"It's not about assigning blame, because, look, these numbers are staring us in the face," said Allan Fung, the mayor of Cranston, R.I., where the pension fund is only 16 percent funded and the city needs $270 million to meet its pension obligations. "It's a dire situation for us and for many cities and towns around the country. It's a recipe for disaster at the worst economic time possible."
Collectively, American municipalities face nearly $600 billion in unfunded pension obligations. The problem arose in many cities because local leaders for decades failed to properly fund retirement systems. Longer-living retirees and rising health-care costs drove costs higher.
Then came the economic downturn, in which investment losses decimated even relatively well-off pension funds. San Diego's unfunded pension liability surged from $1.3 billion in 2008 to $2.11 billion in 2009.
In Philadelphia, the annual pension costs are now calculated to be well over $500 million - up from $200 million a decade ago. The city's total annual budget is $3.5 billion, and it faces a gap of $4.5 billion between what is promised to workers and what is set aside to pay for those benefits.
Unions argue that workers aren't to blame for poor investments or past failures to fund pension systems. Anthony Martin, a Chicago police lieutenant and trustee of the city firefighters' public pension fund, said that he has seen records going back to 1877 showing that the retirement system was underfunded even then.
"You have a dysfunction in government that is hard to overcome," Martin said. "Year after year they kicked the can down the road."
There's some evidence that may be changing, however, as mayors find that they can no longer ignore mounting pension bills. Providence Mayor Angel Taveras successfully negotiated concessions with unions and retirees to shave $178 million off the city's future pension obligations. The city had faced $903 million in future pension costs, which Taveras said could force the city into bankruptcy.
The police union voted to accept the agreement, which will suspend pension increases and eliminate the practice of giving some workers compounded 5 or 6 percent pension increases annually. The negotiated settlement is among the first of its kind in the country, and could foreshadow similar deals in other cities.
Bankruptcy is another option - though one officials are loathe to consider.
The state-appointed receiver in charge of Central Falls, R.I., filed for bankruptcy on behalf of the city in 2011. He went on to slash pensions for retirees by up to 55 percent. The retirees had refused to agree to take voluntary cuts, though the receiver warned that he was prepared to take unilateral action. He said that the retirees' choice was between a "haircut or a beheading."
"They stuck it to us," said Bruce Ogni, who retired as a captain from the Central Falls Police Department. His $41,000 pension was cut to $29,000. "We were told if we didn't take the deal they might stop the pensions altogether. We took the hit for other people's mistakes."
