Tags: detroit | bankruptcy | us | cities

WSJ: Other Cities May Join Detroit in Bankruptcy

Monday, 22 Jul 2013 03:37 PM

By Dan Weil

Share:
  Comment  |
   Contact Us  |
  Print  
|  A   A  
  Copy Shortlink
Detroit, which filed for bankruptcy last week, may prove to be an example for other struggling U.S. cities, according to a Wall Street Journal editorial.

"While few municipalities are as economically depressed or dilapidated as Detroit, many have borrowed heavily, raised taxes and hollowed out services to pay retirement and debt obligations," Journal editors write.

"Some like Detroit may soon decide that clipping bondholders and pensioners is a better option than to keep whacking taxpayers."

Oakland is a West Coast version of Detroit, the editorial says. Oakland has the highest crime rate in California and recently dumped more than 100 police personnel to pay for retirement benefits and pension-obligation bonds. The city borrowed an extra $210 million to pay for pensions.

"Philadelphia and Chicago have been less scrupulous about financing pensions and are now having to make balloon payments to prevent their retirement funds from going broke," the editorial states.

Philadelphia now devotes about 20 percent of its budget to pensions to compensate for years of underfunding. "In 1999, it issued $1.3 billion in bonds to invest in the pension fund, but it has paid more in interest than it has earned on its pension investments," Journal editors write.

The City of Brotherly Love recently boosted sales, property, and business taxes. And the city council is mulling placing revenue from a 2009 sales tax increase into pensions, instead of schools, which were the intended recipient, according to The Journal.

"Chicago is also fast approaching a day of reckoning," the editorial says.  Increases in the city's retirement and debt service costs led Moody's Investors Service to downgrade Chicago's credit rating last week.

Those costs now make up about one-third of the city's operating budget, the editorial says. Pension payments will triple in 2015, and could spur a 150 percent jump in property taxes, Mayor Rahm Emanuel has warned.

"One of the benefits of bankruptcy is that it allows debtors to shed liabilities that impede growth and investment," the editorial states. "That benefit must be weighed against the cost of being frozen out of bond markets, which might be a good thing if it prevents more borrowing to finance unsustainable costs."

In Detroit, unions and creditors helped sustain too much borrowing, spending and taxes, the editorial says. "Bankruptcy shows the party is over, as it may also soon be for many other cities."

Newsmax columnist Herman Cain says the federal government could learn a thing or two from Detroit's bankruptcy. "The similarities between the two situations are frightening," he writes.

"The biggest source of Detroit’s debt is retiree benefits, which is also the biggest long-term liability facing the federal government in the form of unfunded obligations for Social Security, Medicare, and Medicaid."


© 2014 Newsmax. All rights reserved.

Share:
  Comment  |
   Contact Us  |
  Print  
  Copy Shortlink
Around the Web
Join the Newsmax Community
Please review Community Guidelines before posting a comment.
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
 
Email:
Country
Zip Code:
Privacy: We never share your email.
 
Hot Topics
Follow Newsmax
Like us
on Facebook
Follow us
on Twitter
Add us
on Google Plus
Around the Web
Top Stories
You May Also Like

Man Who Ambushed Cops Had Anti-Government Beliefs

Sunday, 23 Nov 2014 18:36 PM

A Florida man who set his house on fire and ambushed responding police officers held anti-government, anti-establishmen . . .

Admiral Denies Role in Counterfeiting Casino Chips

Sunday, 23 Nov 2014 16:58 PM

An admiral linked by Navy investigators to counterfeit casino chips denied Sunday that he played any role in making them . . .

Nancy Teeters, First Woman on Federal Reserve Board, Dies at 84

Sunday, 23 Nov 2014 15:51 PM

Nancy Teeters, who in 1978 became the first woman on the Federal Reserve Board of Governors, then continued to stand out . . .

Most Commented

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

 
NEWSMAX.COM
America's News Page
©  Newsmax Media, Inc.
All Rights Reserved