January 30, 2014
Morningstar Municipal Credit Research released a report this month comparing aggregate per capita pension liabilities among the 25 most populous cities in the United States. This means Morningstar analysts added overlapping governments’ pension liabilities to those of the cities themselves to try to get an idea of the total pension burden faced by residents of each of the cities. The Civic Federation performs a similar analysis for the City of Chicago in our annual Status of Local Pensions reports. The Federation, however, includes additional overlapping governments, leading to a higher per capita aggregate pension liability than the one reported in the Morningstar report.
The FY2012 aggregate unfunded liability per capita calculated by Morningstar for the City of Chicago was $18,596, nearly twice that of the next highest city, New York, which had an aggregate liability of $9,842.[1] However, if just the cities’ own funds were included in the analysis, Morningstar’s report showed that New York had the highest liability per capita of the 25 cities studied at $8,726 with Chicago next at $7,149.[2] An additional finding of the report was that the median aggregate unfunded actuarial accrued liability (UAAL) for the 25 most populous cities in the United States was $3,550.[3]
The following table shows the per capita UAAL and aggregate per capita UAAL for the 25 cities.
The Civic Federation’s calculation of the FY2012 aggregate pension liability per capita for residents of Chicago is higher than that calculated by Morningstar because the Federation includes additional overlapping local governments to those included in Morningstar’s report. Morningstar included the total per capita unfunded liability for:
- Four City of Chicago pension funds (Police, Fire, Municipal, Laborers’);
- Five State of Illinois pension funds (State employees, State university employees, downstate and suburban teachers, General Assembly and Judges systems);
- Chicago Teachers Pension Fund; and
- Cook County pension fund.
In our analysis, the Civic Federation adds the following local governments that also overlap the City of Chicago:
- Chicago Transit Authority pension fund;
- Metropolitan Water Reclamation District of Greater Chicago (MWRD) pension fund;
- Forest Preserve District of Cook County pension fund; and
- Chicago Park District pension fund.
The Federation’s calculation of the total aggregate unfunded actuarial accrued liability per capita for each of the 2.7 million residents of Chicago is $19,579.
Another difference between the Morningstar report and the Civic Federation’s own analysis is that the Federation includes Other Post Employment Benefits (OPEB) unfunded liabilities in its calculation of a pension fund’s unfunded liability if the pension fund itself is partially or wholly responsible for funding of retiree healthcare benefits. Thus, the Civic Federation’s calculation of the City of Chicago’s per capita unfunded liability for its own four pension funds is higher than Morningstar’s at $7,281 instead of $7,149. The following chart shows the Civic Federation’s calculation of the FY2012 unfunded liability per capita for residents of Chicago.
When comparing Chicago and New York, it is also interesting to evaluate precisely what pension funds are considered “city funds.” New York, which includes the public school system as a part of the municipal government, administers and funds two pension systems for teachers and Board of Education employees in addition to the municipal employees’, Police and Fire Department funds.
In Chicago, however, a separate unit of government, the Chicago Public Schools (CPS), manages public education within the city. The Chicago Public Schools funds its own separate pension system for Chicago teachers, the Chicago Teachers’ Pension Fund.[4] So while New York City has a higher per capita unfunded liability for its own five funds, if the unfunded liability per capita for the Chicago Teachers Pension Fund is added to those of the four City funds for comparative purposes, the Chicago per capita number ends up being higher at $10,220 than the per capita UAAL for the five New York funds of $9,842.
[1] The latest numbers available for New York City’s five pension funds are from its FY2011 actuarial valuation.
[2] The Civic Federation calculates a slightly higher number for the FY2012 per capita unfunded liabilities for the four City of Chicago pension funds of $7,281 because the Federation includes unfunded other post employment benefits (OPEB) liabilities in its calculation of total liabilities. This follows the City of Chicago’s own methodology.
[3] The Morningstar report also includes unfunded pension liabilities in Puerto Rico. The Civic Federation omitted Puerto Rico from the following table for ease of explanation.
[4] Non-teacher CPS employees are members of one of the four City of Chicago pension funds, the Municipal fund. CPS employees and retirees make up about half of the Municipal fund’s membership.