A huge amount of blame for Detroit’s problems goes to the politicians that kept making pension promises without backing them up as a sound fiduciary would. Michael Corkery writes:
Detroit’s road to financial ruin started decades ago with city leaders agreeing to generous pension benefits, which were managed by boards with overly optimistic projections for investment gains, state officials say.
Detroit officials failed to anticipate how the drastic loss in revenue coming into city coffers from local taxes and state aid would drain the funds’ assets. State officials say that the funds performed poorly as a result of mismanagement, and federal investigators have probed their operations in an continuing criminal investigation.
Of the city’s $18 billion in long-term liabilities, $3.5 billion is now owed to city pensions, while another $6.4 billion is owed to fund other employee benefits, largely retiree health care.
“We cannot pay it,” Mr. [Kevyn] Orr [Detroit’s emergency manager] said in an interview Friday. “Everyone has known that for the last 20 years, and no one has wanted to deal with it.”