Detroit's Leaders Borrow a Page From Government Motors and Chrysler


Detroit Mayor Dave Bing has cooked up a true-and-tested scheme to rescue Detroit from its impending bankruptcy (which would have happened by now had the state not already given it a $137 million-loan on the state credit card). The scheme doesn't involve implementing his promised layoffs of city workers to bring the city's expenditures in line with its revenues. Nor a full-scale privatization of city services. Nor does it require persuading Detroit's bellicose municipal unions to renegotiate retiree contracts to lighten the city's legacy obligations that make up half of its accumulated $12 billion debt.

Bing's scheme is clean, simple, and painless: Shaking down Uncle Sam for $1 billion in emergency bailout money, just like GM and Chrysler.

Bing has hired a Washington lobbying firm for $330,000 to aid his efforts. His quest has the full backing of Rep. Hansen Clarke, who represents the city in Congress, and has been arguing since March that the feds need to step in and rescue Detroit just as they did New York City in 1975. "It's the same situation that's just as grave," Clarke told the Huffington Post. "We need to provide relief for the city of Detroit in order to create jobs in this country and rescue this symbol of our manufacturing power."

New York City got $2.3 billion in federal loans after President Gerald Ford signed the New York City Seasonal Financing Act in 1975.

But Detroit is a bottomless pit of need whose annual debt payments—$600 million a year—exceed its primary tax revenue by $60 million. Without structural reforms and new contracts with municipal unions to rationalize its legacy obligations, it'll run through the billion dollars in a year and be back for more.

But Detroit is hardly alone in promising more benefits than it can afford. States and cities across the country have about $1 trillion in unfunded liabilities on their books, according to a 2010 survey by the Pew Center. Other studies put this figure closer to $3.5 trillion. So if the feds decide to help Detroit – which is not entirely inconceivable given that this is an election year and  Obama will be looking for union votes in Motown – expect a line of city and state leaders holding their tin cups forming from Washington D.C. to Sacramento.

My articles on Detroit's deepening fiscal crisis here and here.

H/T: Walter Grinder