Turns out it wasn’t the bankers after all. It wasn’t the auto makers either. Or the Republicans.
Detroit Free Press:
How Detroit went broke: The answers may surprise you – and don’t blame Coleman Young
Detroit is broke, but it didn’t have to be. An in-depth Free Press analysis of the city’s financial history back to the 1950s shows that its elected officials and others charged with managing its finances repeatedly failed — or refused — to make the tough economic and political decisions that might have saved the city from financial ruin.
Instead, amid a huge exodus of residents, plummeting tax revenues and skyrocketing home abandonment, Detroit’s leaders engaged in a billion-dollar borrowing binge, created new taxes and failed to cut expenses when they needed to. Simultaneously, they gifted workers and retirees with generous bonuses. And under pressure from unions and, sometimes, arbitrators, they failed to cut health care benefits — saddling the city with staggering costs that today threaten the safety and quality of life of people who live here.
The numbers, most from records deeply buried in the public library, lay waste to misconceptions about the roots of Detroit’s economic crisis. For critics who want to blame Mayor Coleman Young for starting this mess, think again. The mayor’s sometimes fiery rhetoric may have contributed to metro Detroit’s racial divide, but he was an astute money manager who recognized, early on, the challenges the city faced and began slashing staff and spending to address them.
And Wall Street types who applauded Mayor Kwame Kilpatrick’s financial acumen following his 2005 deal to restructure city pension debt should consider this: The numbers prove that his plan devastated the city’s finances and was a key factor that drove Detroit to file for Chapter 9 bankruptcy in July.
The State of Michigan also bears some blame. Lansing politicians reduced Detroit’s state-shared revenue by 48% from 1998 to 2012, withholding $172 million from the city, according to state records.
Decades of mismanagement added to Detroit’s fiscal woes. The city notoriously bungled multiple federal aid programs and overpaid outrageously to incentivize projects such as the Chrysler Jefferson North plant. Bureaucracy bogged down even the simplest deals and contracts. In a city that needed urgency, major city functions often seemed rudderless.
When all the numbers are crunched, one fact is crystal clear: Yes, a disaster was looming for Detroit. But there were ample opportunities when decisive action by city leaders might have fended off bankruptcy.
If Mayors Jerome Cavanagh and Roman Gribbs had cut the workforce in the 1960s and early 1970s as the population and property values dropped. If Mayor Dennis Archer hadn’t added more than 1,100 employees in the 1990s when the city was flush but still losing population. If Kilpatrick had shown more fiscal discipline and not launched a borrowing spree to cover operating expenses that continued into Mayor Dave Bing’s tenure. Over five decades, there were many ‘if only’ moments.
“Detroit got into a trap of doing a lot of borrowing for cash flow purposes and then trying to figure out how to push costs (out) as much as possible,” said Bettie Buss, a former city budget staffer who spent years analyzing city finances for the nonpartisan Citizens Research Council of Michigan. “That was the whole culture — how do we get what we want and not pay for it until tomorrow and tomorrow and tomorrow?”
Ultimately, Detroit ended up with $18 billion to $20 billion in debt and unfunded pension and health care liabilities. Gov. Rick Snyder appointed bankruptcy attorney Kevyn Orr as the city’s emergency manager, and Orr filed for Chapter 9 on July 18.
There is a bunch more and you should go read it. I’ll wait for you.
All done? Good!
One more time:
“That was the whole culture — how do we get what we want and not pay for it until tomorrow and tomorrow and tomorrow?”
I used to be a big-government liberal. Now I am a Non-Affiliated Pragmatist (NAP). I don’t have a political ideology per se. I believe in certain concepts and values, like democracy, justice and liberty. But I’m not wedded to any one way of doing things. I am for whatever works.
We need some level of government. Reasonable people can disagree on how much we need or how it should be organized. But one thing I do believe in very strongly is TANSTAAFL – “There ain’t no such thing as a free lunch.”
TANSTAAFL means that whatever amount of government we have we have to pay for. That’s all. A very simple concept. If you want big government you gotta pay for big government.
Starting around 1932 our federal government started getting big. Like Topsy, she just growed. And growed. Then in the Sixties she started growing even faster. It started becoming a crisis in the Seventies when voters began to rebel against high taxes. In 1980 we elected a guy named Ronald Reagan who promised to cut taxes and shrink the government.
But the voters (that’s us) had kinda got to liking big government. And they (we) still hated taxes. So the political opportunists and craven cowards in BOTH major parties came up with a solution called “deficit spending”.
Deficit spending is what happens when you give
drunken sailors crackheads politicians a credit card.
What happened to Detroit is a microcosm of our federal government and many state governments (like California). Lots of local governments are in the same boat. For decades they pushed financial reckoning down the road.
In order to get around balanced budget laws they underfunded public employee pensions, then hid this fact by projecting unrealistically high returns on pension plan investments. But the politicians who made those decisions did not care because they weren’t going to be around when the fit hit the Shan.
Detroit crashed and burned first because it was also troubled with a declining population and a shrinking tax base. Several California cities went bankrupt because of the real estate crash which hit property tax revenues. There is also the Obama Recession which has greatly increased the need for social service spending. Last but certainly not least was the Obama Stimulus.
This is why OUR CURRENT NATIONAL DEBT IS MORE THAN SIXTEEN TRILLION DOLLARS!
I honestly don’t know how we’re gonna fix this mess. It took us decades to get here, and it will probably take even longer to get out. I don’t know about you but I don’t have more than 2-3 decades left. That means our kids and grandkids will be paying those debts.
As Mitt Romney said, that’s immoral.
Filed under: Blue Model Fail, Federal Deficit, National Debt | Tagged: Blue Model Fail, Federal Deficit, National Debt | 109 Comments »