Detroit sends CA another bankruptcy warning

The Stockton and San Bernardino bankruptcies in 2012 were the largest for cities in American history — until Detroit in 2013. State laws and situations differ. But there’s a new warning from Detroit for California’s municipal governments, especially as bankruptcy courts continue to try to figure out how to deal with pension costs.

Reported the Detroit News:

Detroit Public Schools is $53 million behind in pension payments, costing the cash-strapped district $7,600 a day in interest penalties — or the equivalent of one child’s annual state funding grant.

Based on its minimal payments, the Detroit school district would be $81 million behind in mandatory pension contributions by July 1, state records show. The cost is exacerbated by $78,000 in fees for each month DPS remains delinquent — depriving the city schools of the equivalent of one teacher’s annual salary and benefits.

The sporadic pension payments, which date to October 2010, are the latest sign of worsening finances for Michigan’s largest school system as it continues to rack up debts and hemorrhage students and cash. Forgoing required contributions for pension payments mirrors a cash-hoarding tactic the city of Detroit pursued in November 2012 — nine months before declaring bankruptcy.

Detroit itself used to be the “Paris of the West.” Its booming auto industry was like Silicon Valley today — highly prosperous, lifting the tide of the state and country. Then general political mismanagement, including unbearable public pension costs, brought hard times, and eventually bankruptcy.

Detroit is less a pattern California will follow than a cautionary tale that public finances matter, and mismanagement can lead to federal bankruptcy court.