The long-ailing Motor City has not filed for bankruptcy yet, but I believe it will within a few weeks.
The city's emergency financial manager, Kevyn Orr, met Friday with creditors, insurance companies, investors, unions and pension officials to plead his desperate case. He proposed that investors and lenders — many of whom purchased what they thought were secure municipal bonds — take a "haircut" of about 10 cents on the dollar. In other words, if Detroit owes your firm $200 million for bonds you bought several years ago, all it can pay is $20 million, and then walk away.
Orr made it clear to the nearly 50 unions representing city employees that further wage and benefit concessions are in the cards, as are efforts to put contracts out for bid and privatize some city services.
Frankly, I believe Orr's chances of working out arrangements with all of these stakeholders are minimal. But perhaps he's just going through the motions before a bankruptcy filing, just to prove he at least TRIED. Good-faith efforts to come to terms with your creditors seem to be a necessary prerequisite to favorable treatment in bankruptcy court.
Detroit's fiscal dilemma, which dates back to the 1970s but has steadily worsened in the past 10 years, is that servicing its long-term debt and pension/health care liabilty for retired city employees takes up an inordinant amount of its tax revenues. This leaves too little money to provide police and fire protection and other essential services such as garbage pickup, reliable electrical service and streetlights that work. As it stands, the city's long-term debt is a staggering $17 billion.
According to the Detroit Free Press, 46 cents of each dollar of tax revenue goes to public safety, and another 38 cents toward debt and long-term obligations.
It is true that inept and corrupt politicians have screwed Detroit royally in recent decades. Most of them were black Democrats. But the finger-pointing between largely white suburbanites and mostly black city residents oversimplifies things and delays real recovery.
Middle-aged and older whites in the suburbs often point to the 1967 riots, which spurred white flight and began a long, steady decline in the Motor City, as the watershed event that led to the current disaster. In their minds, Detroit was hunky dory before that, and bad ever since.
But what they neglect to acknowledge is that, prior to the 1970s, black Detroiters suffered from well-documented police brutality at the hands of a largely white police force. Furthermore, blacks were relegated to substandard housing in Detroit until the white flight began in the 1950s and 1960s. That was when bankers and real estate agents used blatant red lining and scare tactics to get whites to sell their homes at below market prices, then turned around and sold those same homes to blacks at unfairly high prices. To these conniving sharks, white flight was simply a golden opportunity to make a killing.
The white and black southerners who ventured north to Detroit in the first half of the 20th century for high paying factory jobs typically did not have more than a high school education. Regrettably, many of their children and grandchildren also did not further their education past high school, believing that high paying union jobs would never go away. Illiteracy is a serious problem in the city, probably increased by the high school dropout rate.
While the educational level of Detroiters hasn't progressed much, industry has undergone a dramatic transformation in the past quarter century. Robotics, outsourcing and foreign competition that have forced American auto companies to downsize have caused many of these jobs to evaporate forever. And Detroit is left with a vicious downward spiral: Few jobs, low tax base, bad schools, violent crime, drugs, gangs, illegitimate births and more population drain as those who can afford to leave the city do so.
Detroit proper had nearly 2 million people in 1950, 1 million in 2000, and about 700,000 today. (The entire metro area has nearly 4 million people.)
But as people continue to flee and tax revenues decline, there is less and less money for police and fire services just as demand for these services escalates due to grinding poverty and violent crime becoming more and more common inside the city limits.
Past mistreatment of blacks by whites has led to a bitter, insular culture among many Detroit residents. They are mistrustful of suburban whites and fail to acknowledge that it is wealthy white investors and philanthropists -- Mike Ilitch, Dan Gilbert, Peter Karmanos, Alfred Taubman and the Ford family, for example — whose steadfast investment and financial support have prevented Detroit from being in even worse shape. Downtown Detroit is doing fairly well; it's just that the majority of neighborhoods are blighted, crime-ridden, dangerous and crumbling.
Detroit, believe it or not, was known in the early 1900s as the Paris of the Midwest due to its tree-lined boulevards and beautiful architecture, including majestic churchs, art deco skyscrapers, and stately homes. (Yes, there are still some beautiful homes inside the city limit, especially in the Palmer Woods subdivision, where Mitt Romney gew up.) But the city's distress and blight are so overwhelming, it is dificult to be optimistic.
I've stated before that Detroit reminds me of an attractive, intelligent and talented person with a bad substance abuse problem. His or her life has been marred by destructive habits, unsavory acquaintances, ugly incidents and poor choices, all of which feed off of each other in a perfect storm of misery. Veering off on a path of destructiveness can make anyone or anything appear ugly and irretrievably broken.
Kevyn Orr and the bitter medicine of bankruptcy can eventually cure Detroit's financial ills. Retirees relying on pensions will suffer, as will city residents who pay tax rates that are ridiculously high given the poor level of services they receive. Crime and bad schools will remain stubbornly as cancers upon the city.
But in order for the city to truly recover in viability, safety, optimism, the health of its neighborhoods and the vitality of its schools, the people will need to take a look in the mirror and resolve to do better. The time for finger pointing, complaining and paranoia has come and gone.
It's literally do or die, and don't think it's not possible that this once-great city could die completely, with the level of abandonment so profound that recovery is next to impossible.