Pension Funding: City Rankings

April 5, 2016 |

In Brief: 

One indicator of a fiscally sustainable government is that it sufficiently funds its legally-binding pension obligations to retired public employees. This data visualization explores the relative performance of the 50 most populous cities in the United States according to the unfunded share of pension liability, which is the amount of the pension obligation the government has not funded, on a per-resident basis.

Introduction: Why We Measure

Citizens should be able to understand what their governments are undertaking and assess their performance. Unfortunately, it can be challenging to find the information—and the time—to make such an assessment. This is particularly true when it comes to public finances. To meet the challenge, US Common Sense has collected public financial reports in one place, extracted “top line” financial numbers, and ranked local and state governments’ relative performance on GovRank.org. 

We have extracted data on governments’ revenues and expenses, their financial flexibility, and their unfunded liabilities. To help citizens understand how sustainable their governments are, we created three summary indicators, and one overall fiscal sustainability grade per government where sufficient data was available. In this series of briefs, we explain each indicator, how well or poorly governments performed, and provide rankings and interpretation.

Overview: Fiscal Sustainability and Unfunded Pension Liability

A government is fiscally sustainable if it can meet the service needs of its current population, without jeopardizing its ability to meet the service needs of its future population. GovRank.org measures fiscal sustainability using three ratios: Budget Balance, Asset Flexibility, and the, Unfunded Pension Liability per capita, which we explore in this brief.

By law, governments are generally required to pay retired public employees any contractually-promised monthly pension payments throughout their retirement. During the employee’s active working years, the employee and employer pre-fund the benefit by setting aside a portion of the employee’s salary to a fund which is then invested and earns investment returns. The fund is expected to grow on a schedule that will provide promised benefits for generations of employees, but that expectation relies on successfully investing a full fund and meeting or exceeding expected investment returns each year. The total amount a government owes current employees and active retirees during retirement is called the actuarially accrued liability, or the pension liability. The shortfall between the pension liability (what the government owes) and the assets in the pension fund (what it has) is called the unfunded actuarially accrued liability, or the unfunded liability. The unfunded pension liability per capita reflects this pension funding shortfall per resident. The other ratios are discussed in related briefs.

The unfunded pension liability per capita is the pension funding shortfall per resident.

Pension Funding = Unfunded pension liability / Population

  • Pension liability is the total amount a government has promised to pay retired public employees in monthly pension payments throughout their retirement.
  • Unfunded pension liability is the shortfall between the total pension liability amount the government owes and the value of the assets in the pension fund (what it has).

What the ratio tells us: The per-capita unfunded pension liability sheds light on a government’s fiscal sustainability by conveying the projected amount of money it owes retired and current employees in pension benefits that it has not set aside in an interest-bearing financial account, while controlling for population of the government’s jurisdiction.

Interpretation: The higher the unfunded pension liability per capita, the larger the financial burden a government faces, and the less fiscally sustainable it is.

Pension Funding Ranking: To rank pension funding performance, we used the reported unfunded pension liability for 2014 (which was the most recent available at the time of document collection), or the most recent previous year available. We summed he unfunded liability for up to five pension funds to which the government contributes. To control for population, we then divided the unfunded liability by the 2014 Population as estimated by the US Census Bureau. We then normalized the ratio from 0-1 and calculated the percentile rank for each government. We only compared same-type governments: cities to other cities, counties to counties, and states to states.

About the Data

We collected information on unfunded pension liabilities for each of the 50 most populous cities in the U.S. The data are from cities’ Comprehensive Annual Financial Reports (CAFRs), audited financial documents available to the public. Pension liabilities are reported in the “Required Supplementary Section” of CAFRs. This section is not audited, and governments are allowed to select an expected growth rate for their pension assets. Standards for reporting pension liability are still evolving and some governments do not report their pension liability. We were able to obtain sufficient data for 43 of the 50 most populous cities. The governments for which we were not able to obtain data include the following:

Table 1. Governments for Which No Pension Data Located

Cleveland, Ohio

Columbus, Ohio

Denver, Colorado

Honolulu, Hawaii

Louisville-Jefferson, Kentucky

Milwaukee, Wisconsin

Nashville-Davidson, Tennessee

It is relatively common for governments to report the value of their pension funds—both its funded and unfunded portions—every second or third year rather than annually. We use the 2014 pension fund valuations when available, and otherwise employ the most recent valuation back to 2011. 

Under GASB 68, the method of calculating the pension liability is changing. Prior to 2015, most governments reported the unfunded accrued actuarial liability (UAAL). The new standard is to report the net pension liability (NPL). Because governments are transitioning to the new standard, we report whichever estimate the government reports. We do not distinguish between the two in this analysis.

To calculate the Pension Funding percentile, we first calculate the per capita unfunded pension liability within a single government. We report the sum of UAALs for up to five pension funds. Population data are from the U.S. Census Bureau’s 2014 vintage estimates. Because they reflect the size of outstanding obligations, these percentile ranks are inverse to the unfunded liability per capita. In other words, the lower the unfunded liability per capita, the higher the percentile rank and the better the performance.

One additional data limitation is worth highlighting: in addition to pensions, governments often owe other retirement benefits to their retired employees. These benefits include health care benefits and others, which are collectively known as Other Post-Employment Benefits (OPEBS). OPEB liabilities are even less systematically reported than pension liabilities, so we provide data on GovRank.org when available, but do not include them in this analysis. However, it bears emphasizing that unfunded OPEB liabilities could substantially alter the magnitude of obligations described below.

Pension Funding Results

Unfunded Pension Liability per Capita: 50 Most
Populous Cities </br> 2014 or Most Recent Prior Valuation
  • For the 43 cities for which we have data, the mean unfunded liability per capita is $1,730. The best performance was in Washington D.C., where public employee pensions are overfunded at the level of $298 per resident. The worst performance was in New York City, where pensions were underfunded in the amount of $8,801 per resident. Besides Washington, D.C., Fresno, CA is the only other city with a fully funded pension liability. It is overfunded by $126 per resident.
  • Thirty-nine of the 43 cities have an unfunded pension liability. Several cities have relatively low unfunded liabilities, including Miami, FL ($4 per capita), Oklahoma City, OK ($7 per capita), and San Antonio, TX ($40 per capita). On average, in our sample, the cities with the best funding levels tend to be less populous than those with the worst.
  • Ten governments have pensions over $2,500 per capita. Among these are some of the largest cities in the United States, including New York, Chicago, Boston, and Philadelphia. Although there is no academic consensus concerning the specific level at which pension liability becomes unsustainable, cities with high unfunded pension liabilities are at greater financial risk in the long term. One reason is that public employee pensions are legally protected obligations, which governments are required to fund adequately over time. Failing to make annual pension fund contributions can generate exponential growth in the unfunded portion of the liability. When the liability grows too large, governments may turn to cutting service levels or raising taxes because annual pension costs consume an increasing amount of their operational funds.

    Table 2. Pension Funding Performance of Populous American Cities

    City

    Pension Funding Percentile Rank

    Unfunded Pension Liability per Capita

    Total Unfunded Pension Liability

    Overall Fiscal Sustainability Percentile Rank

    Population

    (2014)

    Washington DC

    99

    -$298

    -$196,181,000

    38

    658,893

    Fresno, California

    98

    -$126

    -$62,338,000

    48

    494,665

    San Francisco, California

    92

    -$14

    -$11,381,058

    41

    805,235

    Colorado Springs, Colorado

    90

    -$1

    -$531,008

    45

    416,427

    Miami, Florida

    88

    $4

    $1,785,000

    20

    399,457

    Oklahoma City, Oklahoma

    88

    $7

    $3,854,000

    86

    579,999

    San Antonio, Texas

    78

    $40

    $53,432,000

    31

    1,327,407

    Raleigh, North Carolina

    72

    $62

    $25,133,996

    57

    403,892

    Charlotte, North Carolina

    65

    $90.44

    $66,152,000

    74

    731,424

    Sacramento, California

    58

    $128.62

    $60,000,000

    29

    466,488

    Wichita, Kansas

    45

    $227

    $86,715,000

    41

    382,368

    Tulsa, Oklahoma

    38

    $303

    $118,937,000

    40

    391,906

    Mesa, Arizona

    21

    $654

    $287,124,012

    5

    439,041

    Las Vegas, Nevada

    19

    $700

    $408,470,880

    35

    583,756

    Albuquerque, New Mexico

    19

    $703

    $383,491,296

    NA

    545,852

    Long Beach, California

    18

    $723

    $334,416,000

    30

    462,257

    El Paso, Texas

    17

    $754

    $489,575,000

    5

    649,121

    Minneapolis, Minnesota

    17

    $784

    $299,882,592

    35

    382,578

    Kansas City, Missouri

    16

    $825

    $379,253,000

    11

    459,787

    Dallas, Texas

    14

    $901

    $1,079,000,000

    14

    1,197,816

    Indianapolis, Indiana

    13

    $951

    $815,944,000

    1

    858,325

    Memphis, Tennessee

    9

    $1,198

    $775,036,000

    3

    646,889

    Detroit, Michigan

    7

    $1,380

    $984,900,000

    1

    713,777

    Tucson, Arizona

    7

    $1,467

    $762,974,000

    14

    520,116

    Fort Worth, Texas

    6

    $1,523

    $1,128,967,000

    8

    741,206

    Houston, Texas

    6

    $1,533

    $3,218,700,000

    1

    2,099,451

    San Diego, California

    5

    $1,712

    $2,237,749,000

    11

    1,307,402

    Austin, Texas

    5

    $1,732

    $1,368,801,000

    4

    790,390

    Omaha, Nebraska

    4

    $1,990

    $813,700,000

    1

    408,958

    Seattle, Washington

    3

    $2,134

    $1,298,585,000

    10

    608,660

    San Jose, California

    3

    $2,154

    $2,037,241,000

    3

    945,942

    Baltimore, Maryland

    3

    $2,332

    $1,448,265,000

    3

    620,961

    Phoenix, Arizona

    2

    $2,410

    $3,483,279,000

    8

    1,445,632

    Los Angeles, California

    2

    $2,594

    $9,837,807,000

    7

    3,792,621

    Virginia Beach, Virginia

    2

    $2,877

    $1,260,282,446

    8

    437,994

    Portland, Oregon

    1

    $4,680

    $2,731,902,921

    1

    583,776

    Atlanta, Georgia

    1

    $4,778

    $2,006,917,000

    21

    420,003

    Boston, Massachusetts

    1

    $5,063

    $3,126,710,000

    2

    617,594

    Chicago, Illinois

    1

    $6,296

    $16,972,407,000

    1

    2,695,598

    Jacksonville, Florida

    1

    $3,293

    $2,705,734,000

    3

    821,784

    Oakland, California

    1

    $3,455

    $1,349,842,956

    7

    390,724