The big news this afternoon is that the Emergency Manager of Detroit, Kevin Orr, has received authorization from Governor Snyder to pursue a Chapter 9 bankruptcy filing (the most recent story from the Detroit News is here.) Orr has been EM since March 1 and has been trying to restructure Detroit’s debts with limited success.
Chapter 9 only applies to municipalities. It’s similar to other forms of bankruptcy. It puts creditors’ claims on hold while working out some unusual plans to restructure the organization. According to Wikipedia, in Chapter 9
Municipalities’ ability to re-write collective bargaining agreements is much greater than in a corporate Chapter 11 bankruptcy and can trump state labor protections, allowing cities to renegotiate unsustainable pension or other benefits packages negotiated in flush times.
This is a key factor. The story in the News includes the following:
Unsecured creditors could take the biggest hit in bankruptcy court. Orr wants them to share a $2 billion payout on approximately $11.5 billion worth of debt, which includes an estimated $9.2 billion in health and pension benefits and $530 million in general-obligation bonds.
The story describes how some corporate creditors have agreed to take 75 cents on the dollar for what they are owed. That’s a significantly better deal than the 17 cents on the dollar the unsecured creditors may face.
Yesterday, driving from Kansas City to Indianapolis, we listened to Charlie LeDuff’s Detroit: An American Autopsy. It’s a tough story. My wife was asking hard questions about why it’s so depressing to teach social problems. LeDuff looks at Detroit through the lens of someone who grew up in the city proper and not in the affluent suburbs. He recounts difficulties with economics, lack of support for the above-mentioned civil servants who depend upon collective bargaining, corruption among civic leaders too often replaced by other corrupt civil leaders, drug culture, decline of the manufacturing base, white flight to the suburbs, corporate decision making (or lack thereof), and the failure of the press to address any of these issues. Many of these issues are explored through the vantage point of LeDuff’s family or his reporting, but he still touches on all the right issues. While he observes that the city motto speaks to “rising from the ashes”, the litany of concerns raises questions about how that will occur this time.
LeDuff spends a great deal of time on the story of a particular fire station. Underfunded, they make do with equipment that doesn’t work (the alarm has been jerry-rigged for when calls come in). They are mostly ignored by department bureaucrats and are disciplined when it’s learned that they described their situation to a reporter. But when one dies in an arson fire in one of the hundreds of houses they deal with, he is a hero. No recognition at all of the neglect that contributed to the firefighter’s death.
Charlie also does a good job of unpacking the city’s growth and eventual decline. The growth comes from Ford’s $5 per day minimum wage, the Great Migration of the Southern blacks and Appalachian whites, and the dominance of the auto industry. But the seeds of difficulty were already there: Long term racial issues, corporate economics, the impact of the auto on urban sprawl and resulting suburbanization, and government corruption. The suburbanization of the late 60s, helped by white flight response to the 67 riots (meticulously kept as an urban problem within the Detroit city limits), is followed by the construction of McMansion suburbs far removed from Detroit’s urban challenges (which still benefit from the limited cultural and economic life).
Last year, on another drive, I listened to the audiobook of Charles Murray’s Coming Apart. I didn’t like it, as I explained here. Murray, the author of such gems as The Bell Curve and Losing Ground. He follows his normal libertarian stance but part of his argument is worth attention. He observes that the richest segments of society are becoming increasingly separate from the poor. He mistakenly puts too much emphasis on value deficits of the poor while failing to examine the structural correlates of those issues. It doesn’t take a genius to figure out that the residential and cultural segmentation of the upper and middle classes lead directly to a declining tax base and reduced civic services. Those left behind in this new migration are those with limited options in terms of jobs, family, mobility, and even grocery stores. Let’s call it the Great Abandonment.
Two years ago, I wrote this piece the day Newt Gingrich announced he was running for president. As part of his announcement, he said this: “I know how to get the whole country to resemble Texas,” he said. “President Obama knows how to get the whole country to resemble Detroit.” As I wrote at the time, Texas was seeing purported economic growth by driving down wages, lessening safety net supports, and limited educational programming.
While Detroit’s crisis is real, it’s the natural outgrowth of poor economic planning, residential segregation, political gerrymandering, and an inability to address issues of racial inequality.
Sound familiar? All of these issues remain the real issues confronting America in the 21st century. I wish I had an example of a major metropolitan area that could be our model going forward, but nothing comes to mind.
Over the last 35 years, sociologist William Julius Wilson has been arguing that we need to address the concerns of the underclass. Outmigration would increase economic isolation, the black middle class would abandon their extended families, economic opportunities would drive up, and a group of people would give up on the American dream. I worry that Detroit is the proverbial canary in the coal mine.
If it is that canary, we can expect more problems at firehouses, more fights over pensions, more inner city crime. As I’ve been writing this, Christianity Today has posted a story about Christians working in Detroit. I haven’t read it yet but I appreciate their efforts. Identification with the problem is better than finger-pointing. Because we’ve all got an interest in Detroit. It might just be our national future.