Pension obligations have hit the point where it is impossible for state and local governments to pay for them. While some people think  that a state can’t default because they can’t legally declare bankruptcy these people are assuming that things are just not going to get so bad that the states can’t pay.

Your money is not safe invested in any major city or blue state. I don’t hold any munis but if I had to I would look for a fiscally conservative state who had a growing population and a government that had no big plans they were looking to fund that can lose money and no outrageous pension obligations. Since Robistahn doesn’t exist I won’t buy any.

From CNBC:

Big US cities could be squeezed by unfunded public pensions as they and counties face a $574 billion funding gap, a study to be released on Tuesday shows.

The gap at the municipal level would be in addition to $3,000 billion in unfunded liabilities already estimated for state-run pensions, according to research from the Kellogg School of Management at Northwestern University and the University of Rochester.

“What is yet to be seen is how this burden will be distributed between state and local governments and whether the federal government will be called upon for bail-outs,” said Joshua Rauh of the Kellogg School.

The financial demands of unfunded pension promises come as state and local governments grapple with years of falling tax revenue related to the recession.

The combination has raised concern that defaults, which are historically rare in the $2,800 billion municipal bond market where local governments obtain money, could now rise.

How bad are things? This bad:

Current pension assets for plans sponsored by Philadelphia can only pay for promised benefits through 2015, while Boston and Chicago would deplete their existing funds by 2019.

Cincinnati, Jacksonville, Florida and St Paul have current pension assets that can only pay for promised benefits through 2020.

Local governments use unique accounting methods that many, such as Mr Rauh, believe understate obligations. Based on his estimates, which use US Treasuries as the benchmark, each household already owes an average of $14,165 to current and former municipal public employees in the 50 cities and counties studied.

“Philadelphia has the most immediate cause for concern, as the city can pay existing promises with existing assets only through 2015,” Mr Rauh said, assuming an 8 percent annualized return, the most common benchmark for municipal plans.

In New York City, San Francisco and Boston the total is more than $30,000 a household and, in Chicago, it tops $40,000.

Taxpayers in these areas risk not only local tax increases and service cuts to pay for benefits, but potentially some of the bill for the $3,000 billion unfunded obligations at the state level, the researchers say.

“The fact that there is such a large burden of public employee pensions concentrated in urban metropolitan areas threatens the long-run economic viability of these cities, as residents can potentially move elsewhere to escape the situation,” Mr Rauh said.

In other words these state and local obligations are going to cut into the ability to make cities livable by local governments. In a video embedded in the story people talk about New York in the 1970s and an example. A crime ridden semi-feral city with garbage strewn everywhere because the city couldn’t afford to pick it up. I remember in the 70s people being attacked by swarms of rats, in broad daylight. Death Wish was based on how horrible NYC was the city was essentially bankrupt.

Now imagine not just New York, but almost all major cities having to cut services to the point where trash is not being picked up, police are stretched to the point of breaking and welfare benefits are being paid with IOUs. Facing that hell on hearth do you think the government will honor it’s obligations to you?