Wednesday, July 24, 2013

NYC Owes $88 Billion For Retiree Health Care: 15 Times As Much As Detroit Owes

From City Journal, "What New York Should Learn from Detroit: The Motor City’s bankruptcy proves that even big cities are not too big to fail." by Nicole Gelinas:
New York, after all, is doing well compared with many other cities. The time to act is now. But act New York must: the city’s obligations dwarf even Detroit’s. Consider the $5.7 billion Detroit owes for retiree health care. New York owes $88.2 billion—or $20 billion more than Detroit when adjusted for population—and the city has no money squirreled away for this purpose. Or consider 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. New York’s bondholder debt stands at $77.3 billion, about $34 billion less than Detroit when adjusted for the population difference. That means there’s still time, but bondholders should remember that Detroit kept borrowing until it was too late to maintain the illusion that the city could afford its retirement benefits. Now both creditors and pensioners will suffer.

New York should heed another stark indicator. Detroit can’t balance its annual budget because it must spend one-third of its revenues on health, retirement benefits, and debt. New York’s budget has run an operating deficit six of the past seven years (with the shortfalls covered by pre-2008 surpluses). These deficits exist because New York also spent a third of the budget on health, retirement benefits, and debt.

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