Politicians Have Left the City One Crisis Away from Financial Ruin

Say you’ve got two neighbors — one has a Ferrari and a gardener and gives loads to charity every year.

The other one drives a 10-year-old Toyota and cuts his own lawn, and won’t even buy Girl Scout cookies.

The mailman accidentally puts their financial-planning documents in your mailbox.

Surprise: The “rich” man is deep in debt, so much so that he even owes money to the gardener. The scrimper, by contrast, has millions in the bank. And that’s despite the fact that the Ferrari driver earns more than the scrimper.

We’re not talking about people, though — we’re talking about cities.

Monday, the Fiscal Times — an online outfit that reports on various governments’ finances — reported that out of 116 big American cities, New York is No. 2 when it comes to the risk of going dead broke.

The only city that ranked worse than us is Chicago, which really is dead broke: It only has half the money it needs to pay retiring city workers.

At first, our ranking seems absurd. New York’s household income averages $53,373, 10 percent higher than Chicago’s.

Our jobs pay more, and taxes are higher: New York City levies its own income tax, while Chicago doesn’t. And we also spend at least some of this extra money wisely, on public safety for example — the Windy City’s murder rate is more than seven times ours.

Indeed, the bottom half of the list is puzzling: Why is Houston down there with St. Louis, when Houston can’t stop building and St. Louis has shed nearly two-thirds of its population since World War II?

For that matter, why are Irvine, Calif., and Boston near the top? They have nothing in common. Boston has a fraction of the arts and culture New York offers, a seemingly good indication of how rich a city is.

But the rankings make some sense. And they illustrate how appearances can be deceiving.

Marc Joffe, formerly a senior director at the Moody’s bond-rating firm and now director of policy research at the California Policy Center, compiled the list using some statistical tests. A full 30 percent of the rating has to do with how much money a city owes, and how much it can pay, not only to bondholders but to employees, too.

New York did so badly because of what it owes to its employees: What “really sets the Big Apple Apart” is its $85 billion in promised health-care benefits to future retirees, Joffe wrote.

Overall, New York owes 232 percent of its annual revenues. That’s like making $80,000 a year, but owing $186,000 on your credit cards (your mortgage doesn’t count, because your house backs the debt). By contrast, Boise, Idaho, which is No. 10 on the list, owes 37 percent.

The list isn’t perfect. Most obviously, it is difficult to see why any city that’s losing population and tax revenues, like St. Louis or Buffalo, would be a better prospect than a city gaining in both.

And a couple of the cities on the top half of the list — Stockton and Detroit — have already gone bankrupt. It’s not quite fair to reward them for already having done what other cities could do.

And the list gives far too much weight to rainy-day funds that aren’t all that useful: If I lose my job, it matters more whether I can get another job quickly than if I’ve got three months’ worth of emergency funding saved up. Likewise, a city that can recover quickly from a recession is in a better position than one that hoards piles of money for that purpose.

Still, though, the study is on-point when it comes to how much New York owes. That’s worrisome precisely because we’re so wealthy, and because we’ve enjoyed 25 years’ worth of extraordinary economic growth.

Because we’ve enjoyed that growth, our politicians have felt comfortable giving out expensive perks to the unions. That means if there’s any downturn in the stock or real-estate markets, New York will be majorly overleveraged. Plus, every dollar in pay hikes now adds to pension costs in the future.

Not all of our growth is because of our own good management: While the city has managed crime well, it has managed transportation and education pretty poorly.

Lots of it is because of luck: The global economy has suited us. If that luck changes — and nobody knows the future — New York isn’t braced for bad luck.

This piece originally appeared at the New York Post

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Nicole Gelinas is a senior fellow at the Manhattan Institute and contributing editor at City Journal. Follow her on Twitter here.

This piece originally appeared in New York Post