Outsourced Human Resource Services Information Center

Why Cities and Counties Are Going Broke: Under Funded and Unfunded Liabilities

unfunded-municipality-liabilitiesMunicipalities’ Challenge

Drastic increases in retirement costs and retiree healthcare expenses for employees are a key issue that municipalities are now having to address. Unexpected increases from Defined Benefit Plans have caused companies and organizations to abandon these plans and go solely to a Defined Contribution plan.When Social Security costs are included, municipality payments for retirement benefits are actually over 20%.The average retirement plan for most industries is designed to be between 5% to 6% plus Social Security. Along with more than the double retirement costs (outside of Social Security) of today’s market, the significant cost of funding the post employee health benefits account has now become a tremendous financial burden that threatens the fiscal soundnessof every county and city in the Carolinas. Loss of financial confidence, forced headcount reduction and reduction in services to taxpayers are all likely results of the resulting financial squeeze. Currently, the political and economic climate makes it very difficult for municipalities to increase their tax base revenue to try to keep up with yearly increasing costs of employees that do not directly serve the public.

Curtis G. Tuck, II, Financial Analyst and President, CDS, Inc.