More ‘Detroits’ Loom Unless Union Special Privileges Are Curtailed
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On December 3, Detroit, at one time a magnet for ambitious job seekers from around the country, became the largest municipality in U.S. history to enter Chapter 9 bankruptcy.
In a 140-page written opinion accepting the city’s bankruptcy request, Judge Steven Rhodes rejected union lawyers’ claims that Detroit, despite its enormous and manifestly unsustainable debt burden, isn’t really broke.
Concluding a 90-minute oral summary of his ruling that Detroit had met, as the Detroit Free Press account put it, the “specific legal criteria required to receive protection from its creditors,” the U.S. bankruptcy judge concluded:
“It is indeed a momentous day. We have here a judicial finding that this once-proud city cannot pay its debts. At the same time, it has the opportunity for a fresh start. I hope that everybody associated with the city will recognize that opportunity.”
Key Factor Behind Detroit’s Downfall Could Soon Engulf Other Large Municipalities
In addition to affirming the Motor City’s insolvency, Judge Rhodes made it clear that Detroit has the legal authority to reduce public employee pension benefits negotiated by government union chiefs who have for decades wielded monopoly-bargaining power under Michigan law.
“It has long been understood that bankruptcy law entails the impairment of contracts,” he said, while pledging that he would not “lightly or casually exercise power . . . to impair pensions.”
Reflecting on last month’s historic decision regarding the fate of Detroit, National Right to Work Committee President Mark Mix expressed his hope that, in addition to the parties directly affected by this case, elected officials across the country would “recognize the opportunity” for a fresh start.
Mr. Mix explained: “Detroit’s bloated and grossly inefficient municipal workforce is a direct result of government-granted monopoly-bargaining power.
“Government union bosses wielding monopoly-bargaining power over teachers, police, firefighters and other public employees are largely responsible for blocking for decades reforms that could have furnished residents far superior services at a much more reasonable cost.
“Of course, government-sector union monopoly bargaining is not a problem that is confined to Detroit or to the state of Michigan.
“It is a problem that is present, to varying degrees, in the overwhelming majority of the 50 states. And unless state lawmakers around the country soon get serious about addressing this problem, we can expect to see several more ‘Detroits’ over the next few years.”
Elected Officials in Lansing Foisted Monopolistic Unionism on Motor City
Mr. Mix continued: “The self-dealing Big Labor politicians who ran Detroit for decades have with plenty of justification been blamed for putting the city on an unsustainable fiscal path from which it never swerved.
“But it is state elected officials in Lansing who actually granted municipal union bosses in Detroit statutory monopoly-bargaining and forced-dues privileges in the first place.”
(Since private and public-sector forced dues and fees authorized by existing union contracts enjoy “grandfather” protections under the Michigan Right to Work law that took effect this spring, they remain widespread even today.
And a loophole in Michigan’s new Right to Work law will leave public-safety union bosses’ forced-dues privileges in Detroit and elsewhere intact even once current contracts expire.)
“For decades,” explained Mr. Mix, “Michigan’s pro-union monopoly state laws made it virtually impossible for any elected official in Detroit to reform government employee compensation and work rules that were increasingly unaffordable for a city whose population was shrinking and getting poorer.
“Today Detroit’s median household income is barely more than half the national average, but up to now many extraordinarily expensive government union perks first doled out decades ago, when the city was far more prosperous, have remained in place.
“Unable to negotiate changes in wasteful union contracts encouraging healthy teachers, policemen and other public employees to retire in their early fifties with taxpayer-funded insurance as well as pension benefits, city officials instead cut back again and again on basic public services.”
Unionized City Pensioners as Well as Creditors Are Victims Of Big Labor Malfeasance
The results, as Detroit News writer Daniel Howes explained last summer, have been devastating:
“Cops take an average of 58 minutes to respond to calls. Just 8.7 percent of violent crimes are solved, compared to 30.5% statewide. . . . [T]he city’s long-term liabilities exceed $18 billion.” That’s equivalent to over $25,000 per resident!
Can Detroit dig its way out of this hole? It certainly won’t be easy, and many people are going to get hurt as the city attempts to do so.
Along with investors in Detroit’s general obligation bonds, public-sector retirees are expected to get hit especially hard as a consequence of the bankruptcy that government union chiefs who purport to “represent” such retirees foisted on the city.
Detroit’s roughly 20,000 city retirees stand to lose most of their health benefits and a significant portion of their pensions. It’s estimated that $9 billion or more of Detroit’s debt comes from unfunded retiree benefits.
Had they truly had union members’ best interests at heart and shown a modicum of foresight, union bosses would have taken the opportunity many years ago to negotiate defined contribution plans, which are the property of employees and not susceptible to municipal bankruptcies.
Instead, Detroit union bigwigs pretended the retiree health plans and defined-benefit pensions they favored for unionized government workers were risky only for taxpayers.
“It turns out union bosses’ promises to Detroit union members were hollow, and the risk of underfunded benefits was largely on public servants,” observed Mr. Mix.
Big Labor Dominated Windy City Headed Toward Fiscal Cliff
As a December 4 front-page New York Times story acknowledged, the Detroit bankruptcy ruling is “likely to resonate in . . . [many] American cities where the rising cost of pensions has been crowding out public spending for public schools, police departments and other services.”
The Times article selected Chicago, Philadelphia and Los Angeles as examples of cities where the skyrocketing costs of Big Labor-negotiated government benefits are leaving less and less money for the provision of basic public services.
All three of these major cities, as well as other fiscally imperiled metropolises like San Francisco, Boston and New York City, have one thing in common: They are located in one of the 26 states lacking Right to Work protections for employees.
Chicago, the largest city in forced-unionism Illinois, is generally regarded as the most likely candidate to become “the next Detroit.”
Under state law, Chicago must increase its annual contributions to overwhelmingly unionized workers’ pension funds from roughly $810 million to $1.4 billion in 2015. That’s a 73% increase.
As Democratic Mayor Rahm Emmanuel admitted late last year, “Should Chicago fail to get pension relief soon, we will be faced with a 2015 budget that will either double city property taxes or eliminate vital services that people rely on.”
Monopoly-Bargaining Rollbacks Are Urgently Needed
Mr. Mix said jurisdictions in Right to Work states are less apt to go broke in large part because laws prohibiting forced union dues attract employees and firms. And without forced dues fueling their war chest, Big Labor and its lobbyists have significantly less ability to deter elected officials from curtailing unnecessary spending when public opinion demands frugality.
He added that another way in which states like Illinois and Pennsylvania can rescue their major cities is to roll-back government union bosses’ monopoly-bargaining privileges, as Wisconsin did in 2011 in key provisions of Act 10.
“As a wide range of nonpartisan observers now recognize, Act 10 has empowered municipalities across the Badger State to save billions of taxpayer dollars while only rarely resorting to blunt instruments like layoffs,” said Mr. Mix.
“For Chicago and Philadelphia to avoid the fate of Detroit, Illinois and Pennsylvania need their own ‘Act 10’s,’ in addition to their own Right to Work laws.”
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