Mayors Struggle Against Municipal Bankruptcy–Part II
In our last post, we began discussing the recent meeting of the U.S. Conference of Mayors in Washington, and the financial struggles many municipalities are facing nationwide.
Part of the reason for this is that since the recession, property taxes-a major source of income-have been adversely affected by the continued weakness of the housing market. Funding from states government has also been decreasing and the federal stimulus plan that was designed to give the economy a boost is now running out.
According to Chicago Mayor Richard Daley, many cities are facing “serious financial problems,” and need to look into reforming pension programs, cutting operation costs, and attracting foreign investments. He also emphasized that city governments must become smaller and more efficient if they are to avoid bankruptcy in the coming years.
One strong theme of the conference was the necessity of avoiding bankruptcy. as one available means of doing so, municipal pension reform was a key area on which the conference focused. Los Angeles Mayor Antonio Villaraigosa, president of the Conference of Mayors, announced that his city council is planning on some form of civilian pension reform for new employees, as are many other California cities.
According to the Los Angeles Mayor, the city’s pension plans aren’t sustainable. Many U.S. cities are experiencing the same thing. One major reason for this is that many of the investment funds that took major hits during the financial crisis were not adequately funded to be able to fulfill promises made to retired employees.
According to a report released by the City of Chicago last April, the pension funding ration decreased from 83 percent in 2000 to 43 percent at the end of 2009. Chicago would need roughly $660 million per year for 50 years in order place get its funded ratio up to 90%.
Despite the difficulties they face, the Mayor’s conference was firm that pension reform is an important way many cities will be able to avoid bankruptcy in the coming years.
Source: Reuters, “As US cities struggle, mayors say no to bankruptcy,” Lisa Lambert, 19 Jan 2011.
Mayors Struggle Against Municipal Bankruptcy–Part II
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