Detroit’s Emergency Financial Manager Kevyn Orr talks to members of the media outside the Detroit Newspapers building in Detroit, Michigan in this
Detroit's Emergency Financial Manager Kevyn Orr talks to members of the media outside the Detroit Newspapers building in Detroit, Michigan in this file photo taken May 13, 2013. (REUTERS/ Rebecca Cook/)

Members of the National Governors Association told Bloomberg News recently that Detroit's record municipal bankruptcy shows that states should do more to oversee localities' finances and unfunded liabilities.

"The state should have some kind of oversight to prevent those short-term decisions that are harmful down the road," Rhode Island Gov. Lincoln Chafee, a Democrat, told Mark Niquette of Bloomberg News.

This is like saying that the senior spendaholic of a household is best suited to supervise the out-of-control juvenile spendaholics.

In some states, state politicians not only promised state workers pension benefits they don't dare ask taxpayers to fund, but saddled municipalities with impossible obligations as well.

A year ago, the Pew Center on the States reported that the gap between what states have on hand to pay public sector retirement benefits and what state politicians have obligated taxpayers to fund is in excess of $1.38 trillion.

Using figures for 2010, the latest available at that time, the states were short $757 billion for pension promises and $627 billion for retiree health care.

Pew rated only 11 states as "solid performers" for managing pension obligations. Only Wisconsin had fully funded state employee pension plans.

As for U.S. cities, as of fiscal year 2009, the 61 most populous U.S. cities had a combined $99 billion unfunded liability for pension plans.


Advertisement

Detroit has an estimated $3.5 billion liability for pension benefits its population cannot afford to fund. But Detroit's political behavior is not unique.

The worse scandal is that state politicians, seeking the favor of cities' uniformed service personnel, often control all the variables that created the staggering liabilities that so many municipalities face.

Detroit's plight is a "wake-up call to other entities," said North Carolina Republican Gov. Pat McCrory.

Indeed it is. States needs to change those variables now if they expect the next couple of generations to stay on board.