Think Motown is the only major U.S. city in a boatload of financial trouble? Think again.
Detroit's bankruptcy filing sent shivers down the spine of municipal bondholders, government employees, and big-city urban residents all over the country.
That's because many of the 61 largest U.S. cities are plagued with the same kinds of retirement legacy costs that sent Detroit into Chapter 9 bankruptcy this summer.
These cities have amassed $118 billion in unfunded healthcare liabilities. These are legal promises to pay healthcare benefits to municipal workers beyond the employee contributions to finance those funds. This is a giant fiscal sink hole — and because of defined benefit plans, the hole keeps getting deeper.
Detroit may be the largest city in American history to go bankrupt, but it is not alone. The city raced to the financial insolvency finish line before anyone else in its class.
Keep an eye on "too big to fail" cities like Chicago, Philadelphia, and New York.
During a speech yesterday in Brooklyn, New York City Mayor Michael Bloomberg reminded constituents that tough decisions facing the nation's largest city are serious and that it isn't out of the question for New York to go the way of Detroit unless something is done to fix big financial problems. Simply raising taxes isn't a sane solution due to New York City residents already paying some of the highest taxes in the country.
Bloomberg isn't right on much, but he's right on this. Naturally, the teacher's unions aren't impressed with talk of cutbacks despite new reports showing test scores for students in math and reading have plummeted.
“Avoiding the hard choices is how Detroit went bankrupt,” the mayor declared in a speech in Brooklyn.
With less than five months left in his term, Bloomberg hailed the city’s diverse revenue base while cautioning that the contracts the next mayor signs with municipal unions could determine the city’s fate for the near future.
The mayor reminded his audience that Chicago laid off 2,100 teachers and school employees last month, in large part because of soaring pension costs.
Chicago is far from alone. Cities across the country all face the prospect of pension costs swallowing more and more of their budget, and New York is no exception,” the mayor said.
“Anyone who thinks it can’t happen here needs only to look at the late 1970s when the city laid off more than 10,000 teachers and thousands of police officers, firefighters, sanitation workers, hospital workers and other city employees.”
Bloomberg went on to slam the health-care freebies city workers enjoy and even praised his sometimes-foe, Gov. Cuomo, for demanding and winning concessions from state workers.
“About 95 percent of our employees and retirees contribute nothing — not even a dollar — to their basic health-care premiums. Compare that to state government, where more than 90 percent of workers contribute to their premiums,” the mayor said.
City results on state math and reading tests plummeted last year – confirming warnings that testing kids on tougher educational standards would shock the school systems from New York to Buffalo.Bloomberg has just five months left as New York's mayor. Whoever is elected to replace him has some big decisions to make.
Fewer than 30 percent of public school kids in grades 3 to 8 passed the state math exams last year, while roughly 26 percent passed the exams in reading, according to the Wall Street Journal.