America's Three Biggest Cities Are Swimming in Employee Pension Debt (LA, Houston Not So Much)

EXCLUSIVE AND UPDATED

New York City is so saddled with obligations it can’t pay that officials there would have to stop adding news spending and every one of its taxpaying citizens would have to cough up an additional $61,700 to pay off all of Gotham’s outstanding debts.

That’s according to a new report being made public today by Truth-In-Accounting (TIA), the Illinois-based non-profit that advocates for greater transparency and stricter bookkeeping standards in government at all levels of the United States.

It likely comes as no surprise to most readers of Tapscott’s Copy Desk to learn that NYC is in the worst shape financially or that Chicago is next in line in TIA’s ranking of the five U.S. cities with the most bills they can’t pay. Chicago taxpayers would all be required to write checks for another $42,600 over what they’ve already paid, based on 2024 audit data, the latest available for the comparison.

There is an important qualifier here from TIA: Some cities, including New York City, include the finances of their public education systems in their financial accounting. Other cities, like Chicago, keep the school house books separately from those of the city. Depending on the city, whether or not such data is included can make a significant difference in the ranking. In Chicago, for instance, including the schools data would hike the added levies to all but match Gotham, at $61,250, according to TIA.

The 2026 ranking is the 10th such measure issued by TIA, but this year only the top five cities are included. That’s because in previous years the top five consistently accounted for 80 percent of all U.S. city debt.

Philadelphia ($17,000), Houston ($4,800) and Los Angeles ($1,300) fill out the remaining three slots.

The collective picture presented by the five mirrors the profoundly problematic financial conditions seen in the nation’s capital.

“The five cities had $144 billion in assets available to pay bills. Their debt, including unfunded pension and other post-employment benefits, totaled $384 billion, resulting in a $240 billion shortfall. Pension debt totaled $92 billion, and other post-employment benefits (OPEB), mainly retiree health care, totaled $112 billion.

“Across these five major cities, a common and pressing challenge persists: the long-term costs of pensions and retiree health care benefits continue to strain their financial health despite short-term improvements or varying circumstances. While investment gains have temporarily eased pension liabilities in cities like New York City and Houston, these gains remain unrealized and uncertain.

“Chicago exemplifies the consequences of chronic pension underfunding, with liabilities exceeding assets and recurring budget shortfalls. Even Los Angeles and Philadelphia, which have made progress in funding, face limitations in financial flexibility due to increased capital investments and rising expenses.”

At the federal level, the unfunded obligations are primarily a product of Social Security and Medicare benefits promised but without resources to fund them. Projected over a 75-year period and considering promised benefits and projected revenues, the present total is just under $80 trillion, according to the Cato Institute

But the total may well be hugely higher if the Penn Wharton Budget Model is correct, even as much as $162.7 trillion over a 100-year projection.

Interestingly, the top five cities in TIA’s present analysis show widely varying percentages of benefits they expect their spending policies and priorities to fully fund. Los Angeles requires 90 percent of a city employee’s promised benefit to be funded under current projections, while Houston comes in at 83 percent. New York City and Philadelphia, by contrast, fund only 62 and 61 percent, respectively.

Chicago? 24 percent. In other words, city employees can only count on one-fourth of the benefits they are being promised to actually be paid when the time comes. And considering the rest of Chicago’s sorry political leadership and budget management policies, there is probably solid ground to question that 24 percent, too.

“Chicago’s four major pension funds are severely underfunded, with only 25 cents set aside for every dollar promised. To add insult to injury, in 2025, the governor and state legislature expanded benefits for police and f irefighter Tier 2 pensions, leaving the city with even less money to cover future obligations. Retiree health benefits are provided on a payas-you-go basis and are structured at levels that have historically kept obligations relatively modest compared with other large cities,” according to TIA.

At the heart of these problems is the fact all five city governments offer pension programs that are classified as “defined benefits.” Under such a program, without proper funding, benefits are merely promises. The alternative approach is the “defined contribution” where the employee puts in a specified amount and receives benefits on the basis of the resulting investments.

The federal government’s Civil Service Retirement System (CSRA) was a defined benefit program, but it’s unfunded obligations grew so large that the Reagan administration somehow persuaded a Democrat-dominated Congress in 1984 to adopt a replacement, the “defined contribution” Federal Employees Retirement System (FERS), which now covers all but the oldest civil servants.

The solution, according to TIA, is to require state and local governments to adhere to the Employee Retirement Security Act of 1974 to protect private sector pension programs.

“Defined benefit plans inherently expose governments and taxpayers to financial risk because they guarantee specific retirement benefits regardless of investment performance, demographic changes, or economic conditions. Careful funding and long-term planning are essential. The technical nature of pension and retiree healthcare obligations makes them difficult for most elected officials and citizens to understand fully, yet taxpayers and beneficiaries have a right to protection from these risks.

“For this reason, TIA urges Congress to consider extending protections to state and local government employees and taxpayers based on [ERISA] … Enacted in 1974, ERISA established accountability, transparency, and worker protections. It requires employers to meet strict funding, reporting, and fiduciary standards to safeguard workers’ benefits. State and local government plans currently lack equivalent safeguards, leaving public employees and taxpayers exposed to underfunded and opaque obligations.

“Applying ERISA style protections to public sector plans would ensure that pensions and retiree health benefits are responsibly funded, transparently managed, and insulated from political pressures, ultimately shielding taxpayers from financial risk and fostering a more sustainable and equitable public retirement system.”