Last week Detroit filed for bankruptcy, the largest municipal bankruptcy filing in U.S. history. According to the filing, the city is $18 billion in debt and owes $3.5 billion to city employees in unfunded pension and health care liabilities.
None of this is surprising, considering that Detroit is the originator of employer-sponsored health insurance, the most liberal metropolis in the country, hasn’t elected a Republican mayor since Eisenhower was president and hasn’t elected a Republican city council member since Nixon’s first term. So naturally, Republican policies are responsible for Detroit’s woes.
Regardless, many commentators have tossed around various explanations for Detroit’s problems in the days since the filing. Among these theories are residential and business flight to the suburbs, lost manufacturing, auto plants closing, mismanagement in government, segregation and the recession.
I’ve noticed a curious thread running through the explanations of most of these commentators, however – namely the suggestion that no one is at fault for what happened in Detroit, or that everyone is at fault or that it doesn’t matter who’s at fault because all we can do now is move forward.
Liberal New York Times columnist Paul Krugman expressed this passive theory in a recent column, noting that “Detroit does seem to have had especially bad governance, but for the most part the city was just an innocent victim of market forces,” he wrote.
But something is clearly at fault for one of the biggest components of the city’s budget shortfall, and that is the city’s pension system, which offers guaranteed retirement income and health care benefits to recipients, no matter how expensive their medical care.
On Friday, a state judge ruled that the bankruptcy filing was unconstitutional because it violated municipal employee contracts, however that was overturned by a federal judge on Wednesday.
Nonetheless, where does that exist in the private sector these days? And why do municipal employees — some of whom perform dangerous jobs, but many of whom sit at library checkout desks or hospital reception counters all day — think they deserve such privilege?
For one answer, see the comments of 65-year-old Michael Wells, a plaintiff in a city union-sponsored lawsuit against Detroit’s bankruptcy, in The New York Times.
“He said he viewed the pension as part of the overall pay he was promised. ‘It’s deferred income’.” Wells told the Times. “‘Had I not had a pension, perhaps I would have gotten several dollars an hour more and that would be O.K. I would have taken that money and invested it in some kind of mutual fund or stock’.”
That last sentence is the key to it all: Because he was relying on government to fund his retirement, Wells didn’t do an ounce of financial planning. And sadly he’s not alone – hundreds of thousands of other municipal workers in Detroit put similar faith in their local government, and now find themselves in the same predicament.
