Most of the trustees on Detroit's two pension boards represent organized labor, and for years they could outvote anyone who challenged the payments.
Why do some cities fall into this trap while other cites avoid it? And what does any of this have to do with liberalism as a political philosophy?
What I mean by "liberalism" is the political philosophy that apologizes for and defends the Franklin Roosevelt approach to politics. That approach encourages people to organize around their economic interests and seek special favors from government at everyone else's expense (see here and here).
To understand the mechanics of that process, think of the political system as a marketplace. But unlike a normal market, where people purchase things as individuals, there is rarely ever a policy change that affects only one person. Policy changes usually pit two groups against each other ? those who favor the change and those who oppose it. A proposed increase in the wages of sanitation workers, for instance, pits sanitation workers against taxpayers and everyone who receives sanitation services.
In many cities, the sanitation workers have formed a union that collects mandatory dues and has an established communication network to help organize and motivate its members. On the other side, residential consumers of sanitation services generally have no formal organization, other than the occasional homeowners association. Business consumers of sanitation services may rely on trade associations and other organizations (such as the Chamber of Commerce).
On balance, though, the producers of city services are much better organized and their interests are far more concentrated than the consumers of those services. So even though the consumers outnumber the producers and can potentially outvote them, the political price the producers as a group are willing to pay in city elections is often higher than the price offered by their opponents.
Absent a counter force, Detroit's experience is almost inevitable. As taxpayers escape to other jurisdictions, the political imbalance grows leading to higher taxes, deteriorating services and more taxpayer migration. The ultimate end is a formal or informal bankruptcy, in which the city falls under the control of a judge or some other non-democratic entity. This result is in no one’s interest. But no single group is in a position to stop it. If all the interest groups could get together and agree to show restraint (by asking less from the system and taking less), the demise could be avoided. But there is no mechanism that allows this to happen.
There is one thing that city workers can do as individuals, however. Even though their union dues and their organized activities are supporting more of same, they can enter the voting booth and secretly vote for the opponent. When this happens, there is a major discontinuity in the normal political process.
The result is the election, for example, of Republican mayor Michael Bloomberg in New York. And because he doesn't get to be mayor through the normal processes, he arrives in office owing hardly anyone anything. Thus he can take on the teachers unions and reform the schools and institute other reforms, just like his Republican predecessor, Rudy Giuliani.
For this to happen, however, there must be enough voters who put the general interest above their own group’s special interest. New York had enough such people 40 years ago. In more recent times, Detroit did not.