Detroit just followed Stockton out of bankruptcy. But will pensions drag it back to Chapter 18? It’s a distinct possibility, the New York Times reports.
“Even after the benefit cuts, the city’s 32,000 current and future retirees are entitled to pensions worth more than $500 million a year — more than twice the city’s annual municipal income-tax receipts in recent years,” the Times reports.
Good God. Detroit is relying on fairly rosy investment return projections. The judge never should have allowed that.
Even if Detroit’s investment returns meet expectations, its pensions remain underfunded. That is an aspect of pensions many people don’t understand.
“People have the idea … that actuarial funding schedules were designed to produce enough money to pay for the pensions, “which they are not.”
“All those eye-glazing board meetings, the bewildering calculations, the talk of “required contributions” and research on whether cities are paying them or not — those things have apparently confused the public into thinking that as long as an actuary follows the standards, and a city or state follows the actuary’s advice, a solvent public pension system will be the result.
So that this post does not become “eye-glazing” I’ll leave it at that — public sector pension policy fobs the full cost of pensions off on the future: a crazy, greed-based policy with the potential to lay a city low again. Those standards should change. Anyway, the Times story is recommended for its fiscal literacy.