Keep an eye on Detroit.

What in the world happened to Detroit?  Some would have us believe that once again those greedy public employees and their outlandish pay and benefits--enforced by their union thugs-- ruined an economy.

The real story is just a tad more nuanced. Here's the best one-paragraph explanation I've been able to find. It's from a story titled Detroit and bankruptcy: How a great American city endured decades of decay published in the Huffington Post.

"It took decades of decay to bring down the once-mighty industrial giant that put the world on wheels. The city grew to 1.8 million people in the 1950s, luring them with plentiful jobs that paid good wages to stamp out automobiles for sale across the globe. But like many American cities, Detroit's fall began late that decade as developers starting building suburbs. Then came the 1967 riots that accelerated the number of white residents who moved to the cities north of Eight Mile Road, considered the region's racial dividing line. At the same time, auto companies began opening plants in other cities, and the rise of autos imported from Japan started to cut the size of the U.S. auto industry. Detroit's property values fell, tax revenue dropped, police couldn't control a growing murder rate, and many middle-class blacks fled the city for safer suburbs with better schools. By 2009, the auto industry collapsed along with the economy as a whole, eventually pulling the city down with it. Government corruption under former Mayor Kwame Kilpatrick only made things worse. In the 2000 census, Detroit's population fell under 1 million in as the exodus continued. Today it's barely above 700,000."

As the population declined, the city's infrastructure remained 139 square miles in size. People didn't all move from the same neighborhoods, so all the streets still needed to be maintained. Sure, there were fewer people, but the growing number of abandoned structures created a need for more fire protection not less. More poverty translated to more crime. Hard to cut police personnel under those circumstances. And so it went.

It's tragic, but what importance does it have for retired teachers in WNY? Plenty!

Let's consider the retired public employees of Detroit. They've just been told that they may lose up to 90% of their pensions! But wait, Michigan has a clause in their state constitution which protects the pensions of public employees, just like New York. One legal theory holds that since Bankruptcy is a federal proceeding, federal bankruptcy law trumps state law--including the state's constitution--and the retirees must get in line and wait for their few cents on the dollar along with other creditors.

On the other hand, a Michigan judge has just held that it is a violation of the state constitution for a governmental body to apply for bankruptcy protection since it would lead to a reduction in public employee pensions in violation of the state constitution.

To make matters worse, here's the beginning of an article from today's NY Times titled Detroit Gap reveals industry dispute on pension math: "Until mid-June, there was one ray of hope in Detroit’s gathering storm: For all the city’s problems, its pension fund was in pretty good shape. If the city went under, its thousands of retired clerks, police officers, bus drivers and other workers would still be safe."

"Then came bad news. Seemingly out of nowhere, a $3.5 billion hole appeared in Detroit’s pension system, courtesy of calculations by a firm hired by the city’s emergency manager."

"....But Detroit’s pension revelation is nothing new to many people who run pension plans for a living, the math-and-statistics whizzes known as actuaries. For several years, little noticed in the rest of the world, their staid profession has been fighting over how to calculate the value, in today’s dollars, of pensions that will be paid in the future."

That's right, in the boring world of actuaries, there's a big fight on concerning the assumptions used to determine how "fully funded" a pension plan is. Imagine what would happen if tomorrow's headlines read "NY teacher retirement system not fully funded. Gazillion dollar unfunded liability discovered." Constitution or not, some very unpleasant stuff would hit the fan!

Could anything like Detroit happen in New York? Been paying attention to your local school district finances, particularly those in upstate NY? The state has cut back on aid to local schools at the same time that the tax cap has limited the ability of districts to raise local revenue. Districts have been laying off teachers while using their reserve funds to help avoid educational collapse.

Some districts have exhausted their reserve funds while others are only a year or two away. School administrators across the state have been warning of a coming educational and financial bankruptcy.

So let's keep an eye on what happens in Detroit. It just might have real implications for WNY retired teachers.