WASHINGTON — After U.S. President Barack Obama gave another speech about the U.S. economy, there was no mention his speech about the city of Detroit and how it has now declared bankruptcy. Now the press is left to worry about the city’s future.
A Reuters analysis from last week titled, “Analysis: History offers few happy endings for Detroit to follow” talks about the bleak future for the now-bankrupt Motor City.
A judge ruled in favor of the city’s emergency manager Kevyn Orr and his team, appointed and put in place by Michigan’s Republican Governor Rick Snyder. Public sector unions had sued the emergency manager team on the grounds that their pensions and retirement benefits will be cut, but the judge saw it necessary that the bankruptcy proceedings go forward.
The city of Detroit is a disaster and an example of poor Democratic policies, which have continued since the 1950s under Democratic mayors. At least one, Kwame Kilpatrick, has been found guilty of corruption and graft.
The city emergency managerial team will most likely cut spending, cut public sector union pensions and other liabilities that had led to a $17-$20 billion debt. But Reuters worries that “History…has few story book endings to offer as a guide when it comes to U.S. municipal bankruptcies.”
As the only (former) major city to file for bankruptcy, there is no precedent. Only 61 local governments have filed for bankruptcy since 1954. Reuters alleges that bankrupt city governments “typically lose access to capital markets in the wake of a bankruptcy” and the standard cut-costs approach “does not help a city enhance its revenue or economic outlook.”
But the analysis did admit that “Detroit appears to have run out of alternatives to bankruptcy barring a bailout from the state.” The precipitous drop in population (and its tax base) from a high of 1.8 million in the 1950s to today’s low of 700,000 has much to do with it, in addition to declining and ineffective public services and crime-fighting.