"Governmental credit quality is a byproduct of both the underlying economy and the cumulative decisions made by officials and citizens over time. The potential for severe strain tends to increase when both the economy and fiscal management break down, which can become even more likely if huge governmental liabilities loom in the backdrop."
The second installment of the series, Assessing the Credit Quality of America's Cities, examines The Achilles Heel to the Fiscal Condition of Cities - Public Pensions.
Using Merritt data derived from city Comprehensive Annual Financial Reports, this article examines the funding levels of today's public pension systems, specific plans to monitor, the "numbers behind the numbers," and how regulatory changes impact public pension reporting.
"There are multiple reasons that pension underfunding has become a significant problem for many cities," says Richard A. Ciccarone, President and Chief Executive Officer of Merritt Research Services and Co-Publisher of MuniNet Guide. "Pension funds should be in a good position to pay 100% of the future benefit payments they owe to their retirees as long as all scheduled actuarial contributions are made, investment returns meet projected results and payouts to retirees are in line with forecasts.
Unfortunately, the theory behind actuarial forecasts has proven to be easier said than done as assumptions used to predict the future often prove to be mistaken."