Atlanta considers tax increases to fill growing funding gap for pensions

Unfunded pensions are a growing problem around the country for local and state governments. The Atlanta-Journal Constitution reports that the city of Atlanta in Georgia has set up a Pension Reform Panel to figure out how to solve its own funding gap. This panel is considering increasing property and/or sales taxes as part of the solution.

Atlanta faces a very large problem:

“More than 20 percent of city spending is devoted to pensions. The city is spending nearly as much money on pensions as it does for its police department. At its current pace, the mayor told reporters Monday, it will be tougher for the city to provide services such as fixing sidewalks and adding more parks and greenspace…

…The amount of money Atlanta spends on pensions has more than doubled since 2001. That year, the city spent $55 million; it is expected to spend about $125 million on pensions in the 12-month period that ends June 30. By 2015, the annual cost to the city is estimated at $160 million.”

Like so many local and state governments, Atlanta increased pensions during times of relative prosperity with no real plan for funding in the future and optimistic assumptions about returns for investments.

“Atlanta’s three pension plans covering police, firefighters and general employees have long been underfunded. In 2001 and 2005, the City Council approved several changes to increase retirement benefits. Those changes, however, were made without determining a way to pay for them.

Meanwhile, the three pension funds have not earned as much as anticipated. As a result, the plans are about 53 percent funded…The city has an unfunded liability of about $1.5 billion…In 2001, the unfunded liability was $321 million.”

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