December 4, 2013
In a landmark ruling, a federal judge allowed the City of Detroit to proceed with its bankruptcy filing. For Detroit, this is a cause for celebration – it means the city will be able to restructure its $18 billion in debt. But taxpayers shouldn’t celebrate just yet.
The judge required there be cuts made to Detroit’s massive public employee retirement programs with the proviso that such cuts be “fair and equitable.” That qualification is rather ambiguous, and thanks to the very powerful union representatives, a hefty portion of tax dollars will inevitably still go toward union-stipulated pensions — rather than to overdue improvements in city services and infrastructure.
Heritage Foundation expert Alison Fraser explains just how badly the city needs changes to its retirement program:
Over half of the city’s $18 billion in debt actually comes from the pension plans and health care benefits. Annual costs (plus debt payments) already claim 43 cents out of every tax dollar coming to the city’s coffers and will skyrocket in a few short years. So without changes, fewer and fewer tax dollars will be free to pay for things like street lights, police or other emergency services—the kinds of services that cities are supposed to provide for their citizens.
Fraser recommends the union leaders work with city representatives to restructure existing pension debts and restructure pensions for current workers going forward to make sure all are affordable to the city’s taxpayers.
Do you think unions should allow pensions to be restructured?