Detroit bankruptcy ignites discussions on affordable government pensions

News of Detroit filing for bankruptcy protections shook the financial and political worlds, but I felt their “surprise” at this revelation was hollow. After all, the Wall Street Journal re-affirmed what I had previously assumed: That Detroit’s demise has been long-coming.

The Journal recounted that “nearly 70% of parks have been closed since 2008, and four in 10 street lights don’t work. The city has cut its police force by 40% in a decade…Detroit residents pay the highest property and income taxes in the state…About 40% of revenues go toward retirement benefits and debt, much of which was issued in the last 10 years to finance pension contributions. Payments on $1.6 billion of pension-related certificates of participation consume nearly every dollar of property tax revenue.”

How the Detroit fiasco plays out could have huge implications in how governments deal with unaffordable pension obligations. Forces like unions and creditors have driven governments to a borrow-tax-spend cycle at the expense of taxpayers. As the Journal notes, a Detroit “bankruptcy shows the party is over, as it may also soon be for many other cities.”

Rebekah Staples
Capital Chronicles
8/1/13