Detroit filed for the largest municipal bankruptcy in U.S. history on July 18, It emerged nearly 17 months later with a plan to shed $7 billion in debt and sink another $ billion into Author: Christine Ferretti. Bankruptcy is the right move for Detroit. It is the only forum where public sector unions, retirees, and debt holders can work out their competing demands. In the end, it is likely they all will have to face reductions in payments. Despite the headlines, bankruptcy does not . Jul 18, · Detroit's historic bankruptcy and more contributed to city's revival. Many other factors, from an expanding national economy to the new appeal of downtown living, have contributed to Detroit's.
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A link has been posted to your Facebook feed. Welcome to our new and improved comments , which are for subscribers only. This is a test to see whether we can improve the experience for you.
You do not need a Facebook profile to participate. You will need to register before adding a comment. Typed comments will be lost if you are not logged in. Please be polite. It's OK to disagree with someone's ideas, but personal attacks, insults, threats, hate speech, advocating violence and other violations can result in a ban. If you see comments in violation of our community guidelines , please report them. When historians write about Detroit's recovery from decades of decline, they will no doubt credit the city's successful trip through municipal bankruptcy as a key reason for the comeback.
Started with the filing five years ago Wednesday, the bankruptcy wiped several billion dollars of debt from the city's books. But the city's historic bankruptcy hardly gets all the credit, or even most of it, for the city's current revival.
Indeed, without the confluence of several factors, the bankruptcy by itself could have been nowhere near as a successful as it has been. More on Detroit's bankruptcy:. How Detroit retirees are doing after bankruptcy.
Detroit's bankruptcy saga is being made into a documentary. The reader should note, however, that water and sewer debt is not in default although not without its issues or is it really threatening to be in default. This, in our opinion, is a significant clue to the real purpose of the bankruptcy filing. Detroit Smart Bus Just what is a dumb bus? Efforts within the three county metropolitan area to create a regional transportation authority were successfully approved by voters in the three counties , but not by the city.
Sadly, we suspect the politics proved impossible. There is a short story and a long story about Detroit and its pension-related debt. The short story is short—but far from sweet. The reader ought to treat pensions separate from retiree health care benefits, legally the two are non-equivalent. In most instances, Detroit and Michigan being included, there are no legal or constitutional requirements or prohibitions which compel a jurisdiction to honor a commitment made or included in a union agreement.
Retiree health benefits are therefore unsecured debt and its fate in a future bankruptcy decision is likely to be very bleak indeed. This release from annual required contributions to retiree health benefits, a considerable sum indeed as we have discovered earlier, is, in our opinion, the single most important incentive for the bankruptcy filing.
Now the long story. Did the city mismanage its pension debt is the more specific question at hand? Detroit was not regarded as having a particularly serious pension debt issue—although one is advised not to look too deeply into the books. Detroit has two separate pension funds; one operated on behalf of the police and fire departments and the second, essentially for the other municipal employees. The police and fire fund was funded at Each year it reduces employment levels, the pension ARC is further compounded.
Has Detroit mismanaged its pension obligations over the years? Again, the answer is a qualified yes, but probably no worse than most large American cities. We could also mention that until a sweetheart deal with the unions traded off a pay increase in favor of a 13th month essentially a bonus and which substantially increased pension fund liabilities.
The actual value of these investments is probably hard to measure and liquidity in time of need is questionable. Just how this plays out over the resolution process may be one of the most salient and interesting facets of the Detroit bankruptcy. This too could be an element of the overall bankruptcy court process strategy. Legacy central cities with a fragile economic base do not have the luxury of incompetent or outright corrupt political governance.
Secondly, the future revitalization, whatever the revitalization plan may be, is to stop the hemorrhaging of taxes and revenues and establish some sustainable base from which new lenders and sources of revenues can be developed.
In the present fiscal situation, anyone providing funds to Detroit has no real confidence that the funds will ultimately be used other than for stop-gap or worse purposes. Revenues for any future Detroit revitalization need a realistic security than the revenues will go where they are supposed to go and not be diverted. Bankruptcy is inevitable if a fiscal reset button is to be pushed and a fiscal reset is essential first step to future revitalization of the city.
Economic developers take warning! It is likely, however, that municipal workers are not going to be happy over how this issue is going to be resolved over the next decade or so. Detroit is no better, nor any worse, than most municipalities on this issue—they are just among the first to deal with it. The issue of Detroit unfunded pension liabilities has captured considerable media attention—and is likely to capture more.
Fiscally, in the Detroit case, this may not be quite as important as we are led to believe—BUT…. First, how Detroit has proposed to handle its unfunded pension liabilities, if permitted by the Court and survives certain appeals will critically affect the larger context of municipal bonding raising interest rates, reinforcing power of rating agencies—and even, in some cases, municipal access to finance markets.
Almost certainly the pensioner will get back what was paid into the system, but whether they will garner the full value of future earnings of the pension fund is more open to question. Thirdly, the extent of unfunded pension liabilities in many cities greatly exceeds any situation in Detroit.
The lessons gleaned from California cities which have skirted around these issues Stockton, for example are bleak and harsh lessons indeed. State receivership laws, where applicable Michigan does NOT have such legislation would help immensely, IF, the number and liabilities of municipalities did not reach critical mass.
Red sky in the morning—sailor take warning. The dawn sky of many municipalities is red—and we do mean red as in ink—and debt. Economic Developer take warning! Bryan D. Jones, Lynn W. Fischel, p. During this time, while not without its problems, the automobile industry was fairly robust and car sales and worker salaries-employment were at their highest level—and would continue to go higher for the next generation.
Bureau of Census, City Employment in 8. William H. Jon C. Sharpe, Detroit Free Press Editorial, August 23, Detroit Free Press Editorial, August 22, Judging by what the Curmudgeon has seen, the next most common reason cited is the collapse of the automotive industry. In his letter authorizing the city to enter Chapter 9 bankruptcy, Michigan Gov.
Rick Snyder, a Republican, pointed to some amazing statistics. Similarly, approximately 40 percent of the city's street lights were not functioning in that quarter, and the backlog of complaints is more than 3, long," he wrote. While much of the city's financial trouble is due to the public pension it must pay to retired teachers, city employees, cops and firefighters, that leaves little money on the table to pay actual cops to keep actual people safe in Detroit.
The average response time for an emergency call was 58 minutes, according to Snyder's letter, compared to a national average of 11 minutes. And only 8. This is a result of all of the above. Fewer people, fewer jobs, less economic activity and tons of crime have created a city-sized collection of abandoned buildings.
We only had room for a few photographs here, but Snyder says there are 78, such structures in Detroit. Eric Boehm is a reporter for Watchdog. Beltway Confidential. Washington Secrets. Wednesday July 08, District attorney who filed hate crime charges Top 10 reasons Detroit went bankrupt by Eric Boehm. Like the city it once helped define, Detroit's once stately Grande Ballroom has fallen on hard times. Wikimedia Commons photo. The population has collapsed in the past six decades.
Detroit has the highest unemployment rate of any major city in the nation. A lot of that debt is the result of public employee pensions.