Thursday, July 18, 2013

Detroit Is In Bankruptcy, But Has Not Hit Rock Bottom

Detroit Hit Bottom Today To no one's surprise,Detroit, MoTown, Motor City, entered bankruptcy earlier today. It’s a new low, but Rock City has not yet struck rock bottom. There’s more jobs to be lost, population to leave, and homes to be torched. Today’s filing for bankruptcy by Emergency Manager Kevyn Orr is just the latest formal step in the death spiral of one of America’s greatest cities. The collapse of the other Detroit, the American auto industry, hasn’t helped, but the city’s demise began on July 23, 1967, the beginning of 5 days of riots in Detroit. Only 8,000 National Guardsmen and 4,700 82nd Airborne soldiers squashed it. The statistics don’t tell the true story: 43 dead, 1188 injured, over 2,000 buildings destroyed and 7,231 arrests. Other cities, such as Los Angeles with the 1965 Watts riots, survived, but Detroit entered a death cycle. The response to the Detroit riots was White Flight and middleclass flight (black and white). Downtown was left a hallowed shell. The great J.L. Hudson Department Store, which once vied with Macy’s Herald Square for the largest in size, was shuttered on January 17, 1983, and demolished on October 4, 1998, leaving a large vacant space in downtown Detroit. That the City is down to one auto plant, Chrysler, from 12 hasn’t helped. The loss of Stroh’s Brewery and bankruptcy of Kmart, GM, and Chrysler in recent years hurts, but the city was already hemorrhaging. The numbers tell the tale. Detroit shrank from 1,849,568 in the 1950 Census to 713,777 in 2010. Detroit now has a smaller population than San Francisco (805,235), but spreads it over 142.87 square miles compared to 46.9 for the City By the bay. Over half of Detroit’s 305,000 properties failed to pay their 2011 property tax bills. 77 city blocks have only one resident paying property taxes. Abandoned buildings, burnt out buildings, permeate much of the City, making New Orleans Lower Ninth Ward look redeveloped by comparison. 700,000 abandoned homes. Broken street lights aren’t fixed and potholes left unfilled. One-third of the city's ambulances are broke, and over half the parks are closed. Homicide rates are at a four decade high. Police and fire cannot respond to every emergency call. ABC cancelled Detroit 187. Two abandoned buildings exemplify Detroit: the classic Beaux-Arts Michigan Central Station and the 3,500,000 square foot Packard plant. 15.6% of the population is officially unemployed, but that number is deceiving. 1/3 of the residents live below the poverty line. Detroit is broke. It cannot borrow anymore. The long-term debt is estimated at $20 billion. It defaulted on June 14, 2013 on $2.5 billion in debt, missing a $39.7 million interest payment. The current budget has a $380 million deficit. A major source of income for the city is $11 million monthly from the three Detroit Casinos, if the banks will release the funds - hardly the future of the Motor city. The former mayor, Kwame Kilpatrick, was corrupt. The Board is dysfunctional. The public employee unions are fighting any cutbacks in pension and health benefits owed the city’s retirees. Their argument is compelling. The Michigan Constitution provides pensions are ”contractual obligations” that “shall not be diminished or impaired.” Two problems exist with the argument. First, they are now in federal bankruptcy court – not state court. Second, the city has no money. 65% of the city’s budget goes to the legacy costs of retiree pension and healthcare costs - 4 active workers for six retirees.. Michigan was the heart of the union movement with the once powerful United Autoworkers leading the nation. Rubber, glass, steel, auto parts, all built on the UAW power. Detroit, the city, became the experiment in mass transfer payments. The city's last Republican Mayor was elected in 1957. Only one Republican has been elected to the City Council since 1970. Detroit is a one party bankruptcy. Finally, the city's structure could not be sustained by its shrinking economic resources. The population steadily declined, but not the bureaucracy, until the past few years. Detroit still has a planning department. Why? Many innocent retirees are going to pay the price for past profligacy by public officials. The City of Detroit has few assets, except for the Detroit Institute of Art and the original Howdy Doody Puppet, to liquidate to pay off any creditors. 100,000 creditors; 40 public employee unions in Detroit - The lawyers will feast off this bankruptcy. The Republican House of Representatives is not going to authorize President Obama to bail out Detroit Sadly, these legacy costs reflect the future for several California cities, as well as elsewhere in America. Too many city councils, county boards, and state legislators were overly generous in the past to public employees, but the legacy is present. Suggestions for Detroit revolve around clearing the abandoned blocks, and bringing commercial agriculture back to the city, perhaps marijuana. Detroit is the largest municipal bankruptcy to date, but it will not be the last.

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