We Can’t Afford to Save Every City

The City of Detroit has filed for bankruptcy protection, the largest municipal bankruptcy in U. S. history:

DETROIT—The city of Detroit filed for federal bankruptcy protection Thursday after decades of decline, a new low for a city that once defined industrial America’s might but was hollowed out by the flight of residents and businesses to the suburbs.

The filing by the automobile capital and onetime music powerhouse—which has liabilities of more than $18 billion—is the country’s largest-ever municipal bankruptcy case.

The move to restructure the debt is bound to set off months, if not years, of legal wrangling, asset sales and cuts to benefits for Detroit workers and retirees, including 20,000 on city pensions. Owners of the city’s bonds are expected to battle with retirees and others for pieces of the city’s diminished wealth.

Others have pointed out the various factors behind the city’s fiscal problems including population decline, revenue decline, and corruption and mismanagement. It’s hard for me to determine whether decades of city government making promises to its employees that it could not keep falls under the classification of “corruption” or “mismanagement”. Probably both, at least as soon as city officials knew they wouldn’t be able to keep their promises.

Detroit isn’t the only city that has fallen on hard times. St. Louis has lost a larger proportion of its population. It’s been pointed out that Detroit lost 20% of its population over the last decade. Chicago has lost 10% of its population over the same period.

Pittsburgh is half the size it was in 1960. Cleveland is half the size it was in 1960 and has lost almost 20% of its population over the last decade. Toledo, Akron, the same picture appears in dozens of cities across the Midwest.

It isn’t only the Midwest. More than a dozen cities in California are facing the prospect of municipal bankruptcy, including Oakland and San Jose. San Jose, despite its position as the capital of the much-lauded Silicon Valley has been in the red for the last 11 years. I guess it’s easier to hold on to high tech businesses when you don’t tax your businesses and residents enough to pay for the services you’re providing for them.

Detroit’s circumstances, however, are extraordinary. In essence, Detroit was a very large “company town” and the company was the auto industry. When the U. S. auto industry fell off its perch, Detroit’s fate was sealed.

I think that seeking Chapter 9 bankruptcy is a desperate and largely symbolic move. If it allows the city to re-write its pension plans after the fact, it will throw tens of thousands of its residents, retired city employees, into penury. If it doesn’t, how will the city derive enough revenue to pay those pensions? Detroit doesn’t need bankruptcy protection. It needs a mulligan and cities don’t get those. Detroit doesn’t just need bankruptcy protection. It needs businesses; it needs new industries and the people with the skills to work in them. Would you invest in Detroit? Or would you prefer Houston? Or even Des Moines?

Over the last decade the federal government has lavished tens or even hundreds of billions of dollars on New York City and, as you might expect, fortified by the money, the city has been able to hold its own. In the absence of all of that federal money would New York have suffered the same fate as Detroit? There’s really no way to know.

However, I think it’s clear that we can’t afford to spend enough to save every American city. States must take a more active role in monitoring the fiscal health of their cities on a real-time basis and be prepared to step in early in the process rather than later when the harm has already been done.

Now, with the harm already done, what Michigan needs most is an orderly process for decommissioning a city. Detroit needs to shrink and either be divided into viable pieces if there are viable pieces or allow large portions to return to nature. The city doesn’t have the incentives, the power, or the finances to do that. It’s up to the state of Michigan and, with the White House indicating that federal help will not be forthcoming, the state of Michigan alone.

However you look at it, Detroit’s decline is a tragedy.

15 comments… add one
  • PD Shaw Link

    I don’t know if there is some irony here with a Michigan city not receiving attention from the power centers. New York City (1975):

    “Two weeks later, President Gerald R. Ford angered many New Yorkers by refusing to grant the city a bailout, a decision famously summarized by the propagandized New York Daily News headline “Ford to City: Drop Dead.” Ford would later sign the New York City Seasonal Financing Act of 1975 which extended $2.3 billion worth of federal loans to the city for three years.”

  • Yes, I’ve already seen that used: “Obama to Detroit: Drop Dead”.

    I don’t think there’s any partisan gain to be had for Democrats in Detroit’s woes although Lord knows they’re trying. On the one hand I’ve seen mountains of complaints about Detroit’s one party system. On the other I’m starting to see a few claims that Detroit’s problems were created by the present Republican Michigan legislature and governor.

    I think that’s a weak strategy. If you hold to a “your watch—your fault” rule doesn’t that place the president in substantial jeopardy? Pretty hard to make stick after years of blaming Bush.

  • PD Shaw Link

    OK, is this really the city’s motto (via Wikipedia)?

    Motto: ‘Speramus Meliora; Resurget Cineribus
    (Latin: We Hope For Better Things; It Shall Rise From the Ashes)

  • Andy Link

    Seems to me the legacy pensions could be turned over to the PBGC. If its anything like what happened to my Steelworker relatives, then the benefits would probably be cut by 50%. Beyond that, not sure what the Feds could/should do.

  • I don’t believe the PBGC’s empowering legislation extends to public pensions. It could be extended but can you imagine the present Congress supporting that?

    Another factor is that my understanding is that the PBGC in its pension insurance function requires the participating entities pay them to participate. I suspect there would be a federalism issue in that.

  • jimbino Link

    Is it better for a city to diversify its industry, or rather concentrate on what it does best, as Detroit and San Jose have done?

    Detroit could have saved itself by eliminating unions and public education. Unions and public education are bound to attract folks on the shallow end of the gene pool and stifle growth.

  • Trumwill Mobile Link

    Public education attracts the stupid and incompetent? That’s a new one…

  • Red Barchetta Link

    I don’t see how blaming the state govt holds water or does a lick of good. Western Michigan – which might as well be a world away from eastern Michigan – is doing just fine. Of course it follows none of the usual big government practices that Detroit and the surroundings do. And the focusing just on auto? Naw. A huge number of auto related businesses flow down into one of the most fiscally sound states in the country: Indiana. Its the policies and corruption.

    Sadly, Chicago is hurtling like a bug towards a windshield down the same path. But I bet people keep voting Democrat.

  • States are sovereign; cities are not. Cities’ powers are very limited, much more so than those of states.

    I’m not claiming that corrupt and incompetent city government had nothing to do with Detroit’s problems. They had everything to do with them. But rather than taking the position that Detroit must suffer for its sins why not take a day forward approach?

    The only way that’s going to happen is if the state steps forward and takes some responsibility. And the state has the power to prevent its cities from adopting ruinous policies.

  • Red Barchetta Link

    “They had everything to do with them. But rather than taking the position that Detroit must suffer for its sins why not take a day forward approach?”

    What is the phrase? Elections have consequences? You can’t have it both ways – “they had everything to do with them”……….but neglect the fact that people continued to vote for it because it lined their own pockets but with what was perceived to be OP’sM. OP’sM runs out and without consequences nothing will change. The very title of your post tells it all: there must be a line in the sand.

    “And the state has the power to prevent its cities from adopting ruinous policies.”

    How? Can you explain how that would work here in IL as a practical matter? Appeal to the, ahem, “better instincts” of Madigan? In a private setting you can shut down the money losing factory for the good of the whole. How would that have worked in Detroit? Western Michigan hums along just fine, and no doubt subsidized the cesspool for years.

    Everyone has a right to vote we are all frequently reminded. But people forget the responsibility thingy and the consequences of their vote. I just don’t see why some (who see clearly the predictable looming financial calamity but are scoffed at) have to subsidize the voting preferences of those committing what amounts to financial rape. After all, We Can’t Afford to save Every City.

  • Can you explain how that would work here in IL as a practical matter?

    Politically, it would be very difficult. That’s why I’m advocating procedures set up in advance and performed routinely to deal with similar situations.

    From the point of view of plain power, the state can do practically anything it cares to with its cities, consistent with the state’s constitution and the U. S. constitution. It can disincorporate them. It can declare their ordinances null. It could rescind taxes or impose them. In the United States states have truly awesome power.

  • jimbino Link

    Yo, Trumwill Mobile,

    You must have been sleeping when it was pointed out that to become a public school teacher, you have to graduate in the bottom half of the class.

  • BTW, the mayors of Muskegon, Lansing, and Kalamazoo are Democrats. I don’t think it’s a matter of partisan politics. I think it’s a big city problem.

    The mayor of Grand Rapids is an independent who’s had strong Democratic support.

  • steve Link

    Dont confuse him with facts Dave.


  • michael reynolds Link

    Yeah, elect more Republicans. That’s why Mississippi is such a wonderland.

    Basically cities rise and cities fall. The world is studded with the ruins of cities that went bye-bye. But we’re a young country and think that doesn’t apply to us. Ask the mayor of Machu Picchu.

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