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.