Dissolution Of Detroit Is A National Teaching Moment
Note: This commentary first appeared in Investor’s Business Daily.
After decades of civic negligence, Detroit’s bankruptcy has sparked soul-searching and hand-wringing among the financial and political classes. But such distress won’t be limited to Detroit for long.
Cities and states across our great nation face fiscal cliffs nearly as severe, all of which have a common source — government union leaders that benefit from fiscal malfeasance.
The story of fiscal profligacy and political corruption varies by city and state, but one unifying current runs through them all: Government union leaders exacerbated the problems by demanding unsustainable pensions and unaffordable health care benefits that resulted in higher taxes and government worker layoffs.
This entire exercise in municipal decadence could — and should — have been avoided. Now, in its aftermath, one question remains: Will other cities and states repeat the mistakes of Detroit? Or will they see beyond the city’s broken-down buildings to the racket government unions are running right under their own nose?
Government union leaders have backed taxpayers into a corner at every level of government from coast to coast. Case in point: While Detroit’s unfunded pension and health-care obligations comprise roughly $11 billion of the $18 billion it owes creditors, the total scope of state pension debt across the nation defies reason — that number clocks in at roughly $2.5 trillion.
Not too far away from Detroit, my home state of Pennsylvania faces a daunting official unfunded liability of its own, exceeding $47 billion. A 2010 law phases in the additional cost needed to pay off that debt — an additional $878 per year per family. That’s a mortgage payment for some or month’s worth of groceries and clothing for kids.
Other states are even worse off. According to an analysis by finance scholars Robert Novy-Marx and Joshua Rauh, New York’s pension fund debt totals $133 billion, while Illinois sits at $167 billion. The latter’s Gov. Pat Quinn recently proposed a desperate solution familiar to Detroiters — a federal bailout.
The situation is grim, yet California is even worse, more than doubling up Illinois at $370 billion.
While those numbers are legitimately staggering, that $2.5 trillion price tag only includes state pension funds. Pension obligations owed by individual cities and unfunded health-care costs owed by every local government in the country push the total even higher.
Individual stories of city debt are hair-raising. New York City is the worst, with $88.2 billion owed in health-care costs and $69.9 billion owed to pensioners. In both cases, the Big Apple’s debts actually put Detroit to shame — even when adjusted for the population difference between the two.
How did government union leaders help cause these crises? Detroit’s government union leaders demanded additional benefits and pay increases even as the city disintegrated around them, and more than half the population fled for greener pastures.
It was a similar fight in Wisconsin, when government union leaders opposed any changes to unaffordable pension and health-care costs in labor agreements — even though reforms saved taxpayers more than $2 billion and protected teachers from layoffs.
The good news is that some leaders are pushing back, like Gov. Tom Corbett in Pennsylvania, who has proposed lasting pension reform that’s fair to public employees and their neighbors who foot the bill. Responsible bills that would put the state on firmer fiscal footing are poised to move in the legislature later this year.
What remains to be seen is just how successful reformers such as Corbett will be. The crisis is clear, and the steps necessary to avoid the Detroit death spiral are evident. But government union leaders who stand to lose political clout continue to oppose reform.
These union leaders should look to their compatriots in the Motor City for a window into their own futures. There, a once-prosperous city lies in ruins, with massive layoffs of municipal employees and potential loss of pension benefits in bankruptcy.
In no place is it more obvious that the unyielding demands of government union leaders harm taxpayers — and eventually union workers themselves.
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Matthew J. Brouillette is president & CEO of the Commonwealth Foundation (CommonwealthFoundation.org).