Mayors to U.S. Treasury: We Need Pension Help from Bailout

November 14, 2008 ( - The federal government's giant financial bailout designed to combat the nation's financial crisis took on a new tenor Friday as three big-city mayors called on officials to use some of the money to help local governments pay their pension costs.

That request came in a letter from MayorsMichael Nutter of Philadelphia, Shirley Franklin of Atlanta, and Phil Gordon of Phoenix to U.S. Treasury Secretary Henry Paulson delivered by Nutter during a Washington trip, according to the Associated Press.With their employees – including police officers, firefighters and others depending on them for pensions – the city leaders asserted they were feeling the effects of the economic slowdown “most acutely and directly.”

One of the uses for the bailout money, the mayors suggested to Paulson in the letter, was to help cities cover their unfunded pension accrued actuarial liability (UAAL). “We propose the Treasury create a lending facility whereby local governments would borrow their (UAAL) for their (pension) system from the U.S government and repay that debt and the rate of (a) 30-year Treasury plus 100 basis points,” the letter said.

Nutter, Franklin and Gordon went on: “If this proposal were implemented, cities would be able to fully fund their pension systems. The credit crisis has all but eliminated the ability to borrow in the private capital markets for this purpose, a substantial market failure that has almost no attention.”

Nutter said Philadelphia would save $347 over the next four years with the availability of such lending, which he said “would then be used to preserve services and spending, providing an immediate boost to city and state economies in this recession.” He said the Philadelphia pension system lost more than $650 million over the first nine months of 2008, which he said boosted the city’s projected budget costs for pension payments by $300 million between FY 2010 and FY 2013.   

“I want to make sure that cities and metro areas are at the table (in the bailout), that their voices are being heard, that our challenges and problems are well understood, so that we can get relief,” Nutter said.

They also want $50 billion in loans for investment in infrastructure, and additional one-year loans to cities unable to borrow cash because of the tight credit markets.

Last week, according to the Associated Press, Nutter announced Philadelphia would be laying off city employees, cutting salaries, closing most of its swimming pools, and shutting nearly a dozen library branches to cope with a $108 million shortfall this year caused by lower business and real estate tax revenue. The deficit could grow to a total of $1 billion over five years.

Phoenix's budget deficit is at least $200 million and could reach $250 million by June if tax revenues keep sliding. The figure represents up to 22% of the city's $1.2 billion general fund, which pays for most city services.

Franklin said this week that city employees in Atlanta will have their hours and pay cut by 10% each week. The cuts are being made to help the city weather an expected budget shortfall of $50 million to $60 million, the Associated Press reported.

President-elect Barack Obama has also called for some sort of aid to state and local governments so they don't have to raise taxes or lay off workers while the federal government is trying to revive the economy, but he hasn't proposed or endorsed a specific aid plan, the Associated Press said.

A copy of the Mayors' Paulson letter is available here .