Mayor Michael Bloomberg on Tuesday warned that New York City is faced with a real risk of insolvency like Detroit.
Bloomberg said that like Detroit, New York City was once one of the manufacturing centers in the United States, however, as large-scale manufacturing companies slowly moved out of large cities across the country, New York began to diversify its industries rather than depending on a single one.
"As our manufacturing base declined, the financial industry grew, along with other industries, such as real estate, and that helped cushion the blow," said Bloomberg during a visit to a former manufacturing plant now used for startup companies.
"The small businesses you see here reflect the progress we've made in diversifying our economy over the past 11 and-a-half years: film and TV, arts and culture, fashion and design, bio-science and engineering, new media and entertainment, tourism and tech," he said.
However, Bloomberg warned that the risk of falling into an economic downward spiral is still very real for the New York City, and the primary driver of the risk is the same factor that was present in Detroit: the explosion in pension and health care costs.
Detroit, the largest U.S. city to file for bankruptcy, cited more than 18.5 billion U.S. dollars in debt in July, half of which came from pension and retiree health care costs.
The mayor said that the pension costs of NYC increased to 6.3 billion dollars in 2009 fiscal year from 1.4 billion dollars in 2002 fiscal year.
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"So clearly, our increase in annual pension costs, which today total more than eight billion U.S. dollars per year, was the result of a benefit structure that promises retirees too much too soon, and requires them to contribute too little to pay for it," Bloomberg said.
"It may be a long way from Detroit, but we are only a short distance from relapsing into decline, if we allow healthcare and pension benefits to crowd out the investments that make New York City a place where people want to live, work, study, and visit," he added.