Is New York City the next Detroit?

Detroit made headlines recently when it declared bankruptcy and was unable to pay the pensions of city workers. Now it looks like New York might be headed down that same path.

According to the New York Times:

Next year alone, the city will set aside for pensions more than $8 billion, or 11 percent of the budget. That is an increase of more than 12 times from the city’s outlay in 2000, when the payments accounted for less than 2 percent of the budget.

But instead of getting smaller, the city’s pension hole just keeps getting bigger, forcing progressively more significant cutbacks in municipal programs and services every year.

Like pension systems everywhere, New York City’s has been strained by a growing retiree population that is living longer, global market conditions and other factors.

But a close examination of the system’s problems reveals a more glaring issue: Its investment strategy has failed to keep up with its growing costs, hampered by an antiquated and inefficient governing structure that often permits politics to intrude on decisions. The $160 billion system is spread across five separate funds, each with its own board of trustees, all making decisions with further input from consultants and even lawmakers in Albany…Pension analysts compare the worsening situation in New York to watching someone try to fill a sink when the drain is open. “They’re never going to catch up,” said Sean McShea, president of Ryan Labs, a New York-based asset management firm that works for pension funds and other institutions.

Imagine all those workers who had been promised a comfortable retirement if they just “did what everyone else was doing”. And thanks to the shortsightedness and ineptitude of others, that future is in serious jeopardy.

Read the whole article here.


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