Gulf Editorial Blames US Financial Crisis on ‘Bloated’ Bureaucracies, ‘Soaring’ Healthcare Costs

Dubai Khaleej Times Online in English 04 Oct 13

[Editorial: «America’s Ailing Cities»]

Many American cities are hurtling towards a financial crisis and quite a few could end up like Detroit, which was forced to file for bankruptcy protection in July after piling up debt of $18.5 billion.

And while Motown has been declining for more than a decade, the new threat is for some of the largest cities in the US, including Chicago, Los Angeles and even New York.

A recent study by the Center for Retirement Research, a Boston-based think tank, revealed that are more than 40 American cities and towns that are financially troubled. These include — besides Detroit — Chicago, Philadelphia and Providence. The worst affected was California, a state that has been profligate in its spending, where 10 cities are financially troubled.

What ails American cities? The financial crisis of 2008 is to be blamed partly, but a more significant factor is bloated bureaucracies, soaring healthcare costs and pension bills, and a sharp decline in manufacturing jobs. Take Detroit, for instance. The city was the world’s automobile capital, with all the three large US automakers having a strong manufacturing base there. Today, the city has just one operating auto unit.

In fact, Chennai in India today makes more cars than Detroit. And the reason behind this shift in manufacturing jobs to countries such as India and China is apparent. According to the US Bureau of Labor Statistics, labour costs in India are less than $1.5 an hour, compared with a high of $35-plus in the US.

Not only is labour expensive in the US, many of the cities have over-stretched themselves, offering hefty concessions to public employees.

About half of Detroit’s debts can be attributed to pension and healthcare liabilities to workers on retirement. American states and cities are caught in the pension trap, where most of their employees get defined-benefit pensions, unlike private sector employees who are on ‘pay-as-you-go’ schemes, where the final retirement benefits are decided by the employees’ contribution, not by the promise of the state or city administration.

With Americans living longer, pension liabilities can cripple a state or city’s finances, as happened in Detroit. Estimates are that cities like Chicago are in worse shape. International credit rating agency Moody’s recently downgraded its credit rating three notches. The pension liability of the state of Illinois where Chicago is located is more than 240 per cent of its annual tax revenues.

Dubai Khaleej Times Online http://www.khaleejtimes.com/

, ‘Soaring’ Healthcare Costs

Dubai Khaleej Times Online in English 04 Oct 13

[Editorial: «America’s Ailing Cities»]

Many American cities are hurtling towards a financial crisis and quite a few could end up like Detroit, which was forced to file for bankruptcy protection in July after piling up debt of $18.5 billion.

And while Motown has been declining for more than a decade, the new threat is for some of the largest cities in the US, including Chicago, Los Angeles and even New York.

A recent study by the Center for Retirement Research, a Boston-based think tank, revealed that are more than 40 American cities and towns that are financially troubled. These include — besides Detroit — Chicago, Philadelphia and Providence. The worst affected was California, a state that has been profligate in its spending, where 10 cities are financially troubled.

What ails American cities? The financial crisis of 2008 is to be blamed partly, but a more significant factor is bloated bureaucracies, soaring healthcare costs and pension bills, and a sharp decline in manufacturing jobs. Take Detroit, for instance. The city was the world’s automobile capital, with all the three large US automakers having a strong manufacturing base there. Today, the city has just one operating auto unit.

In fact, Chennai in India today makes more cars than Detroit. And the reason behind this shift in manufacturing jobs to countries such as India and China is apparent. According to the US Bureau of Labor Statistics, labour costs in India are less than $1.5 an hour, compared with a high of $35-plus in the US.

Not only is labour expensive in the US, many of the cities have over-stretched themselves, offering hefty concessions to public employees.

About half of Detroit’s debts can be attributed to pension and healthcare liabilities to workers on retirement. American states and cities are caught in the pension trap, where most of their employees get defined-benefit pensions, unlike private sector employees who are on ‘pay-as-you-go’ schemes, where the final retirement benefits are decided by the employees’ contribution, not by the promise of the state or city administration.

With Americans living longer, pension liabilities can cripple a state or city’s finances, as happened in Detroit. Estimates are that cities like Chicago are in worse shape. International credit rating agency Moody’s recently downgraded its credit rating three notches. The pension liability of the state of Illinois where Chicago is located is more than 240 per cent of its annual tax revenues.

Dubai Khaleej Times Online http://www.khaleejtimes.com/