The city of Detroit sought bankruptcy protection last week, which was somewhat surprising. Hadn’t Detroit declared bankruptcy already?
A metropolis in a decades-long free fall, almost entirely beholden to labor unions — both public and private — the Motor City became the largest municipality in the United States to file under Chapter 9, which is reserved for local governments, with a whopping $18 billion in debt.
The Washington Post reported the filing was caused by a steep population drop and a shrinking tax base. But those weren’t reasons for the bankruptcy. They’re more like the result.
Detroit has spent like a sailor on shore leave, much of it to sustain lavish retirements for city workers. That’s led to a precipitous decline in services for all taxpayers, because what little revenue comes in feeds a government trying to make good on those benefits and pensions.
Many people and businesses were smart enough to get out of town ahead of this — the aforementioned population drop which inevitably led to the tax-base drop. How has Detroit responded to those pressures over the years? With lots of borrowing and ever-higher taxes on far fewer residents who have ever-dwindling income, though those tax dollars aren’t being spent on services and programs that help those citizens.
An example of those taxes: Residents of a city that has blocks of urban blight and is desolate in some areas pay the highest property taxes in the state of Michigan among cities with more than 50,000 residents. The Detroit News reported last month that taxes on a $150,000 house were $4,885 annually, which is twice the national average of $1,983.
The $18 billion debt includes $11 billion in unsecured debt — $6 billion of which is for health and other post-employment benefits, and $3 billion for the pensions of the city’s 20,000 retired workers. And like almost everybody else, those retirees long ago fled Detroit. The city had a population of 1.8 million in the 1950s; now it’s around 700,000. About a quarter-million people left between 2000 and 2010.
A Michigan judge on Friday put a restraining order on the bankruptcy filing, stating it doesn’t comply with the state’s constitution and adding, laughingly, that it’s “not honoring the (United States) president, who took (Detroit’s auto companies) out of bankruptcy.” That judge’s efforts will only delay the inevitable at this point.
This huge dilemma is an indictment of the way local government politics have evolved. This is where it ends when an insatiable government refuses to contain personnel costs and imposes an ever-higher tax burden on its residents and its businesses.
Those citizens and businesses will go where it’s less hostile — something government entities at all levels across the country should bear in mind.