Bankruptcy in Detroit: The Canary Died

The world will shrug when Detroit's art collection is put on the block, when cops are fired, when schools close and when real people suffer. But don't pay back bondholders and attention must be paid.
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Detroit's bankruptcy is a calamity, for both the people of Detroit and for anyone with eyes to see. It's the culmination of a witch's brew of local malfeasance (you can't spend more than you bring in), malignant neglect (the state, which created Detroit, and the Feds, who rule the world, intentionally walked away from the oncoming disaster) and cold economic reality (the economies of America's cities don't work anymore).

For the people of Detroit it will be like moving to what we used to call a "third-world country" and it wasn't a compliment. Things Americans simply assume will be there will not. Public safety, already shaky will get worse: Police, ambulance, fire protection and sanitation services will reach unsafe levels. Schools seem hopeless. Amenities like libraries, parks and recreation programs will disappear. Creditors will try to take the museums, the arenas, the public buildings that define Detroit and sell them off.

There's blame enough to go around and the first response of the chattering class has been an orgy of recrimination, largely based on pre-existing ideology. Greedy unions, feckless politicians, greedy bankers, austerity and sequestration, racial divisions and urban neglect all got their turn. Truth is, they are all part of the problem. But the deeper problems are beyond finger-pointing. And it is going to happen again, all across America. We've seen it in California, Pennsylvania and Alabama. In my home state of New York, cities like Syracuse, Rochester, Albany, Buffalo and Yonkers have unsustainable budget gaps and no prospect of filling them from local taxpayers.

Even if we had honest and expert local officials, sound budgeting practices, moderate debt, and an end to the Great Recession, American cities are plunging toward an unsustainable future. In the heyday of urban growth, we funded education, cops, firefighters, garbage collection, parks, etc. off of property taxes paid by big industrial corporations. Detroit had the auto industry, Pittsburgh steel factories, Syracuse had Carrier Corp., Yonkers had Otis Elevator. It wasn't just the jobs, it was the big tax bills paid on the factories and offices. Not any more.

They're gone and they're not coming back. Even when jobs return, they will be in low-tax, suburban, subsidized office buildings that don't pay property taxes to the city. And the demographics changed. The middle class moved to suburbia, poor people migrated to the cities, the demand for services increased just as the revenues fell.

If that doesn't change, if we don't recreate the economic base for cities, Detroit will happen again and again and again.

Don't hold your breath. Obama is conspicuously silent. Republican Governors can't get beyond the word "bailout." New York's Andrew Cuomo says he won't give "handouts" to Mayors seeking help, and strong arms a program to lend them money they can't repay to meet pension obligations. No one wants to take ownership of a seemingly unsolvable problem. No one wants to spend money to make cities livable.

So what's left is bankruptcy and perversely it may be just what the doctor ordered. Why? Because all the other remedies (control boards, outside managers, fire the workers, cut pensions and health care) left one big player untouched. Lenders, Wall Street, bondholders, call them what you will, were never asked to take the same beating that was being jammed down the throat of taxpayers, service users and municipal workers.

But a bankruptcy is democratic. Everybody's tuchus is on the table and that is bringing howls of outrage from powerful monied interests. The world will shrug when Detroit's art collection is put on the block, when cops are fired, when schools close and when real people suffer. But don't pay back bondholders and attention must be paid.

Not a hopeful prognosis but a real one. There's a tidal wave of municipal distress heading our way, the political class wants no part of it, and the only thing that will provoke a response is a bankruptcy. So Detroit is today's canary in the coal mine.

Maybe Obama bestirs himself, maybe Andrew Cuomo and Rick Peters get off their rear ends and take up the cause of their cities. A plague of bankruptcies will drive a response that mere human suffering will never do. Such is the state of our cites. Such is the state of our politics.

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