More bad news out of Michigan: Facing a $3 million deficit on its $18 million budget, the Detroit suburb of Hamtramck is seeking permission to file bankruptcy. Other towns may not be far behind.
Hamtramck suffers from high unemployment and falling income, but its budget problems go deeper than the recession. The town began running million-dollar deficits 10 years ago due to union contracts that would make Greeks blush. City workers were entitled to annual wage increases at four times the inflation rate and eight paid weeks of vacation each year. That’s in addition to 15 paid sick days, three paid emergency leave days, three paid personal days and one paid birthday.
In 2000 the state appointed an Emergency Financial Manager who in five years managed to balance the budget by cutting the city work force, privatizing services and selling bonds. He got the unions to renegotiate some benefits by promising retirement service credits and promotions, but that set the city up for future pension woes.
Fast forward and the city again teeters toward bankruptcy. Workers still receive five weeks paid vacation and their health plans have no co-pays or deductibles. City health costs have risen nearly 40% this year and are expected to shoot up another 40% next year. Pension costs have climbed 36% in a year. . . . While many cities blame their deficits on the recession, their insolvency is the natural result of politically dominant public unions. By allowing workers to collectively bargain, states and cities have ceded control of the public purse to workers whose main interest is enlarging government. Hamtramck is a harbinger of bankruptcies to come, and a case study in why politicians from FDR to Fiorello LaGuardia opposed the creation of government employee unions.