Colorado Springs News, Sports & Business

Heed the cautionary tale of once-mighty Detroit

The Gazette editorial Published: July 21, 2013 0

It could happen here, if we don't get serious about public-employee pensions. That's why Mayor Steve Bach sees Detroit's bankruptcy as a cautionary tale of our times.

"Detroit is a huge wake-up call for every city in this country," Bach told The Gazette on Friday. "We talk about this problem with pensions and a lot of our city employees don't want to believe it. It is real. Just look to Detroit."

Detroit used to stand as the country's fourth-largest city and a cosmopolitan testament to American productivity, ingenuity and creativity. The city, which had a population of 2 million in the 1950s, produced great cars, a host of Motown artists and a seemingly countless array of legendary musicians who were native to the city, including Aretha Franklin, Ted Nugent, Bob Seger, Smokey Robinson and Diana Ross.

Today, the city of barely 700,000 residents continues hemorrhaging population and growing numbers of commercial buildings and schools - nearly 80,000 - sit empty and decaying. Some neighborhoods have fallen into such disarray the homes are free to anyone willing to take them for back taxes.

The city filed bankruptcy Thursday and may have to stiff city employees who worked their entire adult lives counting on pensions politicians long ago promised. If they get paid, it will only be on the backs of taxpayers throughout the rest of Michigan or the United States.

"My biggest concern is that Detroit will remove the stigma from municipal bankruptcies and this will start happening all over the country," Bach said.

He is not alone.

"It sets a potentially dangerous precedent that may lead to more municipalities to consider bankruptcy as a viable option to resolve their budget problems," wrote Colorado's Custom Portfolio Group in it's Weekly Market Update, explaining the bankruptcy may also push up borrowing costs for cities throughout the country.

Detroit's last Republican mayor left office in 1962 and since that time, city leaders have raced to over-tax, over-spend and over-promise. At times, Detroit has had the highest combined tax rates in the country.

Detroit's spendthrift politicians created a malevolent culture of dependency that finally led the productive class to flee in droves. That left the city with no one to pay the primary bills, let alone the debt's promised to dependent classes and public employees.

Modern Detroit serves as little more than a symbol of society's inability to tax and spend its way to prosperity. Anyone who thinks we have nothing in common with Detroit should consider our community's own pension crisis.

As the country's 41st largest city, with a population of about 432,000, Colorado Springs city employees are covered under several different defined-contribution pension plans including the state's Public Employees' Retirement Association - a racket that owes $23 billion more than it has. As the state's second-largest city, a substantial chunk of that debt belongs to taxpayers of Colorado Springs. Detroit's unsecured debt was $11 billion.

At the very least, if the city wins a lawsuit regarding one portion of it's PERA debt that pertains to Memorial Health System prior to its acquisition by University of Colorado Health, Colorado Springs owes PERA $650 million in unfunded retirement liabilities. At best, if the city wins, the debt is estimated at about $450 million.

The city's PERA debt, and the real possibility we cannot ultimately pay it, is why Bach outsourced the fleet service and seeks to outsource more. We cannot continue adding to obligations we have no realistic means of paying, lest we end up like Detroit.

The good news for Colorado Springs is the fact voters consistently elect limited-government politicians who have avoided excessive taxation and spending nonpension related debt. The city charter sets our city's debt limit at $400 million (excluding pensions), but we owe only $74 million (excluding pensions).

The nonpension debt should fall to about $50 million in 2017, after we pay off $24 million in bonded indebtedness incurred in the 1990s. If not for PERA, we would be almost in the black - a circumstance that will position us for success as other cities go bankrupt.

With the failures of Stockton and San Bernardino, Calif., Central Falls, R.I., and now Detroit, dominoes may begin to fall. Let's make sure Colorado Springs remains standing strong.

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