Detroit topples into bankruptcy

[Astronuc]

Detroit is facing the largest munipical bankruptcy in US history.

Detroit files for bankruptcy, setting off battles with creditors, pensions, unions
http://www.freep.com/article/20130718/NEWS01/307180107/Detroit-files-Chapter-9-bankruptcy-amid-staggering-debts

Billions in Debt, Detroit Tumbles Into Insolvency
http://www.nytimes.com/2013/07/19/us/detroit-files-for-bankruptcy.html

Not everyone agrees how much Detroit owes, but Kevyn D. Orr, the emergency manager, has said the debt is likely to be $18 billion and perhaps as much as $20 billion.

. . . .

Detroit expanded at a stunning rate in the first half of the 20th century with the arrival of the automobile industry, and then shrank away in recent decades at a similarly remarkable pace. A city of 1.8 million in 1950, it is now home to 700,000 people, as well as to tens of thousands of abandoned buildings, vacant lots and unlit streets.

. . . .

 

[cobalt124]

I'm not surprised given the current economic climate. On a much smaller scale, in the U.K., given the current governments policies, the public sector is under pressure and there is talk of smaller local authorities not having the means to provide even basic services they are obliged to by law, and going bankrupt. I have never heard such talk before.

I heard on the radio that Detroit peaked in the middle of the last century and has been in decline ever since. Shouln't (couldn't) something have been done in all that time?

 

[Vanadium 50]

Topples? More like slams into the ground at full speed.

You can't have growing government and a declining tax base indefinitely. In 1951, there were 1.8M residents of the city, and 1 in 63 worked for the city. Today there are 0.7M residents and 1 in 35 work for the city.

 

[edward]

Topples? More like slams into the ground at full speed.

You can't have growing government and a declining tax base indefinitely. In 1951, there were 1.8M residents of the city, and 1 in 63 worked for the city. Today there are 0.7M residents and 1 in 35 work for the city.

Detroit has been slowly tumbling for a long time.

 

[nsaspook]

http://www.reuters.com/article/2013/03/11/us-usa-crime-kilpatrick-idUSBRE92A0HV20130311

(Reuters) - Former Detroit Mayor Kwame Kilpatrick, once seen as a rising star in Democratic Party politics, was convicted on Monday on two dozen federal charges of corruption and bribery during his seven-year tenure.

Prosecutors accused Kilpatrick, 42, of widespread corruption, extorting bribes from contractors who wanted to get or keep city contracts, and turning the mayor's office into "Kilpatrick Incorporated" from 2001 until he resigned in 2008.

You also can't have generations of corruption and graft in local government without it affecting the city in a negative way.
The people of Detroit voted in crook after crook, so while I feel for the hardworking souls who will lose money in this crash they are also responsible for it's destruction.

 

[Greg Bernhardt]

The people of Detroit voted in crook after crook, so while I feel for the hardworking souls who will lose money in this crash they are also responsible for it's destruction.

Perfect example of a weakness in democracy. When the people don't know what is best for themselves, how can democracy work?

 

[George Jones]

Very sad. For many years, I lived couple of kilometres south of Detroit on the Windsor side of the river (left in 1997). Old Tiger Stadium and the Joe Louis Arena were both quite visible on my walk to and from university. I have a very good friend (a dual citizen) who grew up in Windsor, who still lives lives in Windsor, and who works in Detroit. We often went to see films at the Detroit Institute of Arts.

 

[nsaspook]

Perfect example of a weakness in democracy. When the people don't know what is best for themselves, how can democracy work?

It's just human nature to want to get something for nothing. Democracy does not mean a free lunch. At it's root, responsible and honest government is the responsibility of the voters, if they decide to look the other way to keep the money train running then we as responsible voters need to make an example of them.

https://www.physicsforums.com/showthread.php?t=339728

 

[mheslep]

Perfect example of a weakness in democracy. When the people don't know what is best for themselves, how can democracy work?

To the extent the maxim, 'people know what is best for themselves', is true, I think it holds best locally. I think a big part of Detroit's issues stemmed from interference by people from far away, in particular via the federal government, such as the "Model Cities" program from 1966 which tried to plan a brand new city.

 

[Vanadium 50]

It's not clear why pouring money into Detroit by the feds caused its ills. If looking at the 1960's, I would think the more relevant event - or rather, events - were the 1967 riots. That caused demographic shifts that Detroit has never recovered from.

 

[mheslep]

Money from afar can and has accomplished good, but it always seems to carry along some risk of dependency, as many have observed.

“Continued dependence upon relief induces a spiritual and moral disintegration fundamentally destructive to the national fibre. To dole out relief in this way is to administer a narcotic, a subtle destroyer of the human spirit.”

The more disconnected the source from the recipient, the more politics plays a role in the selection, the greater the risk of harmful dependency, or so I observe.

Riots occurred throughout US cities in the 1960's, and some areas have seen industries not just decline but vanish. The interesting question then is why did Detroit suffer the worst riots, why did it not turn a corner economically after down turns as others have?

 

[mheslep]

Washington, DC 1968, post MLK riot 1968

Washington, DC Today, same corner.
http://goo.gl/maps/Qt6rd

 

[nsaspook]

The best solution for Detroit is just to start levelling most of the city, offer the land and recycled construction materials free of charge to anyone who wants to rebuild inside the zone selected to still provide services with maybe a sliding scale for property taxes for the first ten years.

http://www.time.com/time/magazine/article/0,9171,2030898,00.html

 

[Vanadium 50]

Riots occurred throughout US cities in the 1960's, and some areas have seen industries not just decline but vanish. The interesting question then is why did Detroit suffer the worst riots, why did it not turn a corner economically after down turns as others have?

Detroit is geographically large. This was the appeal to the middle class; one could live in the city and still have a yard in a quiet neighborhood. After the riots, when the middle class no longer felt safe, they fled to the suburbs. This left Detroit with a large area to maintain, but without the tax base to do it.

On top of that you had the change in the auto industry. The US auto industry had no serious competition for decades. They made junk, and paid the UAW top dollar to make it, and everyone was happy. This lasted only long enough for competitors to move in. The response of the industry was to pursue more geographically distributed manufacturing.

And, as mentioned before, Detroit had essentially a one-party government that ended up sending many of its senior members to prison. While this was not the primary cause of the problem, it sure didn't help.

 

[verty]

After the riots, when the middle class no longer felt safe, they fled to the suburbs.

I think something like this happens in every older city. Buildings get run down over time or become unfashionable in the older parts of the city, lower class residents move in displacing the middle class residents, crime goes up, eventually businesses leave or they reduce to banks and government offices because no one wants to travel to the city center, shopping complexes in the suburbs are used instead.

What (I think) usually happens is a property developer buys a swath of older properties for very little money and eventually cleans up a number of streets by bulldozing and rebuilding.

I'm not saying something this slow or progessive happened in Detroit but for whatever reason, no one has bought up the land to rebuild.

 

[Vanadium 50]

Detroit is geographically large - it's called "8 mile road" for a reason. If it were to have the population density of, say, Chicago's north side (Lakeview), it would need five times as many people as it has today - and be roughly twice as populous as it was at its peak. A sprinkling of development isn't going to make the difference in Detroit than it would in a geographically smaller city, like Boston.

Suppose you live in Sterling Heights. You have a decent house, with a hefty but survivable mortgage. Why would you move to Detroit? Sure, you could get a less expensive house, but you probably won't feel safe, not with the highest murder rate (and highest violent crime rate) among US cities with at least a half-million people. Nor with an average 911 response time of nearly an hour.

You probably also won't feel welcomed. There has been a lot of opposition to "gentrification" - what you describe in your second paragraph.

So sure, you can save some money. But is it worth it? The answer, as measured by the behavior of 3 million people who live in suburban Detroit, is "no".

 

[Vanadium 50]

One other thing: 8 of Metro Detroit's top 10 companies by size are either automotive, automotive spin-offs, or automotive suplliers. If you look at the rankings by employment. in the Top 25, 21 are automotive, governmental or local health care. The other 4 are DTE Energy, HP Enterprise Services, Comercia Bank, and Quicken Loans, employing a total of under 30,000 people. That's 1% of the Metro Detroit population.

 

[Borg]

I grew up in the Detroit suburbs and worked for GM in the early 80's. I agree with Vanadium on the causes. The heavy dependence on the auto industry is the main culprit.

One thing that I would add - When I worked there, I watched the unions demand contracts with more and more money and benefits with zero concern for job security. The same lack of foresight when into voting during the elections. Not until the Japanese companies started taking bigger slices of the pie did anyone have any concern about job security. The initial union response (encouraged by the auto manufactures) was to launch PR campaigns against owning foreign cars. Driving a foreign car to work at a GM plant meant that you would probably have your tires flattened when you came out (if you were lucky). I think that I still have an old bumper sticker somewhere that reads "Toyota, Nissan, Honda - And Pearl Harbor!". That attitude hasn't changed much over the years even though foreign auto manufacturers employ many American workers.

 

[mheslep]

One other thing: 8 of Metro Detroit's top 10 companies by size are either automotive, automotive spin-offs, or automotive suplliers. If you look at the rankings by employment. in the Top 25, 21 are automotive, ...

I grew up in the Detroit suburbs and worked for GM in the early 80's. I agree with Vanadium on the causes. The heavy dependence on the auto industry is the main culprit.
...

Given the counter examples of other cities with formerly dominant industries, I think it more likely the dispersal of the auto industry was a mechanism in the Detroit collapse, not a fundamental cause. See for example, Pittsburgh, Pa and the US steel industry, or the textile industry that dominated New England towns. These areas have seen reversals for a time, but not utter collapse and $500 homes.

Industry success appear to be most always connected, to some degree, to the actions of the local government. Tax rates, education of the work force, quality of services and crime rate - all these in turn feedback on the industry inclination to stay put or move to Missouri, Tennessee, Kentucky. In these areas Detroit's government under the twenty years of Major Coleman Young was highly competitive with ... the more corrupt third world governments.

 

[Hepth]

But other industrial cities didn't have the population that Detroit had. Pitt had about 680k at its peak in the 50s, while Detroit was at 1.9 million. Now Detroit is at 700k, and Pitt is near 300k.
I'm not saying that something couldn't have been done, but the infrastructure that was put in place to service those 2 million was expensive and covered a huge area (140 mi^2), Pitt (60 mi^2). As the population dwindled, the density remained more or less evenly distributed. Sure, people moved outward, but there's not many areas that are completely deserted.

That means police, fire, utilities, roads, etc; things that have a direct financial dependence on distance covered rather than population, increased in cost per person. I feel like THIS had a large hand in the failure of the city. They couldn't keep up, raised taxes, pushed more people out, businesses left, so less workers needed. Then they began tax breaks for businesses to bring them in, which increased residential taxes to compensate pushing more people out.

Maybe something could have been done, but I feel like that would have required a systematic rezoning of the city, abandoning complete areas in order to focus on others. And of course no one would ever allow that. The city just can't support itself, and its been digging a large hole of debt as it waits for a turnaround.

 

[alan2]

Just to add a couple of things. Certainly the city has been run poorly but that doesn't mean that one should just trust those that take over too. Nobody counts unfunded post retirement liabilities as current debt. The state of Michigan has exactly the same per capita unfunded PR liabilities as Detroit but they don't call it debt. If they did the state would be bankrupt too. When the state instituted its sales tax, the deal was that cities would not institute their own sales tax and the state would share the revenue with the cities. The state has been slowly strangling virtually all municipalities by reducing or withholding those funds for a couple of decades. There are multiple sides to every story and just trusting those who orchestrated the bankruptcy gives an incomplete view.

 

[mheslep]

... The state has been slowly strangling virtually all municipalities by reducing or withholding those funds for a couple of decades. ...

Grand Rapids, Ann Arbor, even Dearborn next to Detroit are not bankrupt. The local municipalities have other sources of revenue to include property taxes and local income taxes (e.g. ~1% in Grand Rapids).

 

[alan2]

I'm not sure what your point is mheslep. Bloomfield Hills and Grosse Pointe are not bankrupt either. Everyone has had revenue sharing cut and those communities with other sources of revenue are certainly hurt less but everyone is affected. Ann Arbor has laid off 20 police and fire fighters. Grand Rapids is underfunding pensions by $1M annually and are currently discussing layoffs of police and fire and raising income tax. Dearborn can't layoff police and fire because the city charter contains minimum staffing requirements so they've closed 3 public pools and a library instead. Hardest hit have been those communities that were already experiencing a deteriorating tax base such as Detroit, Flint, Saginaw, etc.

 

[AlephZero]

There is one issue specific to the motor industry: in the 21st century, you don't actually need many people to build cars. Nissan UK (allegedly one of the most efficient plants in Europe by this measure) operates at close to 1000 vehicles per employee per year. That wasn't the situation when Detroit was growing.

 

[SteamKing]

It's not clear why pouring money into Detroit by the feds caused its ills. If looking at the 1960's, I would think the more relevant event - or rather, events - were the 1967 riots. That caused demographic shifts that Detroit has never recovered from.

The riots in 1967 were not the first time that Detroit faced racial strife. There was a large riot in Detroit during 1943 which resulted in a number of deaths and the destruction of property.

http://en.wikipedia.org/wiki/Detroit_Race_Riot_(1943)

During the 20th century, and perhaps before, Detroit saw a large influx of immigrants and transplants from other parts of the US. As more blacks came North during WWII in search of jobs in war plants, racial tensions with existing residents only increased. Detroit was an early indicator of what happened during this same time in other northern cities like Chicago and Cleveland. Whites and other ethnics with means moved out of the cities and left behind a majority population which had fewer skills and less education to work at the jobs which were available. When the factory jobs dried up, so did the economic base which formerly supported these cities.

 

[nsaspook]

http://www.chicagotribune.com/news/chi-detroit-bankruptcy-ruling-20131203,0,3717341.story

DETROIT—
A federal judge today ruled that Detroit is eligible for the biggest municipal bankruptcy in U.S. history because the city is broke and negotiations with its thousands of creditors were unfeasible.

The wide-ranging ruling that also said the city could cut retiree pensions. The ruling by U.S. Judge Steven Rhodes marks a watershed in the history of Detroit, once the cradle of the U.S. auto industry and now a symbol of urban decay and mismanagement.

 

[edward]

If this plays out like it has in several California cities, the aftermath of the bankruptcy will be the worst part.

Sam Bowen stands outside the picket fence of his Stockton home eyeing two sullen teen-age boys in a park across the street. The boys sit on a concrete table, facing a city-owned pool with debris littering its dry bottom. Recreation and library funding has been cut in half, and gangs are filling the void.

Drug dealers are moving into the park, says Bowen, 70. They used to congregate in a downtown park. Shootings were so common there that an employee of a bank across the street from the park filled a tray on his desk with slugs he’d picked up. The city closed the downtown park, and the dealers moved into Stockton’s neighborhoods – not exactly the crime-fighting model residents wanted.

http://www.mlive.com/news/index.ssf/2013/07/bankrupt_california_city_knows.html

 

[Office_Shredder]

If this plays out like it has in several California cities, the aftermath of the bankruptcy will be the worst part.
http://www.mlive.com/news/index.ssf/2013/07/bankrupt_california_city_knows.html

It's not like Stockton was a sunny happy-go-lucky town, and then all of a sudden the city declared bankruptcy and it all fell apart. The money problems were all occurring before the bankruptcy, and just continued on their inevitable path afterwards. The same is occurring in Detroit; half the street lights are left off because they can't afford to turn them on/keep them in working order, and the police force has been cut to the point that it takes an hour to respond to an average high priority call. And this is all before the bankruptcy; yeah things might get worse but they were getting worse anyway.