It is ironic that a city the President used to demonstrate his capabilities as a leader is nearly out of cash. Democrats endlessly touted the auto bailout as the lifeline that “saved Detroit” during the 2012 campaign season; however, the city itself is in trouble! According to a December 3 Wall Street Journal op-ed, the city is near bankruptcy. Lifelines from the state, which are tied to requirements to correct fiscal problems, are being opposed by City Council. As of April, the expected annual budget shortfall was at $265 million. A big chunk of that shortfall is from the city’s retirement liabilities, amounting to roughly $11 billion. The city will spend up to $160 million this fiscal year on retiree benefits. Note that the size of the general fund in April 2012 was only $1.2 billion.
The problem the city has is that the rubber meets the road in local politics. Cities and states have a direct connection to their citizens, unlike the federal government. They have to educate children, provide sanitation, offer first-response emergency services, etc. On the national scene, politicians can make grandiose promises but usually do not directly provide government services to constituents. This is part of the reason why limiting federal government and strengthening local government was so important to the founders. Local leaders (or their predecessors) cannot easily escape the consequences of poor decisions. Detroit is hampered by previous decisions to cater to powerful unions who demanded favorable retirement benefits, such as the ability to draw retirement when workers reached their 40s in some cases. There is no escape for the local politician – the city cannot escape the costs of such decisions.
Contrast this with federal government. Of course, members of Congress and the President have to go home and periodically face the electorate, but if poor stances are taken, members of the federal government are mostly protected from the local consequences of their decisions. Consider the case of the Obama administration and one of its former members, Rahm Emanuel. Emanuel was part of an administration that politically supported unions, particularly the NEA and AFT, and their $50 million of contributions to the Obama 2008 campaign. Ironically, when Emanuel went from Chief of Staff in Obama’s White House to running the city of Chicago as mayor, he ended up in a labor dispute with Chicago Public School teachers that caused a strike at the start of the 2012 school year. As President (or a member of the president’s administration), leaders do not have to worry about such local issues and can make political claims or politically-based decisions with little ramification; however, on the local level, leaders have to deliver. That is why we saw the switch in Emanuel to union-busting – when you have to educate the children of a city, you do not have the same latitude to play politics as a national politician does.
Whenever you find a federal government infringing upon the daily responsibilities of those local or state entities, problems persist. This is one of the many problems with Obamacare. The original statute had required states to expand Medicaid programs to cover individuals up to 138% of the poverty level or risk losing Medicaid funding. Even with some additional federal funding, this requirement would have heavily burdened already financially-strapped states. Apparently, the non-local politicians did not fully discuss the ability of individual states to meet the expanded Medicaid mandate. Fortunately, the Supreme Court ruled the states cannot be forced to follow suit, but consider how such an edict from Washington – a town that cannot balance a budget (the federal government spent 144% of tax revenue in fiscal 2012) – would affect states that cannot print money and monetize their debts.
Perhaps Obamacare would have been written differently if its authors would have to find all the money to pay for the massive program, like their state and local counterparts have to do.