Policy: Labor

Will Cincinnati go bankrupt next?

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Beltway Confidential,Labor unions,Labor,Detroit,Ohio,Ashe Schow,Detroit Bankruptcy

Cincinnati has similar financial problems to those that caused Detroit to fall and might soon join the Motor City in bankruptcy, according to Katie Gage, executive director of the Workforce Fairness Institute.

Like Detroit, Cincinnati is suffering from underfunded municipal employee pensions – which actuaries estimate may be underfunded by as much as 40 percent.

In dollar terms, the city has $6 for every $10 it owes in pensions. That ratio will become $4 for every $10 by 2042 if Cincinnati continues on its current path, according to the Cincinnati Business Courier.

If that happens, the city will be in as bad shape as the state of Illinois, which currently has the worst pension-funding ratio in America.

Cincinnati currently has $862 million in unfunded liabilities. In early September, the Cincinnati Retirement System board began considering leaving the pension business and moving city employees into the Ohio Public Employees Retirement System. That would shift the unfunded liability burden from city taxpayers to state taxpayers.

But there is a hitch: Moving city employees into OPERS would require Cincinnati to improve the current pension system, which is the problem to begin with. City officials floated the idea of OPERS in the hopes of getting more taxpayer funds injected into the current pension system.

Cincinnati officials are more open to solving their city's financial situation than was the case with Detroit, and has limited the growth of retirees' pensions. The city also froze firefighter salaries.

The main obstacles to true reform in Cincinnati are the public employee unions, according to Gage. “Big Labor has waged an aggressive campaign to stymie any serious fiscal reforms in various American cities, distorting the truth whenever necessary to suit their needs and bankrolling the campaign of politicians who will be most likely to tell them what they want to hear,” she said.

Public employee pensions typically are more generous than private sector pensions. The unions' usual solution to unfunded liabilities is for increased taxpayer funding – tax hikes.

The tax hikes drive businesses and families out of the city to the suburbs and other cities and states, making it even more difficult to fix the unfunded liability. It's a kind of municipal death spiral.

The situation in Cincinnati has become so bad that credit rating agency Moody’s downgraded the city’s outlook to negative in July.

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