the Coming Crisis – Part Vi

Pension and Health Plans in Detroit

This is part VI in our series on the Detroit bankruptcy, and pension and health plans for governmental retirees. The approach to the bankruptcy in Detroit has important significance not only to the city of Detroit and its inhabitants, but to the bond market that finances much of many American cities efforts, and to pension plans and other benefits that governmental retirees receive nationally.

Detroit is the largest city in the United States to ever file for bankruptcy. The long term debts of the city of Detroit are approximately 18.2 billion dollars. This equals $27,000 of debt for every resident of Detroit. Property tax revenues in Detroit have decrease about 20% from 2008 and income tax revenues have decreased about 30%. In a city of 700,000 persons, less than 82% have a high school diploma.

In Detroit, less than 30% of the jobs in the city are held by Detroit residents. 61% of Detroit residents who are employed, work outside the city.

Detroit is a city in bankruptcy. Tax revenues are declining. Services have deteriorated. Detroit seems unable to get its fiscal problems under control, particularly the pension and health benefits its leaders promised its civil servants.

In a nutshell, the city of Detroit created and expanded debts that the city’s shrinking and increasingly impoverished residents can not possibly satisfy. Taxes have increased. Services diminished. Detroit becomes a less attractive place to live, work, start a business or continue a business. The population continues to decrease and the downward spiral continues.

When a population forgets what forces generate real prosperity in a society, situations like Detroit are created. Detroit is one of many cities and states with similar dynamics. There will be more Detroits. States and cities will be forced to renegotiate and modify the promises made to these governmental workers and retirees. The pension and health retiree disaster is upon us.