Two battles over public money promises are intertwined in two cities, two states and two courtrooms. In Detroit and San Bernardino, Calif., past promises to fund public pension plans and other retirement benefits have become inextricably linked to the impossibility of paying those obligations. Each of the cities could pay its promised benefits today, but not all of its other obligations. Indeed, the cities may be able to pay off their promises to any given creditor or any set of obligations, but not all of them. The problem is not the pension obligations, per se, nor any other particular liability. Rather, it’s the obligations combined with reduced revenue bases.
It’s like the decisions you would have to make if you were short of cash but had to keep your car running. You would have to decide what trips you were going to make and which ones you weren’t, lest you find yourself stranded in the middle of nowhere. For insolvent cities like Detroit and San Bernardino, there may be sufficient levels of money in the tank to make current pension payments, but the more difficult proposition is how to keep making them. This is especially the case in Detroit where, because of sharp reductions in the city workforce, employee contributions to pension funds are down. Beside owing retirees, the city also has promised payments to investors in its pension bonds or investors who bought its pension obligation bonds.