DETROIT, November 7, 2014 – Finally, long-suffering residents of Detroit, Michigan are breathing a sigh of relief today. Bankruptcy judge Steven Rhodes declared today that the city’s complex plan for exiting the largest municipal bankruptcy in U.S. history could go forward.
According to several sources, Judge Rhodes said it would be a “vast understatement” to call the city’s hard-fought municipal employee pension agreement reasonable, noting it actually “borders on miraculous.”
According to a report from CNBC, “Detroit is cutting the pensions of general retirees by 4.5 percent, erasing $7 billion of debt and promising to spend $1.7 billion to demolish scores of dead buildings, improve public safety and upgrade basic services, among other key steps.”
The agreement was reached in slightly less than 16 months, impressive in terms of how long it usually takes to resolve considerably smaller and vastly less complex bankruptcy filings.
One key sticking point—a problem that plagues countless U.S. municipalities—was the difficult agreement with city retirees who were forced to take significant cuts in their pension payments after the judge ruled they weren’t protected under Michigan’s constitution. In turn, the city’s ongoing pension and health plans have been right-sized at last, and should remain solvent and realistic going forward unless things get out of hand again.
As CNBC notes, “With more square miles (kilometers) than Manhattan, Boston and San Francisco combined, Detroit didn’t have enough tax revenue to reliably cover pensions, retiree health insurance and buckets of debt sold to keep the budget afloat.” That problem, at least for now, would seem to be at an end.
The city’s final agreement is likely to be one of many that will be needed in municipalities across the country, as cities large and small struggle with unrealistic pension schemes negotiated sometimes decades ago between aggressive public employee unions and compliant Democrats who depended on crucial union funding to win re-election year after year while abusing taxpayer trust.
Also making the final agreement happen: Significant haircuts that were taken by bond insurers and bond holders stuck with city debt instruments, many of which would likely never be paid under previous arrangements.
Many bond holders demanded the city sell off its significant museum holdings to settle some of the debt. But a bold agreement between the local and state government and some wealthy individuals and institutions saved these holdings from liquidation, preserving a precious city legacy that could likely never be duplicated or replaced in the future.
Detroit still faces an uncertain future. While many Rust Belt industrial cities have experienced massive population declines, Detroit’s proved particularly disastrous. As late as 1980, the city’s population was approximately 1.2 million. At the dawn of this new century, however, it had dropped to 688,000 and is even lower now, a number far below the point where taxpayers could reasonably be expected to support an undiminished level of city services while actually paying for them.
Detroit began its long slide in the 1970s when a series of increasingly corrupt political regimes led by Democrat machine politics mismanaged and destroyed the city’s infrastructure and business environment and raised taxes to ruinous levels, enriching themselves and their families while city services and quality of life began a precipitous decline.
Sources note that the final straw in the city’s disastrous mismanagement occurred during the unusually corrupt administration of former mayor Kwame Kilpatrick, whose financial mis-dealings and poor business and bond agreements trapped the city into absurdly high bond rates leading to Detroit’s final decline and fall after the Great Recession hit.
Due to financial and personnel scandals, Kilpatrick lost his office and has since been convicted and jailed for his offenses.Click here for reuse options!
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