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Meredith Whitney: Municipal Pension Woes May Pit 'Neighbor Against Neighbor'

By Dan Weil   |   Friday, 22 Nov 2013 07:26 AM

Underfunded pension plans are causing widespread problems for cities and states around the country.

One issue is that as pension payments eat up a growing share of state and municipal revenue, local government services face reductions.

"This is happening in too many cities and towns across America, where social services, because they can be cut, are cut," financial analyst Meredith Whitney, CEO of Meredith Whitney Advisory Group, told CNBC.

Editor’s Note:
Obama Donor Banned This Message (Shocking)

"Because pensions and bonds constitutionally cannot be cut, they're the protected class. I think you're going to see a real issue of neighbor against neighbor on these very issues."

Illinois faces a large pension shortfall, and pensions now gobble up 20 percent of the state's revenue, according to CNBC.

The pension mess doesn't lend itself to easy solutions, experts say. "Moving pension plans is like steering a blimp: you turn the wheel and you go six miles before it starts to turn," John Tuohy, deputy treasurer of Arlington County, Va. and chairman of the Government Finance Officers Association's pension committee, told CNBC.

"In the political process, that kind of patience is very difficult."

The median pension-funding ratio totaled 69 percent last year, down from almost 83 percent in 2007, according to Bloomberg.

"A lot of states are not making their full contributions," John Carlson, vice president of research at the Cleveland Federal Reserve Bank, told Bloomberg. "When they're underfunded, they're supposed to make additional contributions to close the gap."

Editor’s Note:
Obama Donor Banned This Message (Shocking)

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Illinois Evading Pension Fix Leads State Gaps Wider

RealClearMarkets: The Bull's-Eye for Govt Pension Shortfalls Is on Taxpayers

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