city pension problem,” and what are the first images that come to mind?
More than likely, it’s the icons of postindustrial America: boarded-up homes and empty factory buildings.
They make convenient mental shortcuts when figuring out where the money disappeared in places such as Detroit, which sought bankruptcy protection a handful of years ago as it tried to rejigger its pension obligations.
“Well, of course!” we tell ourselves. “It makes sense when companies flee and a city’s tax base gets hollowed out.”
But when even the richest of American cities start to struggle with this sort of thing … it shows you we’re approaching a crisis point.
After all, you’d likely never guess that a city such as San Francisco, the very heart of America’s 21st-century technology boom, would have such a problem.
But according to the city’s most recent estimate, it needs more than twice as much money as it thought — $5.5 billion — in order to fill the gap between its pension assets and the retirement benefits promised to its municipal workers.
The problem is the same as in the rustiest of any Rust Belt city — lackluster investment returns and retirees living longer lives. As a result, the city is on the hook for a lot more in “contributions” — direct payments to the fund.
Add it all up, and, as Bloomberg noted, it means San Francisco will need to raise its annual contributions to the pension fund by more than 30% in the next five years.