# As Detroit Goes…

The city has been criminally mismanaged for decades, where does the US and State government taxpayers responsibility end??? Should they be cast into the wind to fend for themselves as the voters allowed corrupt politicians to spend lavishly. Why should state tax payers bail out the pension system as they have a separate pension system from the state and it’s broke. One of the issues, the pension had a 13 month paycheck, One solution is to dump the people into social security which none have paid into, Dump their healthcare into the ACA and given them are insurance. A Federal bailout. Fair? Detroit is only a symptom of the coming bankruptcies from other cities.

So the Motor City, through its emergency manager, has submitted to its numerous creditors a plan—still under wraps for now—to deal with its $18 billion debt. It’ll be interesting to learn what they propose to do about investors (screw ‘em, but how badly?); about pension costs; and about the city’s huge unfunded health costs. (Fearless prediction: a transfer of those costs to the feds, either through Medicaid or an ACA Exchange, will have to be part of any deal.) It will also be interesting to see just how the city proposes to pay its obligations going forward. That’s not just a numbers game; it’s about confidence. Not to be rude or anything but the city has proven to a certainty that it cannot govern itself. Who’s to say that once it emerges from Chapter 9, it won’t go back to fun and games?

In closely related news, State Budget Solutions has just issued its fourth annual report on state debts. Total debts clock in at an estimated $5.1 trillion , of which $3.9 trillion consists of unfunded pension obligations. (That number is based on market-value accounting; for reasons explained by Andrew G. Biggs here, that’s the right way to go about this.) Some states are in much worse shape than others; the report has the breakdown and the gory details.

The upside, in a manner of speaking, is that the eye-glazing numbers are becoming real and comprehensible. Here is AEI’s Mark J. Warshawsky in RealClearMarkets:

Two problems have become increasingly apparent and immediate: the legacy obligations promised to retirees and workers just about to retire, and the funding and nature of retirement benefits being accrued now and in the future by younger and future state and local government workers. The first problem is larger in size and concern because those retirees and long-service workers are legitimately worried that their retirement benefits promised by fiscally challenged sponsors and backed by severely underfunded plans are now highly uncertain and unsustainable and subject to arbitrary and chaotic cuts in the bankruptcy and political processes operating today. Moreover, many of these retirees, again owing to poor past choices by their representatives and employers, are not even covered by Social Security, and therefore extremely exposed to risks in retirement.

Loose translation: the wolf is at the door. You can fiddle with long-term plans and benefits for future employees all you want—the liquidity and solvency problems are here, now. What’s the answer?

One solution would be to offer these retirees and older workers a lump-sum payment representing a significant, but not necessarily full, share of the actuarial value of their promised benefits.

Yank this stuff off the states’ books and let the annuities be managed by outfits that know what they’re doing.

I’m not at all sure that this idea will fly, politically speaking. But then, what’s the alternative? What is being discussed, Warshawsky darkly notes, is a federal bailout either through Social Security or the Pension Benefit Guaranty Corporation—both of which, for what little it may be worth, also have solvency issues.

A year or so ago I would have said, “that can’t possibly happen.” I’d still bet against it, but I am no longer so confident.

I never understood the mindset of letting government or a corporation provide a pension. Maybe a generation or two ago it seemed safe.

Pensions were the norn for business until the 90’s when thy figured out they were in direct conflict with off shoring work and cheaper goods and services. Befire the GM bankruptcy the first 2500 of every nw auto was for retirement and retiree healthcare service.

Unfortunately government continues with the madness. In my past school district the principal of an elementary school paid for 10 years of seniority 5K per year then retired at 90% of her last pay check. A combo practice. he law was changed to limit the purchase of seniority to 5 years.

Pension system will likely be the ruin of many cities and states as more retire. Reform is impossible as the state legislators, governors, mayors, city councils, are covered by the same pension plans that need reform.