Facing an estimated $18 billion in debt, Detroit has become the largest U.S. municipality to file for bankruptcy. It is a grim milestone in the decline of what was once the country’s fourth largest city. Known as the Motor City and the birthplace of the middle class, Detroit’s auto industry and manufacturing sector have collapsed. A steady decline in population has decimated its tax base, leaving the city with massive cuts to basic services and one of the nation’s highest rates of violent crime. The Chapter 9 bankruptcy filing has set off what could be a prolonged legal battle with thousands of current and former city employees entitled to pensions and medical benefits. Detroit’s unelected Emergency Manager has said that cutting pensions will be vital to restoring basic services that have shrunk with the decline of city revenues over the years.
Detroit Mayor Dave Bing and, before that, Michigan Governor Rick Snyder. The Chapter 9 bankruptcy filing has set off what could be a prolonged legal battle with thousands of current and former city employees entitled to pensions and medical benefits. Detroit’s Emergency Manager Kevyn Orr has told public unions to brace for “significant cuts” but hasn’t laid out details. Speaking to Chris Wallace on Fox News Sunday, Orr said he is talking about a “significant sum of money.”
Detroit’s unions have mounted a series of legal challenges in a bid to protect their pensions and benefits. The unions won an initial victory Friday when a Michigan judge ordered Detroit to withdraw its bankruptcy petition because cutting pensions violates the state’s constitution. Michigan’s attorney general has appealed. With federal bankruptcy law usually trumping state law, the unions’ victory may be short-lived. The issue will come before a federal court Wednesday when the judge overseeing Detroit’s bankruptcy effort will begin hearing arguments. The judge could protect the bankruptcy filing from legal challenges and ultimately force creditors to enter into negotiations on accepting reduced payments.
Detroit’s bankruptcy filing marks a grim milestone in the decline of what was once the country’s fourth-largest city, known as the Motor City, the birthplace of the middle class. Detroit’s auto industry and manufacturing sector have collapsed. A steady decline in population has decimated its tax base, leaving the city with massive cuts to basic services and one of the nation’s highest rates of violent crime.
Mark Binelli talking:
it’s been about 50 years in the making, going all the way back to—you know, a lot of people look at the 1967 riots and think—think, you know, that’s where everything started to go wrong, but the seeds of what’s happening today go all the way back to the 1950s, really, when there was a steady flow of capital out of the city and then a steady flow of population. You know, and a lot of this had to do with race, of course. Detroit was a predominantly black city surrounded by predominantly white suburbs, and so there was definitely a long, simmering tension between the two—the two areas, and as a region it never really coalesced over the years. And that’s taken us up to the present moment.
Of course, along the way there’s also been political corruption and, you know, the general decline of U.S. manufacturing. And then the final death blow came, you know, with this recent financial crisis where you had the foreclosure crisis hitting cities like Detroit especially hard, decimating the tax base and just really kind of delivering a death blow to a city like Detroit that didn’t have the same sort of, you know, structure that other cities had to fall back on.
At the very top of this segment, we saw Mayor Dave Bing speaking. And it’s—you know, since March, Detroiters have been living under this emergency manager, Kevyn Orr, who Rick Snyder, a Republican governor, appointed.
the benevolent dictator. Well, there is a Michigan law that allowed the governor—if a municipality was approaching financial insolvency, the governor could appoint a so-called emergency manager. And the idea was to do everything possible to prevent that municipality from going into bankruptcy. Last November, Michigan voters, in a ballot referendum, voted to overturn that law. And then a few weeks later, Rick Snyder and the lame-duck Republican Legislature passed basically a new version of the same law.
And I think, you know, everyone agrees that Snyder saw the writing on the wall. He saw Detroit moving towards bankruptcy, and he wanted to have some sort of control of the wheel when the city drove off the cliff. So he appointed this guy, Kevyn Orr, in March. Mayor Bing and the city council have really had no power since then. I mean, having him be up there speaking is kind of comical, because he’s had no say.
Detroit Emergency Manager Kevyn Orr said, “We’re going to try to do this in a fair way. In addition, in freeing up the cash flow, it allows us to focus on the key issue that the governor has reiterated again and again, the health, safety and welfare of 700,000 citizens in the city of Detroit. Yes, there are 9,700 employees, and there are 19,700—20,000 retirees, but there’s 700 citizens, who don’t deserve a 55-minute response time, who don’t deserve endemic blight and crime, who don’t deserve no hope and future and just continued debt over debt and debt and borrowing. So we have to do this in some fashion, and bankruptcy will allow us to achieve that in some way.”
Free Press reported earlier this week that Orr was apparently talking to Valerie Jarrett, one of the top Obama aides, about this and got no traction. And especially in a place like Detroit, when you think about—you know, if you think about the last campaign and how the president ran on saving the auto industry, right? Which, of course, meant saving huge corporations, but that—you know, that was Chrysler and General Motors going into managed bankruptcy, the same sort of bankruptcy that Detroit is about to enter now. The big difference is they were given $82 billion of federal stimulus money. And that’s kind of a standard thing when a corporation goes into a managed bankruptcy. You clear the old debt, but then you need some new capital to move forward. When it comes to a city, though, not a corporation, there’s no—there’s no talk of that.
Obama said, playing down the prospect of a federal bailout for Detroit. On Monday, this is White House Press Secretary Jay Carney, who said the city’s fiscal crisis is something that Detroit and its creditors must solve. Asked at a Cabinet meeting what the administration could do for Detroit, Vice President Joe Biden said, well, he’s unsure.
it’s the same old story. I mean, even if you go back to the auto bailout, you know, to me, that was—I mean, it was an important thing to do. If the auto industry had just been allowed to collapse, of course, it would have devastated the economy. But it was very similar to the bank bailout, in that it was a transfer of a huge amount of federal money to a corporation without forcing these corporations to allow some of this largesse to trickle down to the average person. In the case of the auto bailouts, you know, yes, these companies are profitable again, and this is touted as this great thing, but if you look at the new jobs that were created, these are people working at half the rate that they would have been making before the bailout. All the union agreements were thrown out the window. So you’ve got people starting at like $14, $15 an hour, and these aren’t the sort of great jobs that Detroit—a city like Detroit was built on, and a city like Detroit that, you know, basically played such a huge role in creating the American middle class. I mean, those sorts of jobs are gone, and the Obama administration has not done much to bring them back.
The city owns its art museum, the Detroit Institute of Arts, which is this beautiful kind of grand Beaux-Arts palace that was built back in the day when Detroit had lots of auto money, and has a great collection, a very famous Diego Rivera mural of—depicting the floor of a Ford factory.
it’s really one of the great collections. And when Orr—about a month or so after Orr was appointed, his spokesperson just sort of kind of gently floated the idea that, you know, if creditors really want to take a hard line, we might have to think about selling things from the Detroit Institute of Arts. Then they quickly backed off from it, but it’s still not really off the table. I mean, the interesting thing about now—the fact that we’re now moving towards bankruptcy court, the judge cannot order the city to sell municipal assets, like art from the art museum.
They could get possibly billions. there’s, you know, very famous Van Gogh paintings. The other day, they—I think to sort of make the museum look somewhat absurd, somehow it was leaked that the museum holds the original Howdy Doody puppet, which is worth, I think, a million dollars or something. So, of course, you know, it created this dynamic where it was basically like, “Oh, why would this museum hold onto this Howdy Doody puppet when it could be helping retired auto workers?” And that’s been the whole process all along, a sort either/or—a false kind of even/or choice. You know, it’s like we can either increase police presence, fix the streetlights, hire more firefighters, or we can continue paying people’s pensions. And they’re trying to make it seem like it’s one or the other. And that seems like a very limited range of options.
A lot of the fight has come from the pension lawyers. Detroit has two major pension funds. They are the ones who basically triggered this bankruptcy, in a way, because they filed a lawsuit in the middle of last week to stop the bankruptcy from going forward. Kevyn Orr all along has been insisting that he wants to treat the pension funds the same way he would be treating bondholders. Those are the two—the two main creditors holding Detroit debt are, you know, banks, basically, bondholders, and retired cops, firefighters, teachers, librarians. And so, Orr is trying to say, you know, he wants to treat everybody equally; they both—everybody needs to take a haircut.
Unfortunately for him, the state constitution prohibits touching pensions. So, all along, he’s been threatening bankruptcy, using that as a sort of bargaining tool and saying, “Look, federal law supersedes state law. If I go into bankruptcy, the judge will rule with me. You will definitely have to take some cuts. So take the cuts now.” The pension boards, you know, didn’t think it was good-faith bargaining, so they started this lawsuit to stop—stop the bankruptcy altogether, and that triggered this immediate bankruptcy filing. So that’s what the law—that’s what the court hearing tomorrow will decide, whether or not the bankruptcy can move forward, if they illegally rushed that through while another court proceeding was going on.
there’s no U.S. city that’s gone through such a—this size of a municipal bankruptcy. I mean, right now you see Stockton and San Bernardino in California; you’ve seen Jefferson County, Alabama. But Detroit is just another scale altogether. The governor and the emergency manager are somewhat optimistically saying they’re hoping it could be resolved in months. Other lawyers have said it could take years, so.
Snyder, one of the first things he did when he came to office was to cut the corporate tax rate in the state, which, you know, he claimed the state needed to do to become competitive. And, you know, yeah, there has not been—there’s been a steady decline in state revenue sharing and also federal revenue sharing, of course, with cities like Detroit over the years. And you’ve seen—in Michigan, particularly, you’ve seen the emergency manager law. You can sort of track how many emergency managers have been appointed alongside how state revenue sharing with cities has declined.
basically pushing out, or out of power, the democratically elected leaders of cities. Of cities that are generally cities that look like Detroit—poor and predominantly African American—cities like Benton Harbor, cities like Highland Park, which is a little city within the city of Detroit that I write about in the book. I mean, that’s a city where you have—I spent time with these firefighters whose firehouse was condemned, and they were operating out of an old Chrysler warehouse. They were literally sleeping in tents in this warehouse, while they were going out to risk their lives. So, that’s the kind of thing that happens, you know.
voters rejected the emergency manager law, and the state Legislature, the Republican state Legislature, and Governor Snyder overrode them. it was flagrantly, you know, a thumb in the eye to democracy.
– source democracynow.org
Mark Binelli, a Detroit native and author of Detroit City Is the Place to Be: The Afterlife of an American Metropolis, published last November. He is contributing editor at Rolling Stone magazine and Men’s Journal.