Stephanie A. Miner, the Mayor of Syracuse NY, has an important op-ed essay in The NY Times Thursday. Syracuse is one of hundreds of cities around the state and tens of thousands around the country that are struggling with the potentially disastrous effects of out-of-control pension costs. Where this crisis is heading can be seen in California, where San Bernadino has become the third California city to declare bankruptcy. These cities are dying. They are caught in a bind. Either they decide not to pay their promised debts to pensioners; or, in honoring those debts, they so fully raise taxes and cut services as to ruin the lives of their citizens.
In Syracuse, Mayor Miner understands well the depth of the problem. First, public employee labor costs are too high not because salaries are high, but because pension costs and medical benefits are rising without limit. Second, revenues are being slashed, both from the recession and from cutbacks from the state and federal governments. Finally, the middle and upper class flight from cities to suburbs have left the tax base in cities low at the moment when poorer city dwellers are disproportionately in need of public services.
The result is that cities are faced with a stark choice: Do they pay older citizens what has been promised to them? Or do they cut those promised pensions in order to provide services for the young? This is a generational conflict that is playing out across the country.
Miner is worried that the response by NY State is making the problem worse. In short, Governor Cuomo and the legislature have decided to let cities that cannot afford to fund their burgeoning pension obligations borrow money to pay those pensions. The kicker is, that the cities are being told to borrow money from the very same pension plan to which they owe money.
If this sounds suspicious, it is. As Danny Hakim—one of the best financial reporters around—wrote almost exactly one year ago in the NY Times, this is a desperate and dangerous move:
When New York State officials agreed to allow local governments to use an unusual borrowing plan to put off a portion of their pension obligations, fiscal watchdogs scoffed at the arrangement, calling it irresponsible and unwise.
And now, their fears are being realized: cities throughout the state, wealthy towns such as Southampton and East Hampton, counties like Nassau and Suffolk, and other public employers like the Westchester Medical Center and the New York Public Library are all managing their rising pension bills by borrowing from the very same $140 billion pension fund to which they owe money.
The state’s borrowing plan allows public employers to reduce their pension contributions in the short term in exchange for higher payments over the long term. Public pension funds around the country assume a certain rate of return every year and, despite the market gains over the last few years, are still straining to make up for steep investment losses incurred in the 2008 financial crisis, requiring governments to contribute more to keep pension systems afloat.
Supporters argue that the borrowing plan makes it possible for governments in New York to “smooth” their annual pension contributions to get through this prolonged period of market volatility.
Critics say it is a budgetary sleight-of-hand that simply kicks pension costs down the road.
Borrowing from the state pension plan to pay municipal pension costs is simply failing to pay the pensions this year and thus having to pay more next year.
Hakim, as good as he is, allows Thomas P. DiNapoli—the state’s comptroller—to get away with calling the scheme “amortization.”
The state’s comptroller, Thomas P. DiNapoli, said in a statement, “While the state’s pension fund is one of the strongest performers in the country, costs have increased due to the Wall Street meltdown.” He added that “amortizing pension costs is an option for some local governments to manage cash flow and to budget for long-term pension costs in good and bad times.”
But how is this amortization? The assumption or hope is that the market will rise, the pension fund will go up, and then the municipalities will owe less. That is hardly amortization. No, it is desperate speculation with public monies.
The crisis in our cities afflicts the whole country, according to a study by the Pew Center on the States.
Cities employing nearly half of U.S. municipal workers saw their pension and retiree health-care funding levels fall from 79% in fiscal year 2007 to 74% in fiscal year 2009, using the latest available data, according to the Pew Center on the States. Pension systems are considered healthy if they are 80% funded.
The reason to pay attention to the problems in cities is that cities have even less ability to solve their pension shortfalls than states. The smaller the population, the more a city would have to tax each citizen in order to help pay for the pensions of its retired public workers. The result is that either cities get bailed out by states and lose their independence (as is happening in Michigan) or the cities file for bankruptcy (as is happening in California).
Mayor Miner, a Democrat, takes a huge risk in standing up to the Governor and the legislature. She is rightly insisting that they stop hiding from our national addiction to the crack-cocaine of unaffordable guaranteed lifetime pensions. Piling unpayable debts upon our cities will, in the end, bankrupt these cities. And it will continue the flight to the suburbs and the hollowing out of the urban core of America. Above all, it will sacrifice our future in order to allow the baby boomers to retire in luxury. Let’s hope Miner’s call doesn’t go unheeded.
It was Winston Churchill who said that democracy was the worst form of government, except for all the others. We have been living in passive agreement with Churchill's witticism for half a century. But slowly, harrowingly, fatalistically, people around the world are giving up on democracy.
Greece, the birthplace of democracy, and Italy (well, it's Italy) are now both governed by unelected technocratic governments charged with carrying out austerity programs that democratically elected leaders would not or could not bring about.
According to Gillian Tett, the Financial Times columnist, "the situation calls for very firm, forward-looking action that is almost impossible in a rowdy democratic political system at the moment." Tett is not alone in seeing the failure of democratic leadership in crises and the inability of democratic politicians to allocate pain and sacrifice amongst their constituents.
We in the United States are showing a similar predilection to trade democracy for technocratic management. Michigan is at the forefront of this trend. Governor Rick Snyder has been aggressive in appointing emergency managers to take control of city finances. In Pontiac, Flint, Benton Harbor and other Michigan cities, the mayors and town councils have been fired and rendered obsolete, replaced by a manager appointed by the governor.
In New York, Nassau County is now under the rule of an "oversight board" that controls its budget and finances. In Michigan, financial managers have the power to void labor contracts, privatize public services, and dismiss elected officials. These managers serve at the will of the governor, but they have no set term.
Tomorrow we may learn whether Detroit, Michigan's biggest and once proudest city, will also succumb to an emergency manager. The only alternative, it seems, is a consent decree with the State that will turn the city over to a manager jointly selected by the city and the state from a slate of candidates approved by the governor. The problem, once again, is that democratic governments have simply been unable to make the hard decisions needed. The result is that Detroit is bankrupt and in need of a state bailout and the state is treating Detroit like the spoiled child it is, just as the European Union treats Greece and Italy. Money will come, but only if the children agree to be treated like children.
I can only point out so many times that Wall Street bankers also acted like spoiled children, but they received their bailouts and undeserved bonuses without the demeaning financial oversight. Hypocrisy, however, is not an argument for or against such oversight, even if it does reveal that there are issues beyond simple economic calculation at play. In Europe, there are prejudices against the laziness of southern peoples, and here in the U.S. racial prejudices are no doubt active, as can be seen by one commentator's likening Detroit's citizens to addicts:
As those of us in surrounding communities watch the ongoing tragedy unfolding in Detroit, we really need to hope that this once great city can stop its decline, and begin to recover. But just like with an alcoholic, the city's so-called leaders must first admit they have a problem, and that they are unable to fix it on their own. Unfortunately, they do not appear to have reached that point yet. I guess a nice way of putting it would be to say that they are in denial.
Patronizing rhetoric aside, the basic problem is that the people of Detroit—like the people of Greece and Italy—are unwilling to govern themselves and are welcoming technocrats to take over that task. We witness once again how easily people will abandon democratic freedoms for the promise of a bailout. The current argument in Detroit is less about whether to give up self-government—a foregone conclusion—but how much money Detroit can extract in the deal for doing so.
The Romans had a provision in their law for the appointment of a dictator during emergencies, especially at war. A dictator, as Andreas Kalyvas reminds us, was not a tyrant. A dictator in Roman law was a 'temporary tyranny by consent' while a tyrant was a 'permanent dictator.' The Roman Republic recognized that crises required decisive action that a sprawling democracy was frequently unable to muster. The dictator was not illegal, but was a constitutionally approved office that was appointed for a set term, after which time power would revert back to the people. In other words, a dictator was a constitutionally regulated and democratically agreed upon safety valve for the failures of democracy.
Modern democracies have largely avoided such emergency powers, and for good reasons. It seems, however, that such resistance is fading. Will it be until we have no choice but to appoint an emergency financial manager to do the job we won't do for ourselves? But then again, who would appoint such a person?
For Hannah Arendt, this was and remains a crucial question. For human beings are political beings who actualize their freedom in public action with others. The entire premise of what Arendt once called the "dictatorial intervention" is to replace politics with the temporary tyranny of the educator. It is to admit our immaturity and call for a tyrant who will treat us as children. And yet that is, precisely, what it seems we want.