Pensions challenge city's once and future leaders
Last month, the Institute for Truth in Accounting has released its first state of the summary report of the City of Bridgeport for finance. This was done at the request of the Bridgeport-based Initiative Comeback America (CAI), which I founded and heads.
This first report showed that, like many cities, Bridgeport has huge unfunded pension liabilities that far exceed its liabilities recorded. Specifically, the city of unfunded pension obligations and retiree health totaled nearly $ 1.1 billion of total liabilities and unfunded obligations figure of nearly $ 1.4 billion from June 30, 2010.This total is approximately $ 27,100 per household Bridgeport.
Too often, public pensions and health obligations are much more generous than the private sector. Moreover, government budgets are done on a cash rather than accrual accounting, and government pension obligations are not subject to the standards the same funding as private sector plans. Consequently, pension contributions are often recommended when elected not seek to "balance the budget", "cut spending" or failing to "raise taxes."
In fact, contrary to what many politicians, these deferred contributions represent increases in future expenditures that will come with additional interest payments. In addition, the redesign of the plans away, future taxpayers will likely incur additional tax burden to pay the promised benefits.
In the case of Bridgeport, its four pension plans were funded by an average of 68 percent as of June 30, 2010, based on a rate of 8 to 8.25 percent per year of return assumptions.
In reality, this is a very optimistic scenario is unlikely to be achieved.Therefore, the actual amount of underfunding is actually much higher based on more realistic rate of return assumptions. For example, based on demographics and a more reasonable plan typical 6 percent rate of return assumption, the average percentage of actual financing plan would be around 50-55 percent, rather than the rate of 68 percent announced.