Opinion: Op-Eds

Manhattan Moment: Detroit and the American urban future

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Op-Eds,California,Chicago,Detroit,New York City,Entitlement Reform,Analysis

Since Detroit declared bankruptcy two weeks ago, the question on many people's lips has been, who's next? Chicago? New York? Los Angeles?

The reality is that it is unlikely that America's biggest cities will declare bankruptcy in the immediate future. But that doesn't mean that there isn't cause for concern. There is. A lot of it.

What has finally captured the public's attention is that, like Detroit, the costs of public employee pension and healthcare commitments are skyrocketing. They threaten to crowd out spending on everything else city governments do.

We now have cities that are spending more but doing less — a form of governance that neither liberals nor conservatives can endorse.

Take Chicago. The city's retirement funds for public workers have a $19 billion liability. The Windy City has set aside the least amount of money of America's five biggest cities to pay these pensions.

After adjusting for difference in population, Chicago's unfunded pension liability is slightly larger than Detroit's. And unless the state government in Springfield acts, Chicago will see the amount it's required to pay into the pension system spike dramatically. The city's annual required contribution will be $480 billion in 2014 and then a whopping $1 billion in 2015.

This is the back-story of the decision to close 54 schools and lay off some 2,000 educational employees. Such budget constraints have also led police to make fewer arrests in recent years, even though crime hasn't fallen.

Over the last decade, Chicago reduced the size of its workforce by 20% but the costs of public employment still increased 15%. In short, the city won't be spending less but it will be providing fewer public services.

Now consider New York. Detroit has a healthcare liability of $5.7 billion, while the Big Apple owes $88.2 billion, for which it has set nothing aside. Adjusting for population difference that translates into a liability nearly four times larger than Detroit's. New York's population adjusted pension liability is also larger than Detroit's.

Pension and health commitments have driven up the cost of employing city workers. It cost $79,000 a year for a New York sanitation worker a decade ago. Today, it costs, $144,000. The public services are pricing themselves out of the market.

Finally, look at Los Angeles. A decade ago, pension costs were 3% of the budget, now they're 18%. Some analysts predict that they could be 37% of the budget by 2016. And political apathy is evidenced by the less than 25% turnout rate in the recent mayoral election.

The danger is that a vicious cycle can take hold. City services deteriorate, causing residents and businesses to go elsewhere, which shrinks the tax base and further constricts public services.

The writing is on the wall in Chicago. The city lost 200,000 residents over the last decade and saw the number of jobs drop. In Los Angeles, from 2001-2011, the city lost 7.1% of its jobs and its population grew only 3%, the slowest growth rate since the 19th century.

Despite all the bad numbers, the fiscal crunch can be addressed and cities still have time to do so. One of Detroit's biggest problems — which has been underplayed in the post-bankruptcy analysis — was corrupt and incompetent government.

Governance may not be great in Chicago, New York, and L.A., but the political talent pool is deeper than Detroit's. That's a cause for hope.

Detroit's bankruptcy has sparked a salutary debate about the fiscal health of America's cities. Urban residents can't gird themselves to deal with problems if they don't know they exist. Today, they're more conscious of them. That too is a cause for optimism.

Daniel DiSalvo is a senior fellow at the Manhattan Institute and an assistant professor of political science at the City College of New York-CUNY.

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