Not a list you want to be on: Baton Rouge ranks in top 5 overleveraged US cities

    Baton Rouge has one of the heaviest debt loads relative to its revenues of any municipality in the U.S., according to a recent report from JP Morgan Chase. According to the study, some 52% of city-parish dollars are obligated to pay for unfunded pension liabilities, retiree healthcare costs, and general bonded debt for programs like the city-parish’s sewer system upgrade.

    “U.S. cities and counties have substantially more debt relative to their revenues than U.S. states,” the report says. “While most have several years to undertake remediation measures, some very difficult choices will be required in order for them to meet all of their future obligations.”

    The choices outlined in the report for Baton Rouge are stark. Over the next 30 years, the city-parish, in a worst-case scenario, will have to either increases taxes by 24%, cut non-pension spending by 20% or increase worker contributions to the system by 525% in order to meet its obligations.

    Without any remediation, Baton Rouge would have to average at least an 8% return on its investments over the next decade, the report says.

    Baton Rouge is not alone in facing a mountain of underfunded debt. Topping the list of overleveraged cities is Chicago, where 62% of general fund dollars go to pare down debt. Houston, Atlanta and Pittsburgh, like Baton Rouge, have debt ratios of 52%.

    City-parish Finance Director Marsha Hanlon says she is still trying to verify the data in the report, but the findings come as no surprise. Though Hanlon says she does not know exactly what numbers JP Morgan Chase used to arrive at its figures nor even which year the data was from, the city’s debt problem has long been recognized.

    “This is nothing new,” she says. “I’ve been preaching this for years. We need to make changes to the way we do things.”

    The report calculated a municipality’s debt by totaling its unfunded obligations related to pensions and retiree health care along with bonded, leases and other obligations supported by the general fund. Unfunded retiree health care and unfunded pension benefits represent about two-thirds of the debt load cities face, data shows.  

    The report gives Baton Rouge—the only Louisiana city on the list—a debt risk indicator of 90, which is based on its debt ratio and other factors that mitigate or compound fiscal challenges, such as revenues and population growth. Only four cities have higher debt risk indicators than Baton Rouge—Chicago, Houston, Austin and Dallas.

    JP Morgan Chase says it tracks cities’ debt loads because it manages $70 billion in U.S. municipal bonds and is therefore keenly interested in the credit risk of municipalities.

    —Stephanie Riegel

    View Comments