The list of distressed or troubled issuers continues to grow: Stockton, Vallejo, Detroit, Harrisburg, Chicago, Illinois, Birmingham, and others. The general storyline is a shrinking tax base in the face of rising retirement benefits. Not only are cash retirement expenses growing rapidly, they have been grossly understated in many cases. As the unfunded liability grows, the pressure rises to increase the level of annual contributions to a sustainable rate. This is a time when many states and cities are having conversations with “stakeholders”: creditors, guarantors, unions, retirees, about making adjustments.
Here's what Moody’s says: “Had the city fully funded the required pension contribution in 2012, operating reserves would have been entirely depleted. To fully fund the plans’ annual required contribution, Chicago’s administration would need to nearly double the property tax levy, or enact commensurate expenditure reductions. We recognize the political implications and practical considerations that would accompany a tax hike of this magnitude. ”