Big City Pensions and the Future of Urban America

New York, NY – Americans are slow to return to urban cores in the post-pandemic realignment, hamstringing city revenues in both red and blue states. At the same time, public pension costs continue to rise and cannot be easily reduced. In a new Manhattan Institute issue brief, senior fellow Daniel DiSalvo and policy analyst Jordan McGillis quantify the budgetary tension facing America’s 10 largest cities and offer avenues for reform. 

To balance their budgets, cities have historically opted for two options: increasing revenue through higher taxes or decreasing spending through cutting public services. Dealing with pension costs through either of those options risks pushing more citizens and businesses away from cities, creating “urban doom loops” where deteriorating urban conditions fuel outmigration, which in turn strains urban conditions, feeding disorder and decay. 

DiSalvo and McGillis examine how superstar cities, from San Diego to New York, have approached the challenge of balancing budgets while covering pension costs, and make recommendations to overcome it.

These include:

• Do more with less: Identifying efficiency improvements – such as embracing artificial intelligence to optimize or automate routine tasks – will allow cities to save on human capital without handicapping public services. 
• Reform pension statutes: Since pension benefits are determined by the state, city officials should petition state governments to change pension statutes to allow for more defined-contribution options for new hires. These give employees more control over their future wealth and city governments more certainty over spending.
• New hires, new pension formulas: City leaders should collaborate with state lawmakers to alter city pension formulas, requiring new hires to work for more years before earning a full pension. New York did this for police officers in the wake of the 2008 financial crisis, resulting in important long-term savings.

Cities examined in the report include New York, Los Angeles, Chicago, Houston, Phoenix, Philadelphia, San Antonio, San Diego, Dallas, and San Jose.

Read the full issue brief here.