Detroit On a Fast Track to Greece
Michigan's Treasury Department has conducted a preliminary audit of Detroit's books and found that the city's fiscal situation is even more dire than reported by city leaders. How dire? The audit pegged the city's long-term debt, including unfunded pension liabilities, at more than $12 billion. That's $2 billion higher than estimated when the review was ordered earlier this month.
What's more, the amount and value of the city's assets that might have helped cover at least part of the shortfall has fallen precipitously. Reports the Detroit Free Press:
In 2010, the city had net assets worth $265.1 million and long-term debts of $8.6 billion, according to the report and Treasury officials. This year, the value of the city's net assets is a negative number, and its long-term debt exceeds $12.3 billion.
Last year, Detroit had $33 of long-term debt for every $1 of net assets. That number compares unfavorably to even financially distressed cities such as Flint—already under an emergency manager—which has only about 59 cents in long-term debt for every $1 of net assets…
A major cause of the long-term debt is ballooning pension costs. The number of retirees continues to increase, while the work force that helps pay for pension obligations has reached historic lows. The city makes health care and pension payments to more than 20,000 retirees, while only about 11,000 employees are on the active payroll. In 1975, there were two active employees for every retiree.
All of this means that a state takeover of the city's books by a financial manager with wide-ranging powers to tear up union contracts, default on the city's pension obligations and renege on debt to bondholders is all but inevitable. According to Mayor Dave Bing—a former basketball star who has proven to be more ineffectual in running the city than Shaquille O' Neal at the free-throw line—Detroit can solve its fiscal crisis if its unions accept an annual cut of $100 million.
But such suggestions are total anathema to city activists who are already planning mass resistance. "We are going to mobilize and continue to organize around this issue," said the Rev. Charles Williams II, a civil rights activist who is helping lead an anti-emergency manager protest outside Governor Rick Snyder's house in Superior Township on Martin Luther King Day next month. "We are going to send Snyder a strong message that we care about our communities and our democracy, and we won't tolerate dictators in our community."
If all this sounds familiar that's because it is. This is exactly what the Greeks said about the austerity measures that Germany demanded as a price for throwing them a lifeline.
But given that America's total unfunded liabiliites now exceed the planetary GDP, Detroit might be only leading the way for the rest of the county. But unlike the rest of the country, it will have plenty of good Greek food along the way. That's because the only spot that has thrived as the city has steadily gone down the tubes is Greek Town.
My column on why Detroit's leaders need to do the decent thing and invite Houston or some other city that has its act together to run it like a charter city here.