March 10 (Bloomberg) — Every time he eats out in his hometown, billionaire investor Warren Buffett helps pay for police and firefighters to retire.

Like everyone else who dines at a restaurant in Omaha, Nebraska, Buffett is charged a 2.5 percent tax that's used in part to defray $850 million in unfunded retirement expenses for city workers. The levy, in effect for more than three years, hasn't closed the gap. So the mayor is trying to persuade employees to accept lower retirement payments.

Omaha is a prime example of what Buffett, the 83-year-old chairman of Berkshire Hathaway Inc., described this month as a tapeworm threatening government finances. States and localities from California to New York are struggling with how to shore up pensions that are underfunded by at least $1 trillion, according to the Nelson A. Rockefeller Institute of Government in Albany, New York.