Bankruptcy bell tolls for public unions

by E.J. McMahon |  | NY Torch

BankruptcyNicole Gelinas of the Manhattan Institute has a must-read piece in today’s New York Post on little-noted fiscal parallels between New York City and bankrupt Stockton, California.

In an effort to slash its liabilities, Stockton is notifying its employees that their retiree health insurance coverage is about to be cancelled. And, Nicole says, this is no coincidence:

The conventional wisdom is that California cities are broke because they borrowed too much. Wrong: Because their state Constitution limits property taxes, California cities have little debt, because they have no way to pay it back.

No, the main reason they’re declaring bankruptcy is to wriggle out of a different burden: the promises they made to workers to pay for lifetime health care.

California’s other recently bankrupt cities, Vallejo and San Bernardino, have also eliminated or cut retiree health care. And the nearly insolvent city of Detroit, Michigan, is looking to cut its retiree health care liability by 70 percent. Writes Nicole:

New York City’s government workers should pay attention.

Just like in pre-bankruptcy Stockton, New York City workers get free retiree health care. And just like in Stockton (and elsewhere), New York City hasn’t put money aside to pay the $88.2 billion future bill. (Mayor Bloomberg set some cash aside in the flush years, but then used it to fill budget holes these last few years.)

Other similarities should make New York workers nervous, too.

New York City spends as much — about 2.5 percent — of its budget on retiree health care as Stockton does. And the long-term bill for those costs equals about 125 percent of a single year’s budget — just like Stockton.

New York workers may comfort themselves in saying that Stockton is poorer than we are — the media keep calling it a “poor city.” But Stockton’s median income was 7.6 percent below ours between 2007 and 2011 — it’s close to the national average. Its poverty rate is higher than our 19 percent, but not by much — it was 22 percent.

Pretty much the same thing could be said for employees of counties, municipalities and cities across New York State, in which total unfunded retiree health liabilities for every level of government now exceeds a quarter-trillion dollars. In many cases, these promises simply cannotbe kept in their present form.

Will the unions listen — before it’s too late?

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- E.J. McMahon is the Research Director at the Empire Center for Public Policy.