(Bloomberg) -- The bankruptcy of Detroit, which may cut retirement benefits of 30,000 current and former city workers, is causing investors to scrutinize billion-dollar shortfalls in government pensions in other parts of the country.

Chicago, Philadelphia, New York, Phoenix and Jacksonville, Fla., are among large cities that had 60% or less of what they need in their retirement systems to cover promised benefits, according to data compiled by Bloomberg. At least 29 public plans in 16 states are less than two-thirds funded, according to Boston College’s Center for Retirement Research.

The Wall Street credit crisis that peaked in 2008 sent stocks tumbling and cut the value of pension assets, while most plans count on annual investment gains of about 8%. The losses are forcing governments to find ways to cut benefits and pump more money into their retirement systems, leading to disputes between unions and political leaders.

Detroit “brings that concern to the forefront again,” says Matt Dalton, who helps manage $1.6 billion of munis at Belle Haven Investments Inc. in White Plains, N.Y. Pension obligations are among “the most stressful situation for the state and cities.”

Concern that localities aren’t doing enough to ensure pensions and related benefits are funded has led munis to weaken compared with Treasuries, says David Litvack, head of tax-exempt fixed income research at New York-based U.S. Trust, a unit of Bank of America Corp.

Growing ‘stress’

“The market thinks the risk is going up,” Litvack says. “The incidence of stress is growing.”

Detroit last week filed the biggest municipal bankruptcy in U.S. history because of its inability to meet $18 billion in debt, setting off a court fight with unions seeking to stop the city from cutting benefits protected by Michigan law.

Emergency Manager Kevyn Orr, appointed by Republican Gov. Rick Snyder, estimates that the city owes $3.5 billion to its retirement funds, which have been selling assets to pay benefits. Pension overseers dispute Orr’s figures and say the deficit is about $700 million, a difference based on competing assumptions of fund investment earnings.

Population drop

The bankruptcy stemmed from a decades-long slide that cut the city’s population by more than half, and years of borrowing to cover $700 million in bills since 2007, along with retirement obligations that its pensions don’t have the cash to pay.

Deficits in public retirement plans are drawing attention from bond analysts. Moody’s Investors Service in April said it may cut the credit ratings of $12.5 billion of debt sold by 29 municipalities, including Minneapolis and Cincinnati, because of potential pension costs. This month, Moody’s lowered Chicago’s grade, citing the third-largest U.S. city’s $36 billion gap.

No large American city is facing the same depth of financial distress as Detroit. Its collapse provides an extreme example of what’s at risk for investors, workers and taxpayers if municipalities fail to fix their pensions.

“The underlying issue here is really the health of the city,” said Dean Baker, an economist with the Center for Economic and Policy Research in Washington. “You could say they didn’t put enough into their pension fund, which is certainly true. But that was really just a desperation measure for a city that was facing all sorts of really big problems. It was really symptomatic of a larger city decline.”

Read Thursday’s inBrief for more on troubled U.S. pensions, including how New York, Chicago and Philadelphia plan on paying their bills.

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