Detroit's Slow Fiscal Death March

State authorities should have let the city go into bankruptcy this summer.

Sometimes you have to go to hell before you can return. That, at any rate, seems to be the game plan of Detroit’s current leaders. After a lot of high drama and condemnation of a consent agreement proposed by Michigan Gov. Rick Snyder to clean up the city’s books as a hostile takeover by the state’s “white” establishment, those leaders finally agreed last week to a version that is so watered down that it has no chance of succeeding.

What all of this shows is that there is no political solution to Detroit's fiscal mess. Nothing short of legal bankruptcy will work.

Detroit’s books are in worse shape than January Jones in this season of Mad Men. If Snyder some weeks ago had not extended the full faith and credit of the state to let Detroit borrow $137 million on its maxed-out credit cards, the city would have run out of operating cash by the end of April. In exchange, he had been asking—nay, imploring!—Detroit’s elected leaders to sign on to a consent agreement allowing a nine-member financial review board to fix the city’s long-standing structural problems.

Under the original version of the agreement, the board would have had sweeping powers to outsource city services, sell city assets, and—above all—take on the city’s immensely powerful municipal unions to shrink Detroit’s work force and shed its unsustainable legacy costs. These costs, which include lavish health care and pension benefits, account for a big chunk of Detroit’s $12 billion total debt, now 33 times the city’s net assets. Meanwhile, employee benefits alone make up half of the city’s general-fund costs.

But the version that the city council finally approved 5-4 would leave it and the mayor in charge of taking on the unions, something that has as much chance of happening as a 100-degree winter in Detroit. All the board will do is offer biannual revenue estimates to the mayor and council so that they can “live within their means,” which the unions won’t let them do. Indeed, if they were genuinely interested in solving the city’s fiscal problems, they would have welcomed the chance of having the board do their dirty work and take the political blame.

That calculation has prompted four other Michigan cities—Pontiac, Flint, Benton Harbor, and Ecorse—that are bleeding red ink due to similarly intractable union issues to virtually roll out the red carpet for a state-appointed emergency manager. But in Detroit, the manager option as a first step was taboo because the sense of entitlement among Detroit’s vast government-employed population reaches heights found only in Greece. And a manager who touched their benefits without exhausting other options would have triggered the same kind of riots that rocked Greece after the European Union demanded austerity measures in exchange for a bailout—especially with national black leaders like the Rev. Jesse Jackson ever ready to stoke the racial flames.

Even the original consent agreement caused Jackson to declare Detroit as “ground zero” in the nation’s urban crisis. He joined a coalition of pastors, civil rights leaders, and local officials to condemn the alleged assault on the city’s democratic rights that the agreement posed. “We are prepared to go from education, mobilization, litigation, legislation, demonstration and civil disobedience,” Jackson thundered. He demanded a bailout from Uncle Sam akin to what Detroit’s car companies got, evidently forgetting that the auto bailout involved a significant loss of control for the companies—including the firing of GM’s CEO.

Detroit is in a death spiral. Its corrupt political establishment believes that the solution to the revenues being lost as residents and businesses flee the city’s high taxes is...even higher taxes. The city’s property and income taxes are now the highest in the state, even as receipts from the first have fallen 50 percent over 10 years and the second 28 percent over five years.

But what did Jackson identify as the root of Motown’s woes? “Redlining.” That's the practice under which insurance companies allegedly base vehicle and home premiums on a neighborhood’s racial make-up rather than safety record, thereby deliberately jacking up living costs for the city’s predominantly black population. Obviously, the reverend’s own experience some years ago—when his fully loaded Escalade was stolen and stripped as he marched for green jobs—hasn’t straightened him out.

But by Detroit standards, Jackson is a model of restraint. Democratic Rep. John Conyers, whose wife is doing time for accepting bribes when she was on the city council, has flat-out declared that there is a “racial component” to how Snyder is exercising his emergency powers. The Rev. Wendell Anthony, another local firebrand, has commented that he won’t stand by and let Snyder put Detroiters “back in the plantation.” But the prize for incendiary comments went to Minister Malik Shabazz, who declared: “Before you can take over our city, we will burn it down first.”

Nor are these empty words. Detroit’s activists will break into riots and strikes if the authorities use the consent agreement to make the necessary cuts in union wages and benefits. Even sabotage of city infrastructure can’t be ruled out. For example, the city’s unionized mechanics immobilized the bus system recently when they refused to repair broken buses in retaliation against relatively minor layoffs of drivers.

Given these realities, it might have made more sense to cut to the chase and let the city go into bankruptcy. That wouldn’t have been pleasant: Detroit’s bankruptcy will hurt Michigan’s economy, raising statewide borrowing costs and discouraging businesses from locating here. But if this consent agreement fails, as it will, bankruptcy will be the eventual step anyway. By then, however, valuable time and money will have been lost, requiring even more draconian cuts mandated by a court.

Putting Detroit in prolonged purgatory as the consent agreement has done might be the worst option.

Reason Foundation Senior Analyst Shikha Dalmia is a columnist at The Daily, where a version of this column originally appeared.

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  • ||

    the battle of who could care less rages on...

  • ||

    Los Angeles is going to get ours bout of bankruptcy in 18 months. We're just not as blighted as Detroit.

  • ChrisO||

    “Before you can take over our city, we will burn it down first.”

    Who could tell if they did?

    Michigan is too much of a "purple" state for the governor to just tell Detroit to drop dead, but I'm guessing the rest of the state is rapidly getting to that point--particularly if other suffering cities in the state agree to control boards and such.

  • Paul.||

    “We are prepared to go from education, mobilization, litigation, legislation, demonstration and civil disobedience,” Jackson thundered.

    Civil disobedience against whom?

    If there were every a political reason to leave Detroit alone, this is it.

    I don't know why the governor stuck his neck into this.

    Let Detroit become the proverbial burlap sack with men trading hats for a living. See how far they get.

  • Paul.||

    Minister Malik Shabazz, who declared: “Before you can take over our city, we will burn it down first.”

    Go. Do it. Have at it. It wouldn't even get me up in the morning.

  • ||

    These sons of fucks and their precursors ravaged one of history's greatest cities to the point of practical oblivion. A third of Detroit's already dead, and the other two thirds are in the process of a rapib plummet into the permanent shitter as well.

    If I were the Governor, I'd isolate Detroit from any and all assistance, and let it burn itself to the ground.

    Also, Minister Malik Shabazz is a two-faced faggot and a sack of shit. Go fuck yourself, you progressive degenerate.

  • Paul.||

    They looted every drop of blood and every ounce of treasure that Detroit could cough up, and they blame outsiders for the predictable and inevitable result.

  • The Derider||

    "Even sabotage of city infrastructure can’t be ruled out. For example, the city’s unionized mechanics immobilized the bus system recently when they refused to repair broken buses in retaliation against relatively minor layoffs of drivers."

    If refusing to repair a bus is sabotage, is refusing to provide medical care murder?

  • NotSure||

    You are a murderer, I can easily prove it by asking you to provide medical care to poor people in lets say Mali for example.

  • Sevo||

    "If refusing to repair a bus is sabotage, is refusing to provide medical care murder?"

    If you were paid to deliver such care by your employer and refused to do so resulting in deaths, it might not constitute "murder", but it would certainly land you in trouble.
    Now, dipshit, do you have any other misdirections where you need help?

  • ||

    Refusing to do a job you are paid to do,in the real world,will result in you losing that job and being replaced with some one who will as well as possibly being sued for breach of contract. What world are these people living in?

  • C. S. P. Schofield||

    Put a wall around Detroit, and let out anybody who wants out, but nobody in.

  • ||

    You don't need a wall to prevent people from entering Detroit.

  • Jeff||

    Should be the other way around, I think.

  • ||

    Let's get John Carpenter on the phone...

  • Sharon Stone||

    Democratic Rep. John Conyers, whose wife is doing time for accepting bribes when she was on the city council, has flat-out declared that there is a “racial component” to how Snyder is exercising his emergency powers.

    These costs, which include lavish health care and pension benefits, account for a big chunk of Detroit’s $12 billion total debt, now 33 times the city’s net assets.

    If "racist" describes being financially responsible, then by all means do I encourage racism of any form.

  • Hyperion||

    “Before you can take over our city, we will burn it down first.”

    Like anyone cares, I would turn my cable TV back on just to see it! Get the popcorn and beer and let the show begin!

  • Invisible Finger||

    Before you can take over our city, we will burn it down first.

    As long as all the citizens, including the union members, remain in the fire that might be an offer worth accepting.

  • Invisible Finger||

    Putting Detroit in prolonged purgatory as the consent agreement has done might be the worst option.

    What would Bernanke do?

  • Dr. Frankenstein||

    there is a “racial component” to how Snyder is exercising his emergency powers?

    Only if the inability to do math, stick to a budget and understand basic economics has a racial component.

  • Harvard||

    [Pontiac, Flint, Benton Harbor, and Ecorse—that are bleeding red ink due to similarly intractable union issues ...]

    Racial component? All are Michigan cities that have spiraled downward under massively corrupt black leadership.

  • heart_of_flint||

    "requiring even more draconian cuts mandated by a court."

    This is not correct. The court has no power to mandate cuts in a Chapter 9 case. Only the debtor (Detroit) can submit a plan to adjust its debts, and the court may either accept the plan or reject it.

  • Alex the wolf||

    For Snyder this issue is very easy to solve. Disconnect his telephone.
    I was also wondering if anyone else thinks Jesse Jackson is no more than a political agitator?

  • Lloyd||

    And there you see the future of many of the nation's large, black-majority, cities. Once the tax base is 'run out of town' by imprudent taxing and spending measure and the state/federal governments stop the flow of free money, you get Detroit. Well, if President Obama is re-elected, since he will 'have more flexibility', we may see that coming to more cities and towns ... maybe even to the nation?

  • TheZeitgeist||

    The Rev. Wendell Anthony, another local firebrand, has commented that he won’t stand by and let Snyder put Detroiters “back in the plantation.”

    A sad unwitting irony by dear Rev-run given all those black folks happily making cars people want to buy - Benzes, Hondas, Toyotas, Hyundais, BMW's etc. - in the South, back on the plantation so-to-speak. Tee-hehehe.

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