Photo of the main dance floor in the Grand Ballroom in Downtown Detroit today
Governor Snyder hopes to move ahead with the Detroit bankruptcy and is appealing the order to withdraw the Chapter 9 petition. What can be done and how did they get there?
Liberal Judge Rosemary Aquilina ordered Governor Snyder to stop moving ahead with the bankruptcy. She said “In order to rectify his unauthorized and unconstitutional actions … the Governor must (1) direct the Emergency Manager to immediately withdraw the Chapter 9 petition filed on July 18, and (2) not authorize any further Chapter 9 filing which threatens to diminish or impair accrued pension benefits,” she said in her order.
Aquilina said she “knows” pensions will be diminished in a Chapter 9 bankruptcy and that it violates the Michigan Constitution. The New York Constitution has a similar clause which requires the state and cities to pay pensions before anything else, even before paying for basic needs.
Aquilina also ordered that a copy of her declaratory judgment be sent to President Barack Obama, saying he “bailed out Detroit” and may want to look into the pension issue.
She told assistant AG Brian Devlin, “It’s cheating, sir, and it’s cheating good people who work. It’s also not honoring the (United States) president, who took (Detroit’s auto companies) out of bankruptcy.”
“I know he’s watching this,” Aquilina said, predicting the president ultimately will have to take action to make sure existing pension commitments are honored.
It’s not about Detroit, it’s about honoring the president.
Bamkruptcy is normally what is done in a circumstance like Detroit’s. Snyder has done nothing untoward.
Photo of abandoned GM powertrain plant in Detroit
Harrisburg, PA and Stockton, CA are smaller cities that went bankrupt for much the same reasons as Detroit. There will be more cities and eventually states that will follow suit. We are rotting from the inside out.
In 1999, New York owed $45 billion and by 2009, they owed $69 billion. It has gotten worse since then. Worse yet, Cuomo wants to under fund pensions by 43%, putting them on the same path as Detroit. The MTA is the biggest problem with a debt that has doubled in ten years because of a bloated payroll and pension plan. New York City spends twice as much as they take in.
New Jersey eclipses New York.
Illinois is on the same path. A few days ago, Fitch downgraded the GO rating for Evanston to ‘AA+’ from ‘AAA’ due to concerns over long-term risks associated with the sizeable unfunded pension liability in the city’s police and fire plans. The systems are severely underfunded. They are approving contracts they can’t pay for.
California has too many problems to name here but the deficit in the California State Teachers’ Retirement System ts growing by $17 million a day and needs $4.5 billion more a year to cover. Many of their cities are in danger of folding.
Are we going to bail them all out and give them permission to continue with their failed policies? Rand Paul says Detroit will be bailed out “over my dead body.” Joe Biden is going to see what the administration can do, hinting at a bailout like all the other bailouts that didn’t work.
Watchdog.org has an excellent objective summary of why Detroit failed:
1. The population has collapsed. It has gone from 1.8 million residents to 702,000. The city government did not shrink with the population – a huge problem given the revenue wasn’t there to support it.
2. Detroit has the highest unemployment of any major city in the USA. They are no longer a major manufacturing center.The high cost of the city government drives companies away.
3. Detroit has $18.5 billion in general obligation (GO) debt.
4. Much of the debt is the result of public pensions. They have more than $3 billion in unfunded pension liabilities. The very thing that is causing their problems is the reason the judge halted the bankruptcy.
5. The city is buried in pension costs because it has too many public workers. While the population caved, the public sector kept growing. They have more public employees than any comparable-sized city.
6. Those running the pension funds aren’t helping. How about the four city leaders charged with running the city’s broke pension fund taking an all expenses paid conference trip to Hawaii in April while fire and police take pay cuts. They have had many corrupt leaders.
7. Then there are the other corrupt leaders. “Former mayor Kwame Kilpatrick, a Democrat, was convicted in March on 24 federal felony offenses, including mail fraud, wire fraud, tax evasion, racketeering and extortion. Prosecutors said he doled out jobs to friends and family, wasted city tax dollars on fraudulent contracts and pocketed more than $1 million in illegal kickbacks.”
8. Basic city services no longer exist. Only one-third of the city’s ambulances are in service. About 40% of the city’s street lights do not function. Citizens have stepped up to care for parks, run the bus company, and handle security.
9. Police cannot respond to the growing crime wave. Police, teacher and firefighter retiree pensions must be paid which leaves little for active-duty personnel. It takes about 58 minutes for emergency personnel to answer emergency calls. Only 8.7% of the city’s crimes are solved though statewide it is 30.5%
That is reminiscent of GM’s failure. They had more employees on retirement and couldn’t afford the high salaries of current employees.
10. There are 78,000 abandoned buildings in Detroit because of all of the above.
The real question is can we learn from it or will we continue to kick the can down the road? President Obama is the bailout king and has done absolutely nothing to cut spending. The US currently spends about 40 cents more on the dollar than it takes in. The US borrows from Communist and other dictatorial nations.
President Obama proved he would say anything back in 2008. He hasn’t gone line-by-line to cut the budget as he promised and has done quite the opposite. We don’t even have a budget, we have spending bills. Obama has no interest in reducing the budget or the size of government. His prize accomplishment, Obamacare, is raising healthcare costs:
Photo of one of the 78,000 abandoned structures
Photo of a Detroit slum