Detroit’s Long Shot: A Federal Bailout
Michigan
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By Josh Boak,
The Fiscal Times
July 22, 2013

Detroit may have filed for bankruptcy, but it’s not looking for a federal bailout … yet.

It all raises a question as to whether a city in decline for six decades can magically turn around with a slew of court filings—and almost no outside help.

Vice President Joe Biden has acknowledged that “we don’t know at this point” what types of aid can come from Washington. House Republicans were reluctant earlier this year to help the victims of Superstorm Sandy, so it’s doubtful as to why they would endorse aiding a city government infamous for its corruption and mismanagement.

“I think it's very difficult right now to ask directly for support,” Detroit Mayor Dave Bing told ABC News’ “This Week” on Sunday.

RELATED: DETROIT'S 60-YEAR DECLINE INTO BANKRUPTCY HELL

Michigan Gov. Rick Snyder went even further, indicating that he does not expect federal dollars to revive Motown, a city that he put under the control of a state-appointed emergency manager in March. That manager, bankruptcy lawyer Kevyn Orr, took over a city with $18 billion in debt and decided last week to seek Chapter 9 protection. The predicament looked so dire that Orr took an inventory of the city’s zoo animals and art holdings.


"It's not just about putting more money in a situation," Snyder told CBS News’ “Face the Nation.” "It's about better services to citizens again. It's about accountable government."

On “Fox News Sunday,” Orr, the city manager, said his strategy is based on Washington staying at a distance. "We are not expecting the cavalry to come charging in,” he said. “We are out here on outpost and we have to fix it because we dug the hole. And that's the assumption that we are operating on."


But any argument that Detroit can improve the services to its citizens on its own seems misguided, given the constraints of bankruptcy. Restoring the balance sheet will mean cutting department budgets further. Borrowing will become ever harder for a place that once branded itself as “Renaissance City,” while top city officials spend more of their time dealing with finances instead of constituents. For the next several months, lawyers, creditors, and representatives for city pension plans will be haggling over a settlement.

At the same time, the Motor City still must provide basic services to 700,000 residents. Trash must be collected. Snow-filled streets must be plowed. Children must be educated. Crime must be stopped, or at least—given the 58-minute response time of the Detroit Police Department—minimized.

RELATED: DETROIT BANKRUPTCY IS BIG RED FLAG FOR OTHER CITIES

It’s unclear exactly how Detroit can finance those services without an outside influx of cash. When General Motors and Chrysler began the path to bankruptcy in 2008, the two automakers—companies stitched into Detroit’s DNA—received about $60 billion in federal loans to keep operating.

State and local taxes generated $2.3 billion in revenue for Detroit last year, according to an April report by the Citizens Research Council of Michigan. It had a deficit of $326.6 million. That deficit would be close to zero if revenues had still approached the $2.59 billion the city received in 2002.

The problem has been caused by a shriveling population—down from 1.85 million in 1950—and a dwindling tax base. Real estate listings indicate that a home worth more than $1 million in the nation’s capital would barely command an $11,000 asking price in Detroit.

The population flight has been so great that when the Michigan governor was asked about specifics to turnaround the city he cited a partnership with the federal government to tear down 78,000 abandoned houses in 30 days.

Clearing those homes—much like the bankruptcy filing—should theoretically help clear away much of the debris that has interfered with Detroit’s ability to function. But it is still reeling from the loss of people, the disappearance of middle class jobs as the auto industry downsized, mismanagement in City Hall, and a corrupt political class. Former Mayor Kwame Kilpatrick has been in-and-out of prison since 2008.

Bing indicated that a plan to continue services during bankruptcy proceedings—let alone enhance them as Snyder indicated—has yet to be determined.

“We have to have an organized plan,” he said, “so we know that whatever we get is going to be invested where we can maximize the return on the investment and give the people the kind of services that they need, give them the idea that they can live in this city and be safe.”