Detroit Mayor Dave Bing made a rookie mistake in his attempt to balance the Detroit City budget, by confusing structural budget issues with financial symptoms. Bing, along with a number of financial 'gurus' who should know better, argue that pension costs for the City's union workers, mostly police officers and fire fighters, are a structural problem for Detroit. Bing is wrong. Pension costs--and specifically the chronic underfunding of pensions--is a financial symptom of an underlying structural issue. There is a simple to test to determine if an issue is structural: will the 'fix' be permanent? In the case of Bing's proposed cuts to pensions, the fix is at best static and temporary as it does not address the underlying strutcural dynamic problem: declines in population and businesses. Think of it this way: if you reduce pensions so that the 2011 budget is balanced, and people and businesses continue leave in 2011, then in 2012 the City will have lower revenues in 2012 than in 2011 and there won't be enough money for the budget and the whole problem will start over again. To get a long-term solution the City needs to fix the dynamic structural problem of people leaving the city. The downward structural cycle is clear: people leave the city, which causes lower tax revenues, which causes budget cuts in all areas including public safety, which leads to increased crime, which causes people to leave the city, and the cycle repeats. Where do pensions come into this structural cycle? They don't--they are a symptom of the structure and not a part of the structure.
What is the solution? Mayor Bing and Detroit have some hard choices to make, including balancing the current budget. But to do so by cutting public safety--reportedly by as many as 500 police officers and 400 firefighters--simply exacerbates the downward structural cycle by further endangering public safety. The solution is to find a way to balance the budget (the short-term symptom) and simultaneously improve public safety, thereby breaking the downward structural cycle, and provide the catalyzt for a revitalization of Detroit. To be sure, Bing and Detroit have made substantial progress on public safety and attracting population to a few isolated neighborhoods mostly in the revitalized downtown area. The current budget proposal needs to build on these successes, but it offers less success, not more.