Jul 24 2013
Originally published in USA Today, July 14, 2013
The dominoes have been falling for years: 36 municipalities have gone bankrupt since 2010. Last Thursday, the biggest domino yet fell. The City of Detroit – with debt of $18 billion-- filed for protection to reorganize under Chapter 9 of the federal bankruptcy code.
American taxpayers need to watch their wallets. Next will come a call for a federal bailout to alleviate Detroit's pain. Congress should act now to ensure taxpayers aren't forced to pay for decades of mismanagement by liberal politicians and public sector unions.
Detroit's failure is rooted in an unholy alliance between politicians and public sector unions. Its 47 municipal unions spent their members' dues to elect public officials who then "negotiated" with those same unions for overly generous contracts that resulted in bankruptcy. The city's emergency manager laid out the gory details in a settlement he offered to creditors last month. Health benefits to the city's 19,000 retirees are lavish and unfunded. The city acted too late to reduce staff numbers bloated by union work rules — for example, last year it was discovered the city water department employed a horseshoer for $56,000 a year, though it owned no horses. Unions won "sweeteners," like extra pension checks and easier pension eligibility, that increased costs without benefiting the general public.
In exchange, residents suffer one of the worst homicide rates of any big city, an average 58-minute police response time, four out of ten streetlights are broken, and the highest per-capita tax burden in Michigan. Sounds great, huh?
Overtaxed residents and businesses fled. Pension payments outstripped the funds' income by approximately $3.3 billion over the past five years, and the city now owes $3.5 billion in pensions for which it has no money. Its unfunded retiree health and other benefit promises total another $5.7 billion.
As a result, Detroit is seeking a fresh start in federal bankruptcy court -- following the example of other municipalities that found it impossible to pay off unsustainable promises. Federal Bankruptcy Court is the proper venue for settling these debts and obligations that taxpayers cannot afford.
But bankruptcy courts won't solve the entire problem.
Cities are the first to face their day of reckoning because they have no capacity for printing money. But the truly jaw-dropping insolvency problem is at the federal level. Detroit's debt is $18 billion. Federal debt is fast approaching $17 trillion - America's debt problem is almost a thousand times worse!
The federal government has habitually promised benefits without making adequate provision to honor them. Social Security already pays more in benefits than the payroll tax brings in, and its trustees say its finances will only worsen. Privately, President Obama conceded what researchers at the left-leaning Urban Institute reported: that for every dollar Americans pay into Medicare, they will ultimately receive about $3 in benefits. Obamacare commits us to trillions in additional future spending.
Washington gets away with this because the U.S. Dollar is still the world's reserve currency and we own the printing press. How long can that last?
The first step in solving any problem is acknowledging you have one, and then accurately defining it. Only then can you start looking for real solutions.
Too few Americans are acknowledging that their government has made promises it cannot afford. How bad is it? I have led an effort using accepted, nonpartisan sources such as the Congressional Budget Office that project cumulative deficits could total $100 trillion over the next three decades. To put that number in perspective, it exceeds the net value of all private assets in America.
The federal government is already on an unsustainable debt path, it certainly cannot afford to bail out cities and states. We must put the country's fiscal house in order, not make taxpayers in fiscally responsible states and municipalities subsidize irresponsible ones.
That is why I offered an anti-bailout amendment during the Senate budget debate. Unfortunately, Democrats were not even willing to allow a vote on it. It is also why Sen. David Vitter offered — and I am happy to cosponsor — a bill to put states and cities on notice that federal taxpayers will not provide them a bailout.
Detroit's emergency manager does cite "economic headwinds," as a contributing factor to his city's problems. But it's striking that he puts most of the blame for the city's bankruptcy on mismanagement that has continued practically to the present day -- long after it was obvious Detroit needed to change.
Detroit isn't the only place that has ignored reality. Governments at all levels are flirting with bankruptcy. Unless Congress says no to bailouts, municipalities and states will continue their profligate spending, fully expecting the federal government to ride to the rescue. This would only hasten the day of reckoning for our nation's finances. Now is the time to prevent that from happening.
Ron Johnson is a Republican senator from Wisconsin.