Illinois can’t file for bankruptcy protection, but it can learn valuable lessons from Detroit’s financial collapse.
Detroit, once among the greatest of American cities and an industrial powerhouse, is eligible for bankruptcy protection, and municipal retirees living on pensions will be among the hardest hit by the city’s failure to meet its obligations.
With 100,000 creditors and long-term debt of $18 billion, the city of Detroit has been among the walking dead for years. Finally, the inevitable collapse came, proving that it’s possible to forestall disaster but not avoid it forever.
Among the worst governed cities in America, Detroit combined corruption, incompetence and years of borrowing with the kind of social problems that make life tough for urban areas. Disaster ensued.
To the surprise of hardly anyone, U.S. Bankruptcy Judge Steven Rhodes ruled this week that Detroit can reorganize under federal bankruptcy laws, essentially clearing the deck of its debts and starting over.
To the surprise of some and the dismay of many, Rhodes also ruled that the Michigan state constitution that guarantees public pension rights does not protect pensioners from reductions in payments. Rhodes acknowledged the contractual relationship between the state and public pensioners, but he ruled that contracts can be altered under federal bankruptcy law.
It’s doubtful that Rhodes’ decision sets much of a precedent for Illinois pensioners who are worried the state intends to welch on its obligations to them. Unlike municipalities, states cannot file for bankruptcy.
Nonetheless, Detroit should stand as a reminder that what can’t last forever won’t. Illinois is staggering under the financial weight built up by many years of disastrous spending decisions. Its public pension problems are just a part of the overall problem.
Detroit’s disaster, as well as those of other bankrupt municipalities across the country, should be sounding alarm bells about the importance of prudent financial management in government. It’s time for Illinois politicians to heed that warning.
The (Champaign) News-Gazette