Photo credit; Jeff Kowalsky/Bloomberg
Detroit firefighters leave an abandoned houseafter putting out a fire.
Detroit has filed for bankruptcy, but a judge now says that's unconstitutional, at least, as far as the Michigan state constitution is concerned. Is that because cities are supposed to be "too big to fail"?
In December 2010, banking analyst Meredith Whitney predicted in an interview on he CBS program 60 Minutes that between 50 and 100 counties, cities and towns in the U.S. would have "significant municipal bond defaults." Her timeline was a little off, since she predicted that this would happen in the year 2011, but given that Detroit has now decided to declare Chapter 11 bankruptcy, it would seem that Whitney may have been right, after all.
Here are 25 facts about the Motor City, taken from this article on a web page called The Economic Collapse. I don't normally go in for "the sky is falling" routines, but each of these facts has a link to a story where the fact was reported. You can check the links for yourself in the original article. I'm reprinting the 25 facts here, with my own commentary.
--> 1) At this point, the city of Detroit owes money to more than 100,000 creditors.
2) Detroit is facing $20 billion in debt and unfunded liabilities. That breaks down to more than $25,000 per resident.
3) Back in 1960, the city of Detroit actually had the highest per-capita income in the entire nation.
4) In 1950, there were about 296,000 manufacturing jobs in Detroit. Today, there are less than 27,000.
5) Between December 2000 and December 2010, 48 percent of the manufacturing jobs in the state of Michigan were lost.
6) There are lots of houses available for sale in Detroit right now for $500 or less.
7) At this point, there are approximately 78,000 abandoned homes in the city.
8) About one-third of Detroit's 140 square miles is either vacant or derelict.
9) An astounding 47 percent of the residents of the city of Detroit are functionally illiterate.
10) Less than half of the residents of Detroit over the age of 16 are working at this point.
11) If you can believe it, 60 percent of all children in the city of Detroit are living in poverty.
12) Detroit was once the fourth-largest city in the United States, but over the past 60 years the population of Detroit has fallen by 63 percent.
13) The city of Detroit is now very heavily dependent on the tax revenue it pulls in from the casinos in the city. Right now, Detroit is bringing in about 11 million dollars a month in tax revenue from the casinos.
14) There are 70 "Superfund" hazardous waste sites in Detroit.
15) 40 percent of the street lights do not work.
16) Only about a third of the ambulances are running.
17) Some ambulances in the city of Detroit have been used for so long that they have more than 250,000 miles on them.
18) Two-thirds of the parks in the city of Detroit have been permanently closed down since 2008.
19) The size of the police force in Detroit has been cut by about 40 percent over the past decade.
20) When you call the police in Detroit, it takes them an average of 58 minutes to respond.
21) Due to budget cutbacks, most police stations in Detroit are now closed to the public for 16 hours a day.
22) The violent crime rate in Detroit is five times higher than the national average.
23) The murder rate in Detroit is 11 times higher than it is in New York City.
24) Today, police solve less than 10 percent of the crimes that are committed in Detroit.
25) Crime has gotten so bad in Detroit that even the police are telling people to "enter Detroit at your own risk".
Doesn't sound like a very good place to live, does it? Or even visit.
Detroit has always been the home of the automobile industry in the U.S. and considering that the auto industry has been bailed out not once, but twice (remember Lee Iacocca, the CEO of Chrysler asking Congress for a bailout back in 1979?), we should have been able to see this coming.
Detroit isn't the first municipality to file for bankruptcy. It's just the biggest.... so far. Other places that have filed for Chapter 9 include Stockton, CA, Jefferson County, AL, and Harrisburg, PA. In some cases, it wasn't the city itself, but smaller entities, such as utility authorities, that went under. In Omaha, NE, for instance, ten "sanitary districts" have filed for Chapter 9 since 2010.
It's not necessarily the end of the world, however. Several smaller cities who filed for Chapter 9 assistance have already struggled back into the black, but it has taken a lot of time. Official who have been through the process say that state intervention programs tend to be retroactive, and that state officials have to wait for cities or counties to ask for help. Understandably, cities are uncomfortable with "outsiders" coming in to take over the controls, no matter how badly the locals might have bungled the finances. One thing that has gotten some cities into trouble is promising generous retirement packages. "We should be real careful about making promises that won’t come due for 30 years," says Robert Stout, who served as finance director for the city of Vallejo, CA, back in 2008, when it declared bankruptcy.
The cit of Flint, MI, is subject to Michigan Public Act 72, which allows the state to appoint an emergency financial manager for struggling cities. Dwayne Walling, the mayor of Flint, says that states should reform laws governing relationships between municipalities and labor unions.
What happens when a municipality goes bankrupt? Cost-cutting measures are put into place, which usually means that firefighting, garbage collection and library branches will feel the pinch. The city or county can also try to increase revenue by raising taxes. Usually, it's a combination of both. Whatever happens, local politicians and a responsive citizenry will need to work together to restore their community to financial health. :-/