Is New York the Next Detroit?

[Valin]

Bloomberg:

Megan McArdle

8/5/14

 

The New York Times has a lengthy and dismaying article on the problems with New York City’s pensions:

 

Next year alone, the city will set aside for pensions more than $8 billion, or 11 percent of the budget. That is an increase of more than 12 times from the city’s outlay in 2000, when the payments accounted for less than 2 percent of the budget.

 

But instead of getting smaller, the city’s pension hole just keeps getting bigger, forcing progressively more significant cutbacks in municipal programs and services every year.

 

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In theory, unions should be leading the charge for more conservative accounting standards; after all, it is their job to make absolutely sure that their members will be able to count on those pensions in their old age. In practice, unions often have other priorities. Witness Detroit, where the unions did nothing to stop the absolutely grotesque mismanagement of the city's pension funds.

 

In New York, reports the Times, the unions don’t want to move to more conservative pension accounting, because if they do, the city will be required to put more money into the pot . . . and the taxpaying public might mobilize against the union workers who put them in this spot.

 

Of course, putting it off will ultimately just make the problem worse; the inexorable logic of compounding is just not very forgiving.

 

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