
How Detroit went broke - jseliger
http://www.freep.com/interactive/article/20130915/NEWS01/130801004/Detroit-Bankruptcy-history-1950-debt-pension-revenue?
======
bluedino
For the true Detroit experience, stay the weekend at the Motorcity Hotel and
Casino.

It's just a few blocks outside of what is considered 'downtown' Detroit. It's
not an overly fancy or even large hotel but it has the weirdest vibe to it,
it's as if you're in this dystopian movie about the future where there's a
1:1000 difference between the haves, and the have nots.

Inside the hotel there's food, booze, gambling, and bright lights. As you
leave the hotel you see security forces (hotel security as well as a fairly
large presence by the Detroit PD). But once you're outside, that's it.

Barren wastelands. Empty city blocks, fields of grass and weathered concrete,
and the ruins of entire neighborhoods. Exactly what you see when you Google
'Detroit slums'.

In the daytime you'll see people walking around like zombies, carrying grocery
bags, walking between stores (despite what you read on the internet, there are
grocery stores in Detroit). You'll see them talking to each other on the
corner, sitting under trees, or hunched over on a curb.

They have nothing. They do nothing. There is nothing for any of these people
to do. There's nowhere for them to work. There's nothing even for them to
have. Everything is gone or destroyed.

At night time you won't see anything. Almost all of the streetlights in the
city have been turned off, because Detroit can't pay the bill! The city is
pitch black at night. You can drive around with the highbeams on. You can't
see the roads, you have to make sure you don't run over anyone who's in the
street, it's incredibly unsafe but it's just so dark it's unbelievable.

And then in the midst of the darkness you see the multi-colored lights of the
hotel, and you know you're back to your version of Detroit. The police let you
back in, you park your vehicle in the guarded garage, and you walk back to
your room to eat $4 bags of M&M's and $5 bottles of water.

And once you think about how fucked up that is, you almost lose your appetite.

~~~
zenocon
yea, i'm sorry, the comments on articles re: detroit end up reading like the
side-boob gazette (read huffpo) sensationalist blog articles. i work downtown,
have lived downtown, and definitely grew up in metro-detroit. i've also lived
in good 'ol sunnyvale, ca, and spent a fair amount of time in beloved sf (more
homeless people than i have ever seen.) no doubt detroit isn't fairing well on
tourism lists, but fer fuck's-sake, can we end the zombie ruin porn shit?

a lot of people and a lot of history have been here a long time. rebuilding a
city takes time.

~~~
joonix
But why rebuild it? What's the value proposition of Detroit? Why should
capital -- both monetary and human -- flow to Detroit when there's already
plenty of excess capacity available in other well-established American cities?
And _please_ don't say low COL, because that's a function of Detroit not
attracting aforementioned capital.

I'm genuinely curious.

~~~
yardie
That is a valid question. Why rebuild Detroit when there are other cities who
are in much better shape financially and structurally. There are abandoned
towns all over the mid-west and west coast. They were abandoned when the gold
ran out, when the trains bypassed them, when the interstate was built.
Detroit, AFAICT, is a manufacturing town in an era where manufacturing is no
longer being done. At least not by humans. Robots don't care where they are
situated (in the city or in the desert) and don't pay taxes.

~~~
zenocon
I beg to differ. I think it is an asinine question (hence my "then just nuke
it" quip below.) What's the alternative for the people that live here / have
lived here a long time. They have history here, livelihood, businesses,
family, roots... The people that live here will rebuild it, and they/we are.
Armchair social engineering isn't really required or desired.

------
goodviking
I hate these in depth "Here are the 50 reasons that Detroit is bankrupt ..."
that try to parse every speck of dust on the city payroll. Here's why Detroit
is bankrupt: because anyone smart enough to get out left a long time ago. The
schools are terrible, the crime is terrible, the racism is terrible, the
infrastructure is terrible. Why would anyone willingly stay? It's like a
sticking around Carthage after the ground has been salted. You can argue a
thousand different reasons about why it's the way it is, but it doesn't change
the facts on the ground. Smart people leave and don't pay taxes to keep the
corrupt apparatus afloat.

~~~
todd2012
I grew up in inner city Detroit, many years ago. It was terrible even then,
and once I got out I never went back. I learned practically nothing in school
and had to dodge violence everyday. I feel sorry for those that were never
able to get away from there. (Class of '69 at Highland Park High School)

~~~
mgkimsal
wow - it was that bad then? that's my dad's era, but they'd moved to east
detroit (sorry, "eastpointe") by then.

------
drcode
One thing that bothers me about this is that they have the concept of "retiree
costs" but track those at the time they became due, when instead they should
be blaming earlier administrations who promised higher benefits at the time
but didn't put money aside to cover these future costs.

Retiree benefits are essentially "loans" and should be (but aren't) included
in all the debt graphs.

~~~
prostoalex
> instead they should be blaming earlier administrations

That's one of the main differences between public finances and private
finances - administrators who over-promise in private space get audited and
corrected, administrators who over-promise in public space get financed and
elected.

~~~
spanishcow
That's true but for "Too big to fail" business. This century has begun with
this new type of pseudo-public economy where the taxpayers support the
financial loses of this kind of business.

Also I don't understand why the state or the union help this city. Having a
city with so much citicies living in misery is a failure of the entire
country. Detroit is in this situation because the laus of the country let it
be.

------
specialist
Additional, perhaps complimentary, analysis:

The Real Story Behind the Decline of Detroit … And Yes, Great Things Are
Happening There Too

[http://www.alternet.org/economy/real-story-detroits-
economy-...](http://www.alternet.org/economy/real-story-detroits-economy-good-
things-are-really-happening-motown?paging=off)

TL;DR: Detroit was set up to fail.

An example:

"One dramatic example of the cost of racism born by Detroit is this: Detroit
has an income tax on those who work within the city limits. The two-tier tax
is lower for those who work in the city but live in the suburbs. In enacting
the tax, the state legislature required employers based in the city to collect
the tax via payroll deduction as they do with federal and other taxes.
Suburban based employers are not required by the law to collect the tax. Most
of them don’t. The revenue lost to Detroit per year is estimated to be as much
as $142 million."

~~~
JonSkeptic
>TL;DR: Detroit was set up to fail.

... The nation's 10th largest city was set up to fail? Did the Illuminati do
this, or was it an inside job?

[http://en.wikipedia.org/wiki/Detroit](http://en.wikipedia.org/wiki/Detroit)

~~~
jfarmer
Detroit was the 10th-largest city in the US in the 2000 census with a
population of ~900k, but was the 18th-largest in 2010 with a population of
~700k. It was the 4th largest in the 30s and 40s and reached its peak
population of approximately 2MM in the 1950s. Since then it has been losing
approximately 200k residents (think: taxpayers) per decade like clockwork.

So any story about Detroit has to explain that. There are systemic things at
work and there have been for over 60 years, although I agree "set up to fail"
has a rather conspiratorial tone to it.

~~~
specialist
_I agree "set up to fail" has a rather conspiratorial tone to it._

Sure.

By default or by design, intent is unknowable and unactionable. I only judge
outcomes.

~~~
jbigelow76
If intent is unknowable then you can't say Detroit was "set up" as that would
require divining supposedly unknowable intent. Judging only outcomes means the
failure of Detroit is as likely to be the result incidental vs intentional
action.

~~~
anigbrowl
I think he's using the phrase in the sense of 'destined to fail,' which
doesn't necessarily imply a belief in an unshakeable destiny, it's just a
comment that failure was inevitable/predictable with those policies. Of
course, hindsight is always 20/20.

------
JonSkeptic
>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.

That is eerily, if not disturbingly, parallel to our national problems.
Though, hopefully, we have a bit more time to fix the national problems.

~~~
jfb
Yes, but. The Federal government has many monetary tools available to it that
Detroit doesn't. It's not clear to me that making the analogy between the way
the Federal government and a non-soverign entity like Detroit work does
anything but confuse the issues.

~~~
NoPiece
I think the analogy is useful, because the financial problem has some of same
roots. That the federal government has more solutions available to it doesn't
excuse following the same path. It's useful to to look at Detroit to try and
avoid the problem, it's not useful to look at Detroit for solutions once it
hits critical mass.

~~~
wutbrodo
It seems to me that the proximate cause of Detroit's problem is this massive
flight of high-value (in the economic sense) population. I don't see even an
echo of that happening in the US; certainly not at the level that it could be
considered a problem.

~~~
NoPiece
The problem with Detroit is unsustainable debt. Depopulation is just one of
many contributing factors. The depopulation has been slow, very long term, and
predictable. The debt could have been avoided by scaling back spending as the
the population decreased. Or an effective Detroit government might have even
taken steps to improve the city so people didn't leave or even moved in.

------
VLM
From the article: "Other cities also have profound problems today — Chicago,
Providence, R.I., Baltimore. But only Detroit is in bankruptcy court."

Meant to write "... in bankruptcy court, so far." or something similar.

It's mathematically impossible for Chicago and Baltimore and a couple others
not to join Detroit in the near future in bankruptcy court. I donno about the
finances of Providence RI.

I'm only aware of one tech company in Detroit which is a place that makes what
amounts to a small Xylinx FPGA dev board on a DIP-64 PCB so it just plugs into
a circuit board or breadboard. I own one and haven't used it much but so far
its a good product. But its the only tech company I'm aware of based in
Detroit. There may be others who spend even less on advertising, donno. Cool
as that place may be, I don't think it makes up for the collapse of auto
industry employment and lack of mobility. Most of the unemployed people in
Detroit originally came from the South because there were no jobs in the
South, but there were jobs in Detroit. The "real problem" is there's no where
better to go than Detroit for those people. If they had jobs in Minneapolis,
there wouldn't be a problem with unemployment in Detroit, but there are no
jobs, anywhere, for anyone not in tech, so, they sit, expensively, in Detroit.

~~~
hackula1
I suppose they could go back south where the cost of living is significantly
cheaper. I live in a house one block away from beachfront on an island and
probably pay about what a one bedroom studio in Detroit costs. There is also a
growing manufacturing base around here as well that employs a lot of the sort
of people that would have worked in Detroit (welders, for example). Also, you
don't have to live in Detroit ;)

~~~
tesseractive
If the place is a completely unsafe wasteland occupied primarily by the
indigent, I don't really understand why a one-bedroom studio would be
particularly expensive. In fact, I would expect substantial vacancies and many
affordable options for people willing to risk living there.

Why isn't this the case?

~~~
altcognito
It is absolutely the case. City income taxes and property taxes do add up
though. Any property you purchase you have to check to see what the lien is
against the property. Anything for a dollar
([http://www.theblaze.com/stories/2013/07/30/despite-
astonishi...](http://www.theblaze.com/stories/2013/07/30/despite-
astonishing-1-price-tag-this-detroit-family-home-has-been-on-the-market-
for-519-days/)) usually has a large tax lien that must be paid if you purchase
the house.

If you're not afraid of the locals (have a CCW permit and a shotgun), it's not
the most ideal of locations.

------
vkou
Somehow, I don't see increases on municipal taxes (Which, all in all, make up
a small part of our overall tax burdens) to the main cause of the exodus...
Compared to the lack of employment - from, say, the demise of the Detroit auto
industry.

It doesn't matter if your municipal tax bill is 0, if you don't have a job.

~~~
dantheman
I don't have it the information at hand, but I believe many people moved to
the towns just outside of detroit to escape the taxes. IIRC those towns/cities
are doing fine.

~~~
vkou
In which case, I'd cite the ability, and the desire of the American middle
class to raise their children in a gated suburbia to be a far more likely
factor.

Think of it as a typical parent - would you want your kid to go to school in
Detroit? (The same school that Balanced Budget politics is more then willing
to defund.)

~~~
philwelch
That trend lasted from the 50's through the 90's or so, but the trend now has
been to move back into cities, except for Detroit.

~~~
NoPiece
I think it is way too early to call a trend. And to the degree cities are
growing just barely faster than suburbs (.2%) for the last couple years, that
can largely be explained by the housing bubble and recession. While there is
some data showing young people moving to cities, there isn't much showing
families returning to cities.

 _According to his analysis of the 51 metropolitan areas with more than 1
million people, the primary cities in those metros grew an average of 1.1
percent, compared with 0.9 percent growth in the suburban areas of those
metros between July 2010 and July 2011_.*

[http://www.theatlanticcities.com/neighborhoods/2012/06/urban...](http://www.theatlanticcities.com/neighborhoods/2012/06/urban-
or-suburban-growth-us-metros/2419/)

~~~
philwelch
It remains to be seen whether the trend among young people will continue as
those generations have their own children.

------
ffrryuu
Spending more than taking in, plus inability to monetize debt like the Fed
(simply print more money using a computer).

~~~
jacobquick
Finally someone gets it right. There's already a bunch of comments in here
comparing the federal government's "debt" to city, state, corporate, or
individual debt. It's ridiculous and incredibly damaging to try to draw
parallels between entities that have to account for their borrowing and a
central bank that can extend infinite credit without collateral, debt or
repayment any time it feels like it.

~~~
penrod
Putting scare quotes around sovereign "debt" doesn't change that fact that
bondholders are actually expecting to get paid. Though there's no force of law
behind that expectation, if the government defaults _no-one will lend to it_
any more without hefty sweeteners. Similar deal if we debase the currency with
inflation.

~~~
jacobquick
Scare quotes are what you use when the thing you are discussing is not the
word you're using. They are completely appropriate there.

The guy who replied to you is correct, as everyone who paid attention in Econ
101 is aware: there is no reason for the US Federal Government to default,
ever. It dictates the literal amount of its monetary units that exist on earth
(another thing carefully defined and explained in Econ 101) by extending
credit. It extends this credit with no collateral, no limits and no need for
leverage. They create money when they want to for any reason, and they don't
when they don't want to for any reason. They can, tomorrow, instruct the Fed
to create $17T (roughly the national "debt") and credit it to whoever they
want. The key difference between a central bank and all other entities: when
it extends credit, it does not create a matching liability in the government's
accounting. The central bank, or rather something with the power of a central
bank, is the only entity in a society that can do this. That's what the "sole
power to dictate the supply of money" means.

Any logic developed while thinking about debt carried by people, companies,
cities or states, all of whom must add liabilities to their accounting books
when they take on debt, does not apply to the entity that controls the central
bank for the monetary units in question. Anytime anyone expresses concern
about the national "debt" as if it wasn't something Congress could wave away
with a pen in 15 minutes, they're being ignorant at best and disingenuous at
worst.

It is absolutely critical that you read up on and understand this. It puts the
lie to a lot of the national dialogue about austerity, belt-tightening, and
service cuts.

~~~
penrod
'Anytime anyone expresses concern about the national "debt" as if it wasn't
something Congress could wave away with a pen in 15 minutes, they're being
ignorant at best and disingenuous at worst.'

Whether Congress have the power to do this is not the issue. The issue is
whether they can do it without serious negative consequences. I'm curious to
know why Argentina had to institute currency controls if waving a pen is such
a trifling matter.

~~~
dragonwriter
> I'm curious to know why Argentina had to institute currency controls if
> waving a pen is such a trifling matter.

Because Argentina's debt is largely foreign-currency denominated, not local-
currency denominated, meaning that Argentina, lacking the ability to print,
for instance, (non-counterfeit) US dollars, can't just monetize its debt.
(And, because it can't just monetize its debt, its not in as good a position
to negotiate restructuring of its debt as it would be if it could monetize
it.)

------
api
The article skirts the obvious: Kwame Kilpatrick's corruption:

[http://en.wikipedia.org/wiki/Kwame_Kilpatrick](http://en.wikipedia.org/wiki/Kwame_Kilpatrick)

The guy went to jail for f's sake. I wonder how much graft and embezzling went
on that nobody was ever charged with?

~~~
bluedino
He lives in Texas and works for CompuWare now.

~~~
billybob255
He was fired back in 2010 and will be going back to prison in October. I'm
pretty sure he's in jail until then.

------
jareds
[http://en.wikipedia.org/wiki/Compuware](http://en.wikipedia.org/wiki/Compuware)
It's not enough to employ anyone in Detroit who might want a tech job but it
is a decent sized tech company based in the city. Quicken Loans is also
bringing a bunch of people down and buying up a lot of the empty office
buildings. Down town appears to have turned around somewhat but since I'm one
of the people who lives in the suburbs I can’t speak to weather there’s any
kind of meaningful trickledown effect to help the rest of the city.

~~~
billybob255
Compuware's been struggling lately though, and are going to be making cuts for
a couple years at least.

~~~
brewdad
Compuware has been struggling since Y2K ended. In some ways it has mirrored
Detroit's decline.

------
educating
I would have shared this post with others, but the first graph is serioualy
racist-looking. Regardless of how accurate it is, there is no reason to show
faces with the names that show skin color going with a significant rise in
debt.

------
georgebonnr
At least anecdotally, things like this don't help.
[https://news.ycombinator.com/item?id=6293170](https://news.ycombinator.com/item?id=6293170)

------
lifeisstillgood
a similar debate existed with New Orleans after the flooding. do we bother to
rebuild was the question - one of the more interesting ideas was instead of
spending x billion on (indfficient) government reconstruction give each
citizen x billion / population. if enough people decide to stay and rebuild
fine, if they all leave and buy flats in NYC it's also fine.

It's interesting - but certainly not the first thing I would suggest if I was
a congressman

------
jessaustin
Maybe the Freep should have done this in-depth investigation like a decade
ago?

~~~
ksherlock
They did their part...

Council members at the time — Maryann Mahaffey, Barbara-Rose Collins, Sharon
McPhail and JoAnn Watson — blocked the original pension certificates deal for
months. They warned it was too risky because of the stock market’s volatility
and accused Kilpatrick of political gamesmanship.

The Free Press editorial page in February 2005 also applied pressure, calling
the reluctant council members “heads-in-the-sand” politicians who “have become
a threat to the stability of the community.” The editorial described the
transaction as a “sound deal” that was “akin to refinancing a mortgage.”

~~~
jessaustin
Haha nice head-fake in the intro. You had me going.

No matter the municipality, the "smart" money will always be in favor of the
most outlandish deal the market could possibly bear. After all, it's the
general public's money at risk. In 2005, you could refinance your mortgage at
a drive-through window. I doubt they would have used that language in 2009.

Refi once, you might be fine. Refi twice, you _might_ be fine. Keep going, and
you'll lose your house.

------
Kudzu_Bob
Odd that Pittsburgh, another Midwestern industrial town of about the same size
as Detroit, has faced very similar difficulties, but is now doing pretty well
for itself, so much so that some now consider it America's most livable city.
Why the huge difference in outcome?

~~~
Pxtl
I live in Hamilton, ON - basically Pittsburgh of Canada. Well, Pittsburgh with
a time-machine back to that confused period when Steel City was on the pivotal
moment where it could decay into Detroit or become what it is today.

Local activists and even the CBC point to Pittsburgh as basically Hamilton's
to-do list, and former mayor Tom Murphy in particular.

Basically, his approach was this: cut spending brutally, raise taxes
(especially parking tax, which improves revenue, cuts traffic, and gets more
people into bikes and buses), call in favors from philanthropists, bulldoze
the steel mills into profitable waterfront land.

Too late for Detroit to make those changes, though.

~~~
Kudzu_Bob
But I am still left wondering why Pittsburghers not only made different
choices than did Detroiters, but made ones that were so vastly superior as to
lead to their city's becoming the best town in America even as Detroit
transformed itself a post-apocalyptic wasteland whose denizens hunt raccoons
for their flesh.

~~~
Daniel_Newby
Demographics. Detroit is 82% African and 31% minors. Pittsburgh is 26% African
and 20% minors.

And Pittsburgh has not had an insurrection in living memory.

~~~
camus
that's a pretty racist statement backed up by no facts or causality. Detroit
used to be rich even \w all these "African" as you call them.

~~~
alvilla
I remember reading several articles about massive "white plight" in Detroit.
Especially in the middle class.

1950 - 16% black 2000 - 81% black
[http://historydetroit.com/statistics/](http://historydetroit.com/statistics/)

~~~
Kudzu_Bob
I believe that you mean "white flight," not "white plight," but a good catch
on your part nonetheless.

