New York’s Pension Problem

Megan McArdle notes:

In New York, reports the Times, the unions don’t want to move to more conservative pension accounting, because if they do, the city will be required to put more money into the pot . . . and the taxpaying public might mobilize against the union workers who put them in this spot.

Of course, putting it off will ultimately just make the problem worse; the inexorable logic of compounding is just not very forgiving. Over the next few decades, we are going to come face to face with more problems like Detroit’s: pensions that must be paid, legally and morally, but cannot be paid while still offering an acceptable level of government services. Taxpayers’ wallets are not an inexhaustible resource, and cities and states that demand too much will see their citizenry depart for more fiscally responsible climes.

The problem is that at any given time, it always looks better to delay — and the worse a crisis gets, the more attractive a delay looks, because the reckoning is already very painful. New York’s new mayor has so far said little about the city’s pensions, and it’s probably in his best political interest to keep mum. It’s too bad that the interests of future pensioners — and the city’s — are so different.

The title of her post asks a question: will New York be the next Detroit? My answer would be “No”. I think that honor belongs to Chicago for three reasons:

• Chicago has all of the same problems New York does
• Chicago is in worse fiscal shape than New York
• Absent a stay of execution from the state, Chicago must put a billion dollars that it doesn’t have into its public pension fund

The state legislature is barely able to commit to what its members want to eat for lunch let alone bailing Chicago out of the fix they put it in. I think Chicago will walk the plank before New York.