What Texas can learn from Detroit bankruptcy


The Associated Press

Michigan Gov. Rick Snyder speaks during a news conference Wednesday, Jan. 22, 2014, in Lansing, Mich, where he annoucned a plan to commit $350 million in state funds to help shore up Detroit's pension funds and prevent valuable city-owned art from being sold during the debt-ridden city's bankruptcy. Photo credit: Ryan Garza

Chuck Matula

There are few stereotypes more publicly villainized than the lazy, unambitious government employee. That’s why a decision by a judge in Detroit to allow the city’s creditors to seize pension funds in their ongoing Chapter 9 bankruptcy could, for some, be a cause for celebration.

But this decision has troubling implications for the employees of any government entity, including those at UT and the many students who will go on to work for federal, state, municipal and county entities. According to the Texas Tribune, UT employs at least 12,941 people, many of whom at least partially rely on the Teacher’s Retirement System of Texas, a public pension system, for their retirement funds.  And the DiNitto Center for Career Services in the School of Social Work explained to The Daily Texan that 24 percent of 2011’s graduating class found work with some sort of government entity, indicating that there are more than a few UT seniors who might soon join a workplace where they’re dependent on a public pension plan. 

For anyone who intends to join civil service (or is currently a part of it), Detroit should serve as a cautionary tale of how financial dysfunction can devastate a city in a way that makes pension payments unsustainable. A financially prosperous city of almost 2 million at its peak in the 1950s, the city’s decline has been long and slow. People who took a job with the city long ago for the promise of a pension may not have been able to foresee Detroit’s financial struggles. As years passed, an exodus of jobs, people and businesses took its toll on a once bustling metropolis until 2013, when federal judge Steven Rhodes determined that the city was eligible for bankruptcy. The finances of major Texas municipalities are much better off than those of Detroit, but serious mismanagement can put what seems to be the most stable government on shaky financial footing. 

Clearly Detroit is suffering from deep financial woes, and a Chapter 9 Bankruptcy, which allows municipalities to restructure their debts, could very well be the best way to deal with those problems. And although Rhodes’ ruling means that cuts in pension plans for city workers won’t violate Michigan law, they have troubling implications for pension funds and public employees everywhere. Before this decision, federal law had been in conflict with Michigan law as to whether or not pensions can be a part of a debt restructuring. The precedent Rhodes decision sets, that the funds of public pensions can be partially used to pay off creditors, puts the livelihood of all government retirees at risk. Detroit’s precipitous decline should be a reminder that hard times can befall even the most prosperous of cities. Even the mammoth Employee Retirement System of Texas warned as recently as December that the Legislature must make tough decisions on how to fund the pensions soon or the system could face insolvency.

A career in civil service is a decision by an individual to devote themselves to serving the government, often at the expense of a higher-paying private sector job. The promise that a government can offer an individual that a corporation or sole proprietorship can’t is a pension in exchange for their working lives. To allow a court to amend that promise in a bankruptcy is to take away a benefit that could help draw talented individuals to public work. Shiftless bureaucrats are a difficult group to sympathize with, but consider the public school teachers, University faculty and social workers who could lose one of the few incentives to pursue civil service.

The bankruptcy and subsequent court decision should also be a wake-up call to pension managers that they need to take maintaining solvency seriously. Irresponsibly-run pension funds that are beholden to popular demands for more money will inevitably run out and bust, just like Detroit’s did. Employees who hope to one day be the beneficiaries of a pension system need to make their voices heard to ensure that this doesn’t happen again. Pension fund management is not a thrilling field, but unless politicians and public employees are willing to take it seriously it will be our generation that loses out.

Matula is a finance junior from Austin.