Much has been said about why Detroit lies in critical condition, but one serious wound has been festering for decades: the unsustainable pension and health benefits that were secured for city employees by self-serving union bosses and their political collaborators.
These irresponsible promises constitute $11 billion of the once-great Motor City’s $20 billion in debt.
It’s a timely lesson in government guarantees gone wrong, yet it seems that few onlookers are taking notes. States and cities across the country face similar challenges and, should they choose to do nothing, may meet a fate like Detroit’s.
My home state of Pennsylvania provides an example of how pension problems develop and how lawmakers allow them to fester. The unfunded total in the state’s pension funds for teachers and state workers is a whopping $47 billion — and that’s assuming a 7.5 percent return on investment. More realistic estimates easily double this already staggering sum.
Who is responsible for running up this tab on the taxpayer dime? The culprits are the government-sector union bosses who demanded lavish benefits and the elected officials who gave them exactly what they wanted.
With a stock market riding high from the 1990s, a Republican governor and a Republican legislature increased pension benefits for teachers and state employees by 25 percent in May 2001 — including a retroactive increase. They also gave themselves a 50 percent bump in their pension benefit. Then, in 2002, government workers who’d already retired also received a pension increase.
The stock-market losses of 2003 barely gave legislators pause. Instead of instituting cost-saving reforms, the legislature delayed contributions into pension plans, increasing the long-term unfunded liability dramatically. Another bill delaying pension contributions passed in 2010, after the Great Recession, to much fanfare from leaders of government unions. Retirement benefits unavailable in the private sector were protected, and the costs were kicked down the road to future generations.
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