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Detroit’s Lesson: Fiscal Irresponsibility Catches Up with You



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The Washington Post has an interesting editorial today about the signal that the Detroit’s bankruptcy and the city’s incredible pandering to unions should be sending to “every city and state in the United States.” Here is a tidbit about mismanagement:

Still, mismanagement made matters worse. Anyone who doubts that should peruse the bankruptcy plan filed by the city’s emergency manager, Kevyn D. Orr, on Feb. 21. It prescribes pension cuts for city retirees and an 80 percent haircut on bondholders, and it documents the terrible governance that helped make these unavoidable.

Mr. Orr proposes cutting police and fire pension benefits by up to 10 percent per year; civilian retirees face a potential cut of 34 percent. The latter is especially painful, given that Detroit civilian pensions average only $19,000 per year. (The figure is $30,500 for police officers and firefighters.) Not surprisingly, the city’s unions want to fight the cuts, and a citizens’ group is vowing to “shut the city down” in protest.

As Mr. Orr’s report explains, however, Detroit’s pension funds might be less vulnerable today if their trustees, many of them city union officials, had not repeatedly dipped into them to make bonus payments, sometimes known as “the 13th month,” to retired and active city workers. That ploy cost the city’s two largest pension funds $1.92 billion between 1985 and 2008, according to Mr. Orr’s filings.

The Post is right: At some point “eventually fiscal irresponsibility catches up with you.” With the president’s FY 2015 budget to be released soon — a ten-year spending plan that the administration says will end “the age of austerity” — that’s a warning the federal government should taking to heart, but clearly isn’t.



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