(June 27, 2013) Half-way measures will perpetuate the city’s collapse.
This article was first published by the National Post on June 27, 2013
Detroit’s downfall is almost complete. This icon of capitalism, once the world’s greatest industrial city, has diminished to 700,000 souls, having lost 25% of its population since 2000 and 60% of its population since 1950, when it peaked at 1.8 million. Detroit, whose very name was shorthand for the U.S. automobile industry that epitomized American might, is today best known for its crime and collapse, for acres of abandoned land, for art books with titles such as “The Ruins of Detroit.”
To avert bankruptcy, a 50-50 risk according to the city’s state appointed emergency manger, Detroit is planning to hawk its assets – its parking garages, the Belle Isle Municipal Park, even its museum’s masterpieces – while cutting pensions for its present and past staff. If the emergency manager succeeds in averting bankruptcy by cutting desperate deals here and there to keep the city alive, the result will be what? A city on life support, near comatose. Detroit’s agonizingly slow demise will continue towards an inevitable, grim conclusion. This week Standard & Poor’s and Fitch, after considering the emergency manager’s 128-page rescue report, promptly lowered the city’s credit rating, in Fitch’s case to C, which translates as “imminent default.”
Detroit has an estimated $17-billion in debt and pension obligations, an unrepayable amount. Rather than perpetuate the pain, Detroit should simply declare bankruptcy, pay off those creditors it must and stiff unsecured creditors where necessary.
Many point to race riots, to crime, to municipal corruption and to competition from Japanese car makers for Detroit’s downfall and all doubtless played a role. But the mother of all causes has been union power. Had GM, Ford and the other great car makers not been straight-jacketed by union rules and union wages, Detroit’s industries would not have fled to Right-To-Work states and they would have retained the flexibility needed to compete with foreigners. Had municipal workers not squeezed and controlled the city government, saddling its residents with poor services, crushing taxation, and corrupt politicians, Detroit homeowners would have had no reason to abandon their magnificent communities in flight to the suburbs and beyond.
Even today, if the city went bankrupt to then emerge debt-free and also without union contracts – whose excesses will lead the city government to run a $386-million deficit this year – Detroit could easily revive to the benefit of an overwhelming number of its residents.
Step One in a post-bankruptcy, low-tax, union-free revival would see the city shuck its obligation to repay some $5.3 billion in bonds by parting with its water and sewer system, whose revenue stream now secures those bonds. Let the private sector run the municipal water works, the nation’s third-largest, as it did in Detroit’s early days – the private sector will do a better job of repairing Detroit’s crumbling water infrastructure while freeing the new city council of needless employees.
Step Two would be to not only sell the city’s extensive meter and other parking facilities, as it is considering, but also street parking – most businesses and many home owners would prize control over the street lane abutting their property.
Step Three involves the Detroit museum, which boasts some of the world’s most famous works of art and is ranked America’s sixth best. But rather than merely selling several masterpieces piecemeal, Detroit should sell its entire museum – complete with incomparable works by the likes of Matisse, van Gogh, and Rembrandt – lock stock and barrel, to the highest bidder. If the derelict city of Detroit today didn’t own this museum, it would never consider establishing it at the expense of the pensions of its public servants, policing, and other public needs. There is no moral case for keeping these lavish works in city hands at a mostly poor citizenry’s cost.
Lawrence Solomon is executive director of Urban Renaissance Institute.