We should all be paying attention to the Detroit Bankruptcy and have the ability to talk intelligently about its implications. Unfortunately, due to the compulsion to malign urban leaders (and kick a city when its down), not many people have taken the time to examine exactly what has happened in Detroit or why bankruptcy was necessary.
First, Detroit's decline. Click over and review "The Decline of Detroit in Five Maps".
Ok, I know you won't, so here's the first map, which tells most of the story:
Detroit turned inside out. It's population and its wealth vanished in a little over a decade. No municipality or local government could withstand this kind of turn-over and keep the lights on.
Second, "Detroit" did not decide to declare bankruptcy. That was a decision imposed on the city by Kevyn Orr, an "emergency financial manager" appointed by Republican Governor Rick Snyder. That's not to say this was the wrong decision or that Republicans are somehow to blame for Detroit's implosion, but it does put the conversation in context when some claim bankruptcy was an irresponsible thing to do.
Third, public employee pensions were only one piece of the financial picture. The prominence of this liability was only promoted by the fact that so many workers had relied on these payments for retirement and, quite frankly, survival. According to the Detroit News, Mr. Orr's original proposal to restructure Detroit's debt offered pensioners "10 cents on the dollar", while banks were getting much greater repayment on their loans. You can tsk and shake your head at the perils of unfunded and underfunded pensions, but looking at the facts on the ground - this is a bad deal for Michigan's working class. Remember the golden parachutes for Wall Street bankers after the 2008 financial crisis (often paid for with U.S. Treasury funds)? These folks are getting anvils.
Fourth, this bankruptcy, at least in terms of the discharge of pension benefits, has been declared unconstitutional under Michigan law by an Ingham County court. The Michigan Constitution protects public employee pension benefits from discharge in bankruptcy. Nevertheless, bankruptcy is managed in federal court and, as noted in the Detroit Free Press, a federal judge may interpret Michigan law to allow the bankruptcy to go forward.
Finally, as John Cassidy with The New Yorker posits, "many will see the bankruptcy filing as a blatant effort to use the
courts to force concessions on municipal workers that couldn’t be
obtained in other ways." This is negotiation by other means.
I think the most important take away from all of this is that political pressure should be placed on state and local governments to fund their employee and pensioner obligations. These employees are mostly without a constituency, despite having the political heft of public sector unions who have significant influence on local elections. But when things go south in the way they went south in Detroit, our government workers are the ones left holding the bag. We can save the debate for how public employees are paid comparable to their private sector counterparts for another day, but what I think we all can agree is that the agreements that under-gird someone's retirement planning should not be revoked. Whether you come to that conclusion by the principles of fair-dealing or an overwhelming sense of empathy, that is the only fair conclusion.
The question in Detroit is whether anyone had a choice.
That's all for today. Have a great Monday doing what you love!