Friday, November 18, 2011

Next Up in Municipal Bankruptcies: Detroit

Here is a story that should surprise precisely no one:
It's a race against the clock in Detroit.

The home to America's Big Three automakers has until spring to straighten out its budget problems or the city could face bankruptcy or, worse, potential default on its largest debt obligations.

"Without change, the city could run out of cash by April, with the potential cash shortfall of $45 million by the end of the fiscal year," Mayor Dave Bing said in an address to Detroit residents Wednesday night.

The mayor said $40 million could be saved in the city's budget through pension reform, cuts to medical care costs, and strategic layoffs -- all key points in the budget reform proposal he announced in the televised speech.

While many government jobs are on the chopping block under the mayor's proposal, many more could be lost if major changes are not made to the government's deficit, warns David L. Littmann, senior economist with the Mackinac Center for Public Policy.

The fiscal situation in Detroit has become so dire that "now even modest changes are not going to be sufficient to avoid default in the next four months," he forecasts.

Going into default could result in the shutdown of public works such as garbage collection and public transportation.

Littmann also said that if the mayor's proposal is not approved, it will "100%" file for bankruptcy. If the city fails to overhaul its budget, it's not a matter of if the city will file for bankruptcy, it's when, he said.
When you think about just how bad the economic situation is in Detroit and how long it has been that way, the only surprise is that this hasn't happened sooner.


  1. Detroit is just the leading edge of the downward spiral down the drain. Everybody else -- pay attention! And to think I have a front row (almost) seat! It's hard to describe the strange mix of culture, hope, and end-of-the-world clusterfuck that is Detroit.

    It has an opera house, world-class symphony orchestra, renowned medical center and universities, one of the top 5 art museums in the U.S. All are well-attended. Believe it or not, there are also some lovely residential neighborhoods. But the city can't even maintain a bus system, and people are hours late to work -- if they get there at all some days. The city's power & light department was overwhelmed several times this past summer, leaving parts of the city dark, including city hall, Wayne State University,GM headquarters, and various museums. They told the museum where I worked to make some sturdy, permanent signs for this, because they expected lots of interrupted service throughout the summer. Don't even ask about the public schools.

    Some parts of Detroit are landscaped, with flowerbeds, gleaming buildings, and well-dressed people going about their business. Elegant restaurants do a brisk business. Other parts? I've taken friends from Frankfurt, Germany on tours of the city. In some parts we pass through, I tell them, this is what your city looked like in 1945 after our B-17s got done with it.

    I could go on and on . . .

  2. @Patrick - thanks for that excellent (and depressing) on the ground report. I visited downtown Detroit about six years ago and was struck by just how beautiful many of the abandoned old Art Decco skyscrapers would be had they just been maintained. So sad.