Cost of Benefits Is Sinking Detroit

According to the Detroit Free Press, the city will run out of cash in April 2012, and the largest culprit is the growing cost of employee benefits.

It reports:

"Since 2008, health insurance costs for Detroit employees and retirees have jumped 62% to $186 million a year, city records show. During the same period, the city's contribution to pensions increased from $50 million to $120 million."

Government employment benefits strain budgets around the state. Bringing the cost of these benefits in line with private-sector averages would save taxpayers in Michigan $5.7 billion annually.

The state is already helping local governments stave off bankruptcy. Earlier this year, the Legislature passed a bill that limits the amount that government entities in Michigan can spend on health insurance. The bill is set well above private-sector rates, but it’s a step in the right direction that could save the local governments up to $1 billion if implemented properly.

There are also new incentives to cap local government retirement benefits at 10 percent of an employee’s compensation, as well as the new emergency manager law.

Detroit’s dire straits are indicative of the problem of overly generous benefits. There is more to do to keep local governments away from bankruptcy, and to ensure residents that government services require no more of their money than is necessary.

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