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Detroit Bankruptcy a Cautionary Tale

Updated: Friday, August 2 2013, 09:11 PM EDT

At the weekly meeting of the Board of Estimates in Baltimore nearly half a million dollars was approved for city employees who are already receiving compensation from taxpayers.

That’s because these workers, who are being re-hired for up to $50,000 a year, are actually retired -- and some are collecting lifetime pensions courtesy of the city.

It's a practice that could be called, “double dipping.” But at the meeting, the measure was approved without a word of debate.

These generous benefits offer a glimpse into the world of public employee pensions. Detroit’s recent bankruptcy filing may be a cautionary tale two cities across the nation, Baltimore may soon follow in Detroit's footsteps.

One of the biggest liabilities looming over the city of Detroit’s balance sheet are unfunded but promised pension payments to city employees which a newly appointed city manager estimates could top $9 billion.

Could Baltimore find itself in a similar situation?:  Financial experts say it’s possible.

Over the past decade contributions to the pension system have risen nearly fourfold reaching roughly $200 million this year.  The exponential increases are projected to continue.

Yet even with rising payments from taxpayers the funding levels of the city pension funds continue to decline due to poor stock market performance and an aging workforce.

In 2006, Baltimore plans were almost fully funded, now they are 60-65%funded.

It's a mounting liability Mayor Stephanie Rawlings-Blake says cannot be fixed by waiting. In 2010 she raised the retirement requirement for city police from 20 to 25 years of service after a bruising battle with their unions which led to a lawsuit. Now, she is proposing a new law that would enroll all new non-public safety employees into less pricey 401K plans.

Calvert Institute fellow George Liebmann credits the mayor for being proactive. But the problem he says is that the clock is ticking.

"Something has to give, and what gives in these situations are municipal services of one sort or another."

Detroit Bankruptcy a Cautionary Tale


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