Detroit’s school system may soon follow GM and Chrysler into bankruptcy — and it may be only the first of many such public-sector insolvencies around the country. From today’s Wall Street Journal report:
Some experts say the Detroit case could be the first in a string of Chapter 9 bankruptcies among school districts and other public entities battered by the economic crisis, and it could help shape that area of the law. “Given the state of public finance,” says Samuel Gerdano, executive director of the American Bankruptcy Institute, “I think the wave is coming.”
While “massive deficits and widespread corruption” have played a part in Detroit’s collapse, pension costs have also been a factor. The Detroit school system has more fiscal integrity than its New York State counterparts in at least one respect: it pre-funds the cost of health insurance coverage promised to retired teachers, rather than covering those costs on a pay-as-you-go-basis. But as documented on page 41 of the system’s latest financial report, Detroit teachers aren’t required to contribute to their basic plan; moreover, teacher pension costs are about to skyrocket. Just as in New York.