As the Detroit Chapter 9 bankruptcy eligibility hearings have gotten underway, the situation has illuminated that more and more urban areas are starting to resemble the Motor City. The travails of the federal government have dominated the analysts time for the last few years and, now, it is the turn of the cities as more of these entities slip further toward or into insolvency.
The solutions to the budget crisis have ranged from additional taxes and fees for almost every aspect of city service to deep budget cuts that affect these services. One of the more challenging issues is the massive burden that previous city governments have left for the current administrations. The primary cause of that has been an unresolved pension debt.
It was far too common in decades past to mollify the public sector employees with extremely generous retirement programs. The cities could not afford to pay competitive wages and, instead, they promised generous benefits later. That worked fine as long as most of the workers were not drawing these pensions. Now they are, and far more beneficiaries exist than had been anticipated. Many cities now are struggling, and will well into the future, because they simply do not have the money to pay these benefits and take care of day-to-day business at the same time.
- Chris Kuehl, PhD, Armada Corporate Intelligence