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The main cause of Detroit’s fiscal crisis is simple: Its unions have fought tooth and nail to protect jobs and pay even as Detroiters, reeling from their demands, have rushed to the exit doors. Detroit has lost two-thirds of its population since its peak of 2 million in the 1960s, but the rolls of city employees had until recently shrunk by only about one-third. The city government is the largest employer—after Detroit’s schools. Employee benefits alone make up half of the city’s general fund costs.
What’s more, Detroit’s public-sector legacy costs are astronomical. They include $5 billion to cover health care and other promises for retirees in decades to come and a billion for the unfunded liabilities to pension funds. This is not surprising given that the city has twice as many retirees as employees. And retirees get deals virtually unheard of in the private sector. For example, firefighters can retire at the ripe age of 55 with 70 percent of their salaries and automatic cost-of-living adjustments along with nearly full health-care benefits.
But a large, unproductive class of city employees can't forever live large at the expense of a (vanishingly) small base of productive citizens. It would be futile to give Detroit any money without razing its opulent entitlement edifice. Otherwise, a year from now, Detroit will be back rattling its tin cup in Lansing, and Michigan voters will have far less patience for extending any more largesse.
Governor Snyder understands this, which is why Detroit will either have to accept his lifeline—or sink in its own red ink.
Shikha Dalmia is a Reason Foundation senior analyst and a columnist for The Daily. A version of this column originally appeared in Bloomberg.com