The bankruptcy of Detroit is an unusual event, but its
uniqueness lies mainly in its severity. Municipal governments across the nation
are struggling to bring their own finances under control, and for many of them,
unfunded pension obligations are a huge driver of deficits. If other
municipalities want to avoid a similar fate (even if in milder form), they
first need to get a handle on the size of the problem.
The good news is that this is possible. The bad news is
that efforts to clarify the pension obligations picture will meet stiff
resistance from government employee unions. Yet, the union can only kick
against fiscal reality for so long.
In Detroit, a major point of dispute between public
pension funds and the city’s state-appointed emergency manager is just how
large is the pension gap — specifically, how it is calculated. Pension
officials have argued that they are adequately funded, but those claims appear
based on overly optimistic projections of future investment returns.
In July, emergency manager Kevyn Orr argued that the
city’s pensions face a shortfall of at least $3.5 billion — five times the
figure of previous estimates, according to The
Wall Street Journal. But the shortfall is likely much greater…..ToRead More…..
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