US pension shortfalls will fuel localised inequality

Subject

State and municipal pensions in the United States.

Significance

Losses from the 2008-09 financial crisis, mismanagement and insufficient annual allocations have led to a severe fiscal shortfall for a group of municipalities and states. However, changes to pension schemes are politically difficult for policymakers to achieve, given the clout of public sector unions.

Impacts

• Firms may relocate or forgo investment to avoid future pension-driven tax increases.
• Republicans will play to their non-urban base by attacking the benefits of public sector employees.
• Post-COP21 demand for low-carbon investments is likely to complicate pension managers' search for returns.
• The US urban-suburban-rural divide poses greater difficulties for the Democratic Party than for Republicans.