Detroit’s bankruptcy is about numbers: a 26 percent drop in population since 2000, 78,000 abandoned properties, $10 billion in underfunded pension and health care obligations for public employees and billions more in bond and other debt that make it impossible to pay for adequate city services.
However, the real bankruptcy is moral and intellectual – and it affects not only Detroit but almost all of America’s greatest cities and most states. Type “pension tsunami” into a search engine, read and weep. You’ll see that Detroit’s issues are only slightly worse than other cities and states around the nation with balance sheets dragged down by legacy costs and ballooning debt.
A study released earlier this year, commissioned by the city of Baltimore, for example, said it is on a path to financial ruin and requires major reforms to avoid bankruptcy. According to a Pew Center on the States' report this year on 30 cities in the most populous metropolitan areas, they have “74 percent of the money needed to fully fund their pension plans over the long run but only 7.4 percent of what was necessary to cover their retiree health care liabilities as of fiscal 2009, the latest year with data available for all pension plans of all 30 cities.”
The treasuries of state and local governments which have $3 trillion in unfunded pension liabilities to public employees weren’t clobbered by the recession. As Frank Keegan wrote for State Budget Solutions in December 2012, General Revenues in all the states as of 2011 were up $590 billion, or 56 percent, over the previous 10 years despite the recession, according to his analysis of U.S. Census Bureau data.
Neither were their elected leaders misled by erroneous fiscal reports – if anything, they tried to mislead the public, and still do — with overly optimistic investment rates of return that allowed them to shortchange pension funds. The problem was that elected officials acted like a herd of intellectual lemmings, choosing not to accept facts that did not correspond to their worldview of ever expanding government.