Editorial: How Detroit Came to Betray Its Retirees
Detroit’s pensioners are right.
The city’s financial problems aren’t their fault, nor is the city’s deep budget hole caused by the checks it issues to retirees, most of whom get about $1,600 a month.
But it is true that the funds are not generating enough income to keep pace with the projected number of retirees and structural costs of the system over the next 30 years.
So why is this a problem now?
The number of retirees drawing benefits from the fund continues to increase, hastened by layoffs or workers retiring ahead of feared pension changes, so the number of workers paying into the fund continues to shrink. Meanwhile, the city’s annual contribution to the funds keeps getting bigger. And because the city’s revenues have fallen so dramatically, that means the city’s growing pension contributions are consuming a greater and greater percentage of the city’s cash — or they would, if the city were even able to make the payments.
As it is, the cost of providing pensions for Detroit’s 21,000 retirees is the second-biggest drain on the city’s bank account, second only to the tab for police and fire services. The estimated $3.5 billion that the city owes its pension funds is a little more than one-sixth of the $18 billion in long-term debt and obligations that consumes about 46 cents of every dollar Detroit has for basic services.
All that means we’ve hit the end of the road: The city can’t pay what it owes the funds this year, much less make up its arrearage.
As emergency manager Kevyn Orr mulls how to restructure Detroit’s pension costs and even considers altering payouts, it’s more important than ever to be clear about how the city’s pension funds got into this fiscal mess: Decades of mismanagement and bad practices, coupled with catastrophic market declines, have altered the pensions from a reliable way to assure retirees’ futures into a massive financial burden.
Rick Snyder: challenging Paul Ryan for the title of GRANNY KILLER.