Detroit’s Bankruptcy: It Took Decades of Bad Decisions

Two months after the city of Detroit filed for bankruptcy protection — the largest such filing in American history — the Detroit Free Press this weekend published an in-depth look at more than 60 years of city finances.

It’s a solid work of journalism that offers a warning for other municipal leaders across the country: Make the tough decisions when problems arise, no matter how politically difficult they may be, and how tempting it is to rely on accounting games and borrowing to get through a rough patch.

Detroit is broke, but it didn’t have to be. An in-depth Free Press analysis of the city’s financial history back to the 1950s shows that its elected officials and others charged with managing its finances repeatedly failed — or refused — to make the tough economic and political decisions that might have saved the city from financial ruin.

Instead, amid a huge exodus of residents, plummeting tax revenues and skyrocketing home abandonment, Detroit’s leaders engaged in a billion-dollar borrowing binge, created new taxes and failed to cut expenses when they needed to. Simultaneously, they gifted workers and retirees with generous bonuses. And under pressure from unions and, sometimes, arbitrators, they failed to cut health care benefits — saddling the city with staggering costs that today threaten the safety and quality of life of people who live here.

The numbers, most from records deeply buried in the public library, lay waste to misconceptions about the roots of Detroit’s economic crisis. For critics who want to blame Mayor Coleman Young for starting this mess, think again. The mayor’s sometimes fiery rhetoric may have contributed to metro Detroit’s racial divide, but he was an astute money manager who recognized, early on, the challenges the city faced and began slashing staff and spending to address them.

And Wall Street types who applauded Mayor Kwame Kilpatrick’s financial acumen following his 2005 deal to restructure city pension debt should consider this: The numbers prove that his plan devastated the city’s finances and was a key factor that drove Detroit to file for Chapter 9 bankruptcy in July.

There’s more blame to pass around, including state officials who reneged on financial promises. And there’s significant reason to fear that the city government’s path to solvency will involve steamrolling city retirees by slashing pensions and health care commitments, potentially putting the interests of bondholders ahead of those of retired workers.

And if that happens, conditions in Detroit will likely get worse (I explore the long arc of Detroit’s rise and fall in my 2012 book, “Detroit: A Biography”). One of the key misconceptions about Detroit’s fiscal crisis is that the city government is the same thing as the city community. But any government is just a mechanism of politics and administration for a community, and balancing the city’s budget through privatization, slashed pension and health care benefits, and selling off of assets (there are fears some of the Detroit Institute of Arts collection might be at risk) does nothing to affect the underlying community problems.

In short, Detroit’s municipal bankruptcy is a symptom of the city’s mind-numbing poverty, the exodus of more than 1 million residents since 1950 (a quarter of them since 2000), and its vast emptiness, with fewer than 700,000 people spread over nearly 140 square miles — more area than Manhattan, Boston and San Francisco combined. Despite recent developments in the core downtown and midtown areas, the community remains in the grip of the cycle of poverty Michael Harrington first brought to light in his 1962 book, “The Other America,” which helped launch the War on Poverty.

Today some 36 percent of Detroiters live below the federal poverty line, the highest rate among the nation’s major cities and more than double the national rate. Retail sales per capita are $3,567, a third of the national rate. Nearly a quarter of city residents over age 25 do not have a high school degree, compared with 12 percent nationwide. Official unemployment is at 16 percent, though the true level of unemployment is likely much higher.

A balanced city budget will do little to change any of that.

—Posted by Scott Martelle.