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How Taxpayers Will Bail Out Detroit

Posted By Arnold Ahlert On July 30, 2013 @ 12:40 am In Daily Mailer,FrontPage | 12 Comments

On Sunday, Treasury Secretary Jack Lew ostensibly ruled out a federal government bailout of Detroit following its recent declaration of bankruptcy. “You know George, Detroit’s economic problems have been a long time in developing…I think when it comes to the questions between Detroit and its creditors, that’s what Detroit is going to have to work out with the creditors,” he told ABC’s George Stephanopoulos. Not quite. Detroit is proposing an effort to offload much of its bloated healthcare costs onto the American taxpayer, using ObamaCare as the vehicle for doing so.

“The Affordable Care Act does change the possibilities here dramatically,” said Neil Bomberg, a program director at the National League of Cities. “It offers a very high-quality, potentially very affordable way to get people into health care without the burden falling back onto the city and town.” In reality, the proposal would do nothing more than shift the so-called “burden” of fiscal irresponsibility produced by decades of “city and town” politicians colluding with labor unions onto other cities and towns that had nothing to do with that irresponsibility. As for “affordability,” such a statement is equally nonsensical. More affordability for Detroit, and other progressive sinkholes, equals less affordability for those expected to make up the difference.

Furthermore, Detroit is hardly an isolated case. A study conducted by the Pew Charitable Trusts revealed that “61 key cities across America … emerged with a gap of more than $217 billion between what they had promised their workers in pensions and retiree health care and what they had saved to pay that bill.”

As the chart included with the study indicates, cities have been more responsible with regard to funding worker pension benefits. Of the 61 cities included in the study, 24 had pension funding levels of 80 percent or more, while 37 cities had less than 80 percent. Tellingly, Detroit was one of the more responsible cities in that regard, having funded 93 percent of their pension obligations. Considering Detroit has declared bankruptcy, it stands to reason that healthcare costs are either a much more onerous burden, or one that cities take far less seriously.

The second chart in the study reveals that underfunded healthcare plans have reached epic proportions. Only two of the 61 cities surveyed have funded worker healthcare costs at a level higher than 50 percent: Los Angeles, CA at 55 percent, and Denver, CO at 51 percent. The most prevalent number on this chart is zero. Thirty-three cities haven’t set aside anything and four others are in red figures at negative one percent. The report notes the total shortfall for healthcare funding for cities in 2009, the latest fiscal year with the most complete data, amounted to $118 billion.

The report also reveals the stunningly obvious correlation between such shortfalls and the quality of city services. “Annual pension or retiree health care payments come out of the same pool of local tax dollars as spending for key services such as education, public safety, sidewalks, and parks. If annual recommended contributions for pensions go up, dollars for other services can be squeezed.”

No city epitomizes that squeeze better than Detroit. Two-thirds of the city’s ambulances are out of service. Police take an average of 58 minutes to respond to emergencies, five times the national average. Forty percent of the city’s streetlights don’t work, and 210 of its 317 public parks are closed down. The city’s public schools are also on the verge of bankruptcy, and remain some of the worst in the nation. The city’s mass-transit system is virtually non-functional. The murder rate is the highest in nearly 40 years. Yet the most telling statistic is the reality that Detroit’s retired city workers outnumber active city workers by a more than 2 to 1 ratio.

That is the burden Detroit would like to “cost shift” to the American taxpayer.

Not just Detroit. As the New York Times notes, while Detroit’s restructuring must be approved by a federal judge, the plan being presented there “is being watched closely by municipal leaders around the nation, many of whom complain of mounting, unsustainable prices for the health care promised to retired city workers.” The Times further notes efforts are in the process of being “planned or contemplated” in Chicago, IL, Sheboygan County, WI and Stockton, CA.

Timothy S. Jost, a law professor at Washington and Lee University, illuminates the implications, noting that such a shift would amount to “a huge cost for the United States government, and it’s mandatory spending.”

Chicago Mayor Rahm Emanuel isn’t waiting to see what happens in Detroit. In May, he announced that Chicago will begin cutting benefits to retired city workers over the next three years, using ObamaCare to shift the cost burden to federal taxpayers. Police officers and firefighters who retired between the ages of 55 and 64 and are not yet eligible for Medicare will remain covered by the city, due to union contract guarantees. The same goes for workers who retired before August 1989 and are protected by a legal settlement. But beginning on January 1, 2014, the rest of the municipal workforce will see their benefits phased out, with the end result being retired workers paying for their own health insurance or getting ObamaCare subsidies. ”The retirement healthcare system as it stands today is fiscally unsustainable, and we have a responsibility to ensure a secure financial path for Chicago taxpayers,” Emanuel spokeswoman Kathleen Strand said in a statement at the time.

Apparently Moody’s Investors rating service was unimpressed. They handed Chicago an unprecedented triple-drop in the city’s bond rating. Moody’s cited “very large and growing” pension liabilities, “significant” debt service payments, “unrelenting public safety demands” and the city’s historic reluctance to raise local taxes as the reason for the move.

Regardless, Dan Miller, Harrisburg, PA’s controller thinks Detroit’s cost-shifting plan would be a boon for his city as well. Harrisburg filed for bankruptcy in October 2011. “I’m applauding Detroit,” said Miller. “I’m hoping that ObamaCare turns out to be a great solution, and I would love for our city to have the opportunity to do that.”

The entire state of Rhode Island is also considering the same move. This is due to the reality that the state has promised more than $3 billion in medical coverage to retired government and employees, even as it has set aside virtually nothing to cover those liabilities. “The big benefit to moving workers into the state marketplaces is that it shifts the burden of paying for health care from the city to the federal government,” writes the Washington Post’s Sara Kliff. That’s a benefit for the city, at least. For the federal government, more cities moving retirees into the marketplaces means a higher price tag for Obamacare, as it subsidizes more individuals’ coverage.”

That would be a higher price tag on top of a higher price tag. In 2010, Americans were assured by the Obama administration and Democrats that the healthcare bill would cost $898 billion over 10 years. Three years and four revisions later, the price tag has almost doubled to $1.6 trillion. And again, those revisions were calculated before this latest scheme was envisioned.

“We can expect other cities to pick up on this,” said Richard Nathan, the institute’s former director of the Nelson A. Rockefeller Institute of Government. “I expect it to mushroom.” What is really mushrooming is the thinly veiled attempt to take the Democrat party’s unholy alliance with public service employees — in all its municipal and state budget-busting glory — and “redistribute” such misery nationwide. While it is happening, expect more Obama administration officials to continue denying, exactly as Lew did, that a “federal bailout” of Detroit is on the table. Under the table is more like it.

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