Decades of denial
Detroit bankruptcy could be a precursor for the nation
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Yesterday represented the end of the road for six decades of denial and delusion in Detroit. That’s because, as I’m sure you’ve heard, the city filed for federal bankruptcy protection. It’s the largest Chapter 9 municipal bankruptcy case in U.S. history.
The filing cited a lot of factors, including shrinking population, dwindling tax base and financial mismanagement. And it’s all true. The city, whose population has shrunk from just under 2 million to closer to 600,000, nonetheless maintains 9,000 employees, while 20,000 retirees wait for their benefits.
All told, the city is trying to renegotiate $18.5 billion in debt. That’s for just one city! Amazing. Bankruptcy will allow the tables to be reset, and while it will be painful for almost everyone involved, Detroit simply had no choice.
Of course, they had a choice for the past 60 years to embrace responsible management, and they didn’t want to do that. They gave into the demands of public employee unions and granted these generous salaries and benefit packages, all while City Council members earned salaries in excess of $70,000 and had staffs as large as eight per member.
As unfortunate as this is, it could easily be a precursor for many other cities around this country, or around the world. Indeed, it could be a precursor for the United States itself, which is on the hook for many trillions of dollars in unfunded entitlement obligations. So far Washington has shown about as much interest in fixing this problem as the Detroit City Council did all those years – choosing to wallow in denial. Maybe what’s happened in Detroit will be a wakeup call. I certainly hope so.