(
)
What a difference four decades makes. In the mid-’70s, New York City’s threat of bankruptcy was a horror that the state, feds and city ultimately avoided. Last week, Detroit declared bankruptcy because Michigan thought it was the best choice — and Washington stayed silent.
This change should spur New York’s own bondholders, public-sector workers and citizens to take a fresh look at our own financial burdens.
In 1975, Gotham couldn’t pay its bills. It went to Albany for help, and Albany went to Washington. Republican President Gerald Ford hemmed and hawed, but he came through.
Why? Then-Treasury Secretary Bill Simon said default would be “awful.” Fed chief Arthur Burns heard from Europe’s leaders — and relayed to Ford — that bankruptcy was “unthinkable.”
The city got its bailout and repaid its debt (or refinanced it — we still owe $2.1 billion from that era).
Today, there’s no chance Detroit will pay all — or even most — of the $18 billion it owes to bondholders and public-sector retirees.
It killed one sacred cow when it included $530 million in general-obligation bonds as “unsecured debt,” preparing to offer bondholders seven cents on the dollar.
It killed another when it said that pensioners will have to take a hit, if it turns out that the city’s past pension contributions indeed fall $3.5 billion short of covering future payments.
As for the $5.7 billion Detroit owes public workers for retiree health care? The plan is for retirees to try ObamaCare.
In the ’70s, the spectre of bankruptcy equalled urban death. Today, Detroit is pushing bankruptcy as the catalyst for a turnaround — telling locals that City Hall can do everything from fix street lights to hiring police with the money that taxpayers save by not paying creditors.
Detroit is a warning shot: New York’s bondholders and public-sector workers can never, ever look upon their city as “too big to fail” again.
But we don’t have to worry, because the ’70s forced us to get spending under control . . . right?
Nope. Consider the $5.7 billion Detroit owes for retiree health care. New York owes $88.2 billion — and has no money squirreled away. That’s $20 billion more than Detroit when adjusted for our larger population (we’re 12 times bigger).
Pensions? New York owed pensioners $69.9 billion more than it set aside as of last year’s annual report. Adjusted for population, that’s $28 billion more than Detroit owes.
Bondholder debt? New York owes $77.3 billion. Detroit beats us there by about $34 billion — but even that should be a warning, not a comfort. People kept loaning until it was too late to maintain the illusion that Detroit could afford its retirement benefits — and now both groups will suffer.
What about budget deficits?
Detroit can’t balance its annual budget because it must spend one-third of its revenues on health retirement benefits and debt. Well, New York’s budget has run an operating deficit six of the past seven years (with the shortfalls covered by pre-2008 surpluses).
And we, too, spend a third of our budget on health and retirement benefits and debt.
But . . . we’re rich, right?
Yes. Our median household income, about $51,270 (thanks to Manhattan), is nearly twice Detroit’s.
Still, cities have ups and downs. Detroit lost the auto industry. And New York, half a decade after Lehman Bros. collapsed, is still missing more than 30,000 jobs from its premier industry, finance. The sector’s ranks remain down 7.5 percent.
That’s important, because finance still provides 28.9 percent of New York’s income from wages — and we need the taxes on those wages to keep city services up so the world’s global elite don’t decamp with their cash.
It would be one thing if the city was working on reforms — in case Wall Street never regains its jobs.
Instead, city unions have sued — successfully, so far — to protest a city audit of their health-care plans to root out basic fraud.
And last week, city Comptroller John Liu was crowing about the city’s pension funds’ great quarter — as if that’s not because Federal Reserve interest-rate policy has created another speculative fever.
New York is banking on continued good luck. Detroit shows what happens when luck runs out.
Nicole Gelinas is a contributing editor to the Manhattan Institute’s City Journal. Adapted from a forthcoming piece at city-journal.org.