I know that Detroit filed for bankruptcy but I’m a bit confused about what the entails.
I have very little knowledge of economics because it’s not my cup of tea, so I don’t even understand why Detroit wound up in such dire straits.
We see news stories about people fleeing (and sadly leaving their helpless pets behind), but are they fleeing downtown Detroit or are they fleeing the suburbs/outlying neighborhoods?
Is life still possible in Detroit (i.e. are businesses still open, customers coming in, hospitals staffed, tourists coming in, etc) or is it becoming a ghost town?
Bankruptcy is a legal matter between the city (government) and its creditors - of course the city isn’t completely abandoned but pics like this are pretty crazy to see
Detroit still has a larger population than Baltimore. Or Washington, DC. Or Denver. Or Seattle. Or Boston. The problem is that Detroit once had a population of 1.8 million and lost 1.1 million. That leaves huge holes.
You can’t think of a city of 700,000 people as a ghost town. Many people see opportunity there. Quicken, for example, moved its headquarters there with thousands of people. Unfortunately, the city is broke and will be broke for years if not decades to come. New York took a couple of decades to turn around and it had every possible advantage.
Here’s a recent thread that argued the subject at length. This question is better suited for GD because the reasons behind Detroit’s fall will get answered according to political and economic philosophies.
Something else very important to remember is that the metro-Detroit area is quite nice and doing pretty well, especially with the car companies turning around. It’s really just the city itself that has gone downhill.
As to why Detroit is in its current condition, the short (but accurate) story can be reduced to corrupt polititions, elected by an uniformed and ignorant electorate, catering to public and private sector unions. Of course, auto manufacturers share some blame for ignoring quality and customer preference changes circa 1970s. Unlike local government, however, GM, Ford and Chrysler changed their ways.
See, this is exactly why this needs to go into GD.
Detroit’s problems are structurally the same as Cleveland’s problems. And Buffalo’s. Rochester, Syracuse, Schenectady, Toledo, Akron, Gary, Bridgeport, Scranton. Philadelphia, Baltimore, Pittsburgh. The entire Rust Belt has seen their center cities collapse. Why? Their heavy industries and/or major employer went out of business or moved operations elsewhere. White flight took the middle class to the suburbs. Reagan deliberately stopped putting federal funds into urban areas and shifted them to his suburban supporters. Poverty made services decline, crime rise, and schools worsen, which drove out more middle class, which made everything left get worse in a vicious cycle. A series of structural reasons, meaning reasons that happened across a society and were not particular to a specific set of actions.
Why is this a better explanation? Because you can actually study governments. Was the government in every single northeast city corrupt? No. Did every northeast city bankrupt itself through public pensions? No. Can you find cities in other parts of the country with corrupt politicians and high pensions? Yes. Are their cities showing the pattern of the Rust Belt cities? No.
This is not saying that every Rust Belt city is equal to Detroit. There is always a range, with some coming back more than others. Pittsburgh is often held up as an example of a city that’s returned, but if you go there you see lots of the scars of the dead days remain. But it went through decades of bad times for exactly the same reasons. Some city has to be the worst example, though. For a while it was Pittsburgh, then Cleveland, then Buffalo, and now Detroit. Detroit did have corrupt politicians and that undoubtedly hurt its ability to get better. But they were definitely not the cause. There were no conceivable choices the voters could have made in Detroit that would have turned the city around. It’s like voting against a tsunami.
Indeed. Voters (and certainly politicians) in the rest of Michigan could have chosen differently. But knowing something about the context makes holding seemingly commonsense opinions harder.
Detroit did not decline overnight. I still remember when Coleman Young was elected mayor-he made a speech that was to the effect that “the city is now ours, we now control everything”. He instituted a reign of corruption and nepotism that really accelerated the decline. The present city government seems clueless-they do not seem to realize that you cannot spend what you don’t have.
Absent some kind of federal bailout, it is hard to see the city surviving. It cannot even deliver basic services…so, why not tear it down and start over? Or maybe it should become a ward of the state (with elected officials replaced by appointees).
The biggest problem with Coleman Young was that he was openly hostile to the city’s white population, which of course shifted white flight into high gear. I mean, imagine if the nation’s first black president had been Jesse Jackson, and what the state of race relations would be like if that had happened. That was the situation in Detroit under Young. That attitude is finally fading, but you can still see it among some of the more racist city leaders (like Monica Conyers).
Today, the city’s entertainment distict (the area centered around the stadiums and theaters) is thriving. I was there last night for a Tigers game. There are nice neighborhoods, but like others have mentioned the city is too large geographically, so the population is too spread out to be serviced effectively. The long-term plan is to clear out the worst neighborhoods (where the majority of the houses are vacant) and return them to green space. That will take years, and will probably require the use of emminent domain to clear out the holdouts. The short-term planning is more centered around maintaining city services, like getting the streetlights working, and trying to get the abandoned houses torn down.
the city owes people money. It has immediate and long term debts, it can’t pay them.
In a business, the creditors would sue, the bankruptcy court would likely close the business an shutter it and then the trustee would sell off the assets and pay the creditos X cents on the dollar. A person would then start over. A company woul cease to exist.
Obviously, with a city it is not that simple.
In one case, it owes money to pension funds. These cannot collect, they have no money to pay pensions, everyone takes a major cut in pension amounts.
In other cases, it woes money to banks and others who bought its bonds.
It owes a weekly paycheque to a large number of city employees.
Can they collect?
The city continues to be there, it continues to collect taxes - theoretically the city could raise property taxes ($100,00 a year per house…) but that would simply create even more flight an be counter productive.
If anyone took ownership and tried to run the place, they would be stuck with the same issues - not enough money to keep running the place. Owning city hall as property would be waste of time unless there were water, sewer, functional roads and traffic lights to get there, etc.
there are specific laws on the bankruptcy process for this sort of organization, but in general the people who could take over really don’t want or need the hassle.
So basically, it’s a pile of manure waiting for an outside authority like the state to come in, appoint an administrator to take the hard decisions and clean up everything.
Yet another complication to this is that governmental use of imminent domain is becoming more and more restricted. SCOTUS decisions like Kelo Vs New Londonand Koontz Vs St Johns Water Management Districthave made it much more difficult for a government to take property for the public good. Keep in mind that the government won the Kelo case, but the publicity from it caused many governments in places (like my state, Florida) to specifically curtail the the use of imminent domain for such purposes.
If they’re just threatening to expropriate, it’s ***imminent ***domain…
Actually, I thought a few years ago there was a move to get the city where one of teh SCOTUS justices owned home to expropriate it, since the judge had voted with the majority for excessively expansion of emminent domain.
The city technically owns the roads and parks and other land. However, IIRC as “public roads” they have to remain open. Isn’t there some principle where a plot of land must have access to a public right of way?
Often, too, institutes like the Art Gallery are set up as separate bodies. As long as they pay their bills, they may not be part of the bankruptcy sale.
To add to this, city employees that pay into the city pension fund do not pay into social security, and will not collect social security. The pension is all they have. However, the Michigan state constitution specifically prohibits reducing pension benefits. However however, the bankruptcy was filed in Federal court, so it’s unknown how this will turn out.
Well, logically your pension is money you already earned, they just haven’t gotten around to paying you yet. Reducing your pension is no different than saying “we’ve paid you $500,000 over the last 10 years, would you mind giving us $100,000 back?”
However, a pension is paid out of a fund. If the city/airline/car company/whatever has failed to put enough money in, then the fund has three choices:
-keep paying until there’s no more money; fine for people planing to die in the next year or so, very crappy for those not yet retired who will get diddly.
-reduce benefits - spread the pain
-find the money; not sure how it works in the USA, but generally employees and their pension have no more claim on assets than any other unsecured creditor, and can expect pennies on the dollar if they’re lucky. For most employers, declaring bankruptcy and screwing their long-time employees by shedding pension debt is a shortcut to solvency.
Can they go after the state for the difference? Depends on state law. It’s the old maxim, “nothing is impossible for the person who does not have to do it himself”. It’s easy to pass a law that pensions cannot be reduced. It’s a bit trickier to explain where the money would come from. the whole system is complicit for letting the city fall behind on its obligation to keep the fund topped up.
To complicate things even further, the Detroit Zoo is technically owned by the city of Detroit, but it receives funding from the entire tri-county region thanks to some milliages that were passed a few years ago. Any attempt to mess with the zoo (not that anyone really wants to) would likely lead to a seperate lawsuit claiming that, in effect, the zoo is really owned jointly by the citizens of Wayne, Oakland, and Macomb Counties. The situation with the Detroit Institute of Arts is similar, as the state attorney general has taken the position that the DIA is the collective property of the people of Michigan. Presumably, he would fight any attempt to sell off artworkon behalf of the people of the state.
Frankly, the easiest matter to clear up should be the municipal bonds. They should simply be cancelled, with the bondholders geting nothing. Anyone who bought a city of Detroit bond any time in the last couple of decades knew (or should have known) that there was a high likelyhood that the city would go broke, and that they were basically dabbling in junk bonds.
