St. Louis and Kansas City’s financial ratings plummet due to pension liabilities, says report
Missouri’s Largest Cities Receive Poor Ratings Due to Pension Liabilities
In a report by Truth in Accounting, a nonprofit organization dedicated to assessing the fiscal health of governments, pension liabilities were identified as a contributing factor to the poor ratings of Missouri’s largest cities.
Kansas City and St. Louis both received ”D” grades, ranking 62nd and 64th out of 75 cities, respectively. The report revealed that 29% of cities received “D” grades, indicating taxpayer burdens ranging from $5,000 to $20,000.
Examining the Fiscal Health of Cities
The methodology used by Truth in Accounting involves analyzing the cities’ bills, the number of taxpayers, and determining whether there is a burden or surplus for each. Governments that meet their balanced budget requirements receive grades of “A” or “B,” while a “C” is given for passing if it comes close. Grades of ”D” and ”F” are assigned when the budget is unbalanced and significant taxpayer burdens exist.
The report emphasizes the importance of overfunding pension plans during market upturns to ensure they can withstand market downturns. However, it warns that elected officials may view temporary overfunding as an opportunity to reduce pension contributions or increase benefits.
Kansas City’s Financial Condition and Burden
According to the report, Kansas City’s financial condition declined by $84.2 million, resulting in a burden of $9,000 per taxpayer. The city had only 76 cents for every dollar of promised pension benefits and no funds reserved for promised retiree health care benefits.
The report cautions that Kansas City’s financial health could worsen due to continued market fluctuations, changing investment values, decreased COVID relief funds, and a stabilizing economy that may slow tax collections.
St. Louis’ Burden and Misleading Improvement
St. Louis faced a burden of $11,000 per taxpayer. The report highlights that the city’s improvement from last year’s ranking of 69th is deceiving because it used outdated pension data. St. Louis has 87 cents for every dollar of pension benefits but lacks funds for retiree health care benefits.
The report notes that if St. Louis’ pension investments experienced a significant decrease similar to other cities in 2022, the city’s pension debt would be even higher.
Top and Bottom Ratings
Washington, D.C., received the top rating, being the only city with an “A” grade and a surplus of $10,700 per taxpayer. On the other hand, New York City ranked 75th with a burden of $61,800 per taxpayer, as its financial condition declined by $6.1 billion in 2022.
Truth In Accounting emphasizes that all 75 rated cities have balanced budget policies in place to prevent future financial difficulties and enhance accountability. These requirements aim to prevent elected officials from shifting the burden of paying for current-year services onto future-year taxpayers and accumulating unsustainable debt.
What immediate actions should be taken to mitigate the burden of pension liabilities on taxpayers
Swings in order to mitigate the impact on taxpayers. It states that Missouri’s largest cities have not properly accounted for pension liabilities, resulting in a significant burden on taxpayers.
The Impact of Pension Liabilities
Pension liabilities refer to the obligations that a government has to pay its retired employees. These liabilities accumulate over time as employees contribute a portion of their salaries to a pension fund, which is then invested to generate returns. However, if the pension fund’s investments do not perform well or if the government does not contribute enough to the fund, a shortfall can occur. This shortfall becomes a liability that the government must fulfill.
Missouri’s largest cities, Kansas City and St. Louis, have both struggled with pension liabilities. The report by Truth in Accounting highlights that the unfunded pension liabilities in these cities amount to $1.5 billion for Kansas City and $1.7 billion for St. Louis. These significant obligations have contributed to the poor ratings received by the cities, as they indicate an unbalanced budget and a burden for taxpayers.
The Root Causes of Pension Liabilities
Several factors contribute to the pension liabilities in Kansas City and St. Louis. One of the main causes is the cities’ failure to make sufficient contributions to the pension funds. These contributions are necessary to ensure the funds have enough money to pay the promised benefits to retired employees. However, due to budget constraints or other financial priorities, the cities have not prioritized these contributions.
Moreover, economic downturns and market fluctuations have also played a role in the accumulation of pension liabilities. When the pension fund’s investments underperform or when there are significant market downturns, the fund’s assets decrease, and the liabilities increase. This further exacerbates the burden on taxpayers, as they have to cover the shortfall.
The Need for Immediate Action
The poor ratings received by Kansas City and St. Louis should serve as a wake-up call for policymakers and city officials. Immediate action is needed to address the pension liabilities and alleviate the burden on taxpayers.
One possible solution is for the cities to increase their contributions to the pension funds. By prioritizing these payments and ensuring they are sufficient, the cities can gradually reduce the unfunded liabilities. This would require careful budget planning and potentially reallocating funds from other areas to meet the pension obligations.
Another approach is to explore alternative pension models, such as defined contribution plans, which place the responsibility of retirement savings on the employees rather than the government. These plans can help mitigate the risk of accumulating large pension liabilities and provide more flexibility for both the employees and the government.
A Call for Transparency and Accountability
Transparency and accountability are crucial in addressing the pension liabilities in Missouri’s largest cities. It is essential for city officials to provide accurate and up-to-date information about the pension funds’ financial health and the steps being taken to address the liabilities. This information should be easily accessible to the public, allowing taxpayers to understand the impact on their financial well-being.
Furthermore, regular audits and independent assessments, such as the report by Truth in Accounting, can help identify areas of improvement and ensure that the cities are on track to alleviate the burden of pension liabilities. These assessments should be taken seriously, and their recommendations should be implemented promptly.
A Path Towards Fiscal Stability
Addressing the pension liabilities in Missouri’s largest cities is a complex task that requires collaboration between city officials, policymakers, and the public. By taking immediate action, increasing contributions, exploring alternative pension models, and ensuring transparency and accountability, the cities can work towards fiscal stability and alleviate the burden on taxpayers.
Furthermore, this issue should serve as a reminder for other cities and governments across the country to closely monitor and address their pension liabilities. By proactively managing these obligations, governments can ensure the long-term financial health of their cities and provide fiscal stability for their residents.
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