Opinion

Detroit bankruptcy should serve as warning to Miami

This summer, Detroit’s bankruptcy shone a spotlight on Michigan’s fading metropolis once again – and for all the wrong reasons. Sixty years ago, in the city’s Golden Age, the predicament Detroit now faces would not have been foreseen. Today, Miami finds itself in a similar position to Detroit during the mid-20th century.

With a growing population, an increasing national reputation and a thriving urban center, Miami faces an exceptional opportunity going forward. However, that is exactly where Detroit was only a short time ago. Miami’s leaders should learn from the financial failure of Detroit and be cautious with future monetary spending.

Miami-Dade County and its municipalities are far from facing Detroit’s current situation. The county’s population in 2010 was 2.5 million, up from 935,000 in 1960. A surging population has provided Miami with a diverse populace, and perhaps more importantly, a diversified economic landscape.

These strengths, however, do not imply that Miami can be whimsical with taxpayers’ money. In 1960, the population of Detroit totaled about 1.7 million. By 2010, that number had dwindled to a sparse 714,000. The flight of a city’s inhabitants is dangerous in that it reduces tax revenue – a vital factor to a city’s well-being.

During Detroit’s halcyon days, it began to make commitments to its public employees that, as the population began to decline, were difficult to maintain. It continued to offer hefty pension and healthcare plans for retirees, which contributed greatly to Detroit’s bankruptcy. At the time of Detroit’s filing, the city had approximately $9.5 billion in underfunded pension and healthcare liabilities.

Detroit’s bankruptcy sparked a national debate on public pensions, and a look at Miami’s obligations shows that its financial commitments could cause trouble in the future. In a recent article in The Miami Herald, law professor Stephen K. Halpert pointed out that in Miami Beach, “Twenty-six of the 38 firefighters who retired in fiscal year 2009 were in their 40s,” with an average annual pension of more than $100,000. Miami must take a serious look at its employee pension plans and determine if they are sustainable.

The localities that make up Miami-Dade County are creating further financial risk through projects that are paid for primarily with taxpayer money. Marlins Park was constructed for $600 million, $500 million of which was financed by public bonds. These 40-year bonds have been projected by some to end up with a total price tag of $2.4 billion, interest expenses included. In addition, Miami Beach has now committed to a renovation of its convention center. With a total cost similar to that of Marlins Park, it will be partially paid for with more county bonds.

Although it is important for Miami to retain its competitive advantages and continually improve, its reliance on taxpayer money for projects with significant costs, along with its lavish pension obligations, could one day lead to trouble for Miami-Dade County and the City of Miami – especially if a population outflow comparable to Detroit occurs.

The plight of Detroit has been well documented this summer, but its troubles are rooted far in the past. With the proper foresight and self-governance, Miami can avoid becoming another fallen giant.

Paul Ryan is a junior majoring in economics, finance, and history.

August 25, 2013

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