Bailouts

Reason Writers Around Town: Shikha Dalmia in Bloomberg on the State Takeover of Detroit's Books

|

Over at Bloomberg.com this morning, Reason Foundation Senior Analyst Shikha Dalmia explains what will happen if Michigan bails out Detroit, a city 60 days away from bankruptcy, by giving it the $220 million that Detroit's elected leaders are demanding without tackling the central problem at the root of Motown's malaise: A large, unproductive class of city employees living large at the expense of a (vanishingly) small base of productive citizens. She notes:

Detroit's 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 -- Detroit's schools next. 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.

It would be futile to give Detroit any money without razing this 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.

Read the whole thing here.