Bailouts for cities?

Pension costs threaten Los Angeles, too. Last year, L.A.’s chief administrative officer, Miguel Santana, reported that the city—America’s second-largest—risked bankruptcy if it didn’t control exploding employee expenditures, including a projected near-doubling of pension contributions, to $1.2 billion annually, in 2015, up from $639 million in 2008. Santana’s report, following a similar warning from former mayor Richard Riordan in a 2010 Wall Street Journal op-ed, might have served as a call to reform for city voters, who had the chance to elect a new mayor this year. Instead, only 17 percent of eligible citizens showed up for the crucial first round of voting. The two candidates who emerged for a run-off, city council members Eric Garcetti and Wendy Greuel, were municipal union favorites. The eventual winner, Garcetti (endorsed by the teachers’ union), even assured workers during the campaign that no significant compensation givebacks were necessary. “We shouldn’t make the mistake in these moments of racing to the bottom” on compensation, Garcetti told the Los Angeles Times in March.

Politicians and unions have been emboldened in resisting reform because they expect that the federal government won’t let big cities or their major pension systems fail. Late last year, Detroit city council member JoAnn Watson invoked the memory of Mayor Coleman Young’s pilgrimage to visit Jimmy Carter after Carter won the presidency. Young “came home with some bacon,” Watson said, and she called on President Obama to deliver similar largesse. Cities are already set to benefit from one federal bailout: the Affordable Care Act, better known as Obama- care. Chicago and Detroit have announced that they will send retirees to seek health insurance on state insurance exchanges, which federal taxpayers will subsidize. Other cities with strained budgets will almost certainly follow suit.