Detroit’s Pre-Bankruptcy Negotiating Game May Not Be Working.

Detroit faces some immense problems. Papering over them with short term deals with creditors isn't going to solve them.

Detroit

The manager appointed by the Governor of Michigan to try to turn Detroit around and save it from having to file for Bankruptcy protection has some tough news for Detroit’s creditors:

DETROIT — The emergency manager who was sent to reverse the fortunes of this financially troubled city asked some of its creditors on Friday to accept pennies on the dollar as he laid out his plan for tackling Detroit’s staggering debt, kick-starting negotiations that could determine whether the city is headed to bankruptcy court.

Presenting a grim take on the city’s fiscal standing in a closed-door meeting, the emergency manager, Kevyn Orr, a bankruptcy lawyer from Washington who was appointed in March, made a case to dozens of bondholders and union leaders that deep cuts alone cannot save Detroit. He said that painful sacrifices must be shared.

“This is not meant to be a hostile act,” Mr. Orr said at a news conference in which he discussed the session. “It isn’t meant to be combative. It is meant to be an acknowledgment and recognition of the realities that we can no longer deal with.”

The proposal includes an offer that amounts to less than 10 cents on the dollar on some of the city’s unfinanced debt obligations like unsecured bonds and a portion of unfunded pension liabilities, which together total more than $11 billion. He will hold another meeting next week with labor leaders and retirees for further discussions on the plan, which also includes a proposal to reduce health care benefits for retired city workers.

To save money, Mr. Orr announced he would stop making some of Detroit’s debt payments, including $39 million that was due to creditors on Friday. “What the average Detroiter needs to understand is that we’re tapped out,” he said.

On Thursday, the rating agency Moody’s downgraded several of Detroit’s debt obligations, and after Friday’s session it raised the prospect of further action.

“We also believe the city’s risk of bankruptcy has increased over the last six months,” Moody’s said in a statement. “All of Detroit’s ratings remain under review for possible downgrade as we analyze the ongoing discussion between the city and its creditors and stakeholders.”

Friday’s gathering, and the talks that are expected to follow in the weeks ahead, are moving the city to a moment of truth. Some government restructuring experts speculate that it may not be long before Detroit becomes the largest municipality in the nation to file for Chapter 9 protection. Mr. Orr said the odds were 50-50.

Since he took the job, Mr. Orr has painted an ominous portrait of severe cash flow shortages, junk credit ratings and at least $17 billion in long-term obligations that, if left unchecked, would eat up about 65 percent of the city’s total revenue by 2017. City operations are in desperate need of mending, he has said, including an overhaul of public services for the 700,000 residents now living in a city that once was home to 1.8 million.

The proposal presented to creditors on Friday would spend about $1.25 billion over the next 10 years on reinvestment in city services and crumbling infrastructure, including public safety and fixing city operations. Detroit has already started negotiations with its surrounding counties over a possible deal to sell its water system to an independent authority, Mr. Orr said.

City and state leaders have said bankruptcy is a last resort. It is unclear whether the mere threat will be sufficient to persuade enough creditors and union officials, some of whom feel Mr. Orr is exaggerating the problems, to embrace voluntary cuts.

Orr is clearly playing the same kind of pre-bankruptcy filing negotiation game that you often see in large corporate bankruptcies, something that Orr specializes in. In these negotiations, debtors are typically trying convince  creditors and their representatives that it would be more in their interests to work out a deal than to allow the entity go into Bankruptcy Court. In the case of unsecured creditors, this is most assuredly always true. Even in a reorganization bankruptcy, they end up near the bottom of the totem pole and will typically see only pennies on the dollar. There isn’t a perfect analogy between a Chapter 9 Municipal bankruptcy and a Chapter 11 corporate reorganization, but there are plenty of similarities. In both cases, unsecured creditors will end up getting the shaft in the end, while secured creditors and, in the case of municipalities, pension obligations, will be treated somewhat better. Even those creditors, however, are likely to find themselves having a resolution that they don’t necessarily like imposed upon them by a Bankruptcy Court Judge. In any case, such creditors would still need to spend considerable funds on legal presentation which in complex bankruptcy cases tend to be quite high indeed. In the end, then, reaching an agreement that averts bankruptcy would likely be in the interests of all parties.

In the corporate world, of course, not all efforts to avoid Chapter 11 end up being successful and the parties all head to Bankruptcy Court. In the case of Detroit, though, it’s likely that negotiations are being made more difficult by the fact that the creditors don’t necessarily believe that Detroit will pull the trigger and file a Chapter 9 petition. For one thing, such a filing would constitute the largest Chapter 9 filing in recent history. Even if the city were to emerge from court in something resembling decent financial shape, the filing alone would do immense damage to the city’s credibility with creditors, contractors, and others who have done business with the city in the past. Its bonds would likely be relegated to high-interest “junk” status for the foreseeable future, contractors may decide to avoid doing business with the city in fear that they might not get paid. In general, the city may end up finding that it would not be able to successfully emerge from bankruptcy because of the financial uncertainty the bankruptcy creates. That happens all the time in the corporate world, of course, which is why many companies that emerge from Chapter 11 find themselves on the steps of the Courthouse a few years later. In the case of a municipality, though, the consequences would be far more serious as the financial crisis that led to the Chapter 9 filing reemerged at a later date in a much more painful form. In the meantime, the brain drain that has exacerbated Detroit’s problems over the decades would likely only accelerate.

The truth of the matter, of course, is that the problems that Detroit, or any other number of major American cities, face at this point aren’t going to be solved by rearranging the deck chairs on its fiscal Titanic. Instead, as Jazz Shaw notes, it’s going to take some more creative thinking:

[A]ssuming Orr finds a path through this tangled mess and returns Detroit to at least the hope of some form of long term solvency, how will they prevent the same thing from happening all over again? Obviously it would require rethinking the entire public service sector, as well as allowing more public scrutiny of everyone who has their fingers in the food dish. More privatization might be part of the answer, but a harsh dose of reality when constructing public service contracts will be mandatory. Otherwise, all Orr is accomplishing is putting a blanket over the flames in the short term and letting the fire build back up all over again.

The problem is that these solutions are very politically unpopular and not easily implemented in a city where the powers that be still aren’t willing to acknowledge the reality that they find themselves in. So, good luck to Keyn Orr. You’re going to need it.

FILED UNDER: Economics and Business, US Politics, ,
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook

Comments

  1. HarvardLaw92 says:

    We’d also need to take note of the ability to nullify labor contracts in Chapter 9. I suspect (anecdotally, so if I’m wrong, feel free to correct) that Detroit still has a public service infrastructure maintained at levels which reflect its past (as a city of 1.8 million) than it does current reality. Labor contracts make it difficult to downsize public sector workforces even when doing so it the prudent thing to do.

  2. Dave Schuler says:

    There’s a one page summary of Detroit’s budget here. Based on that summary roughly half of Detroit’s expenses are employee wages and benefits. Another 21% is “Other” which strikes me as a bit high. I’d like to know more detail about that.

    The bulk of Detroit’s revenue comes from sales tax (6%) and municipal income tax (2..5%). The city can probably derive more revenue by increasing those rates but, yes,Detroit will need to do something about its public employee wages and benefits.

    Detroit’s real problems, like those of many state and local governments, are that growth is far slower than they had projected and healthcare expenses are growing too quickly. Too bad that wasn’t a priority for anybody.

  3. @Dave Schuler:

    Detroit’s real problems, like those of many state and local governments, are that growth is far slower than they had projected and healthcare expenses are growing too quickly. Too bad that wasn’t a priority for anybody

    Indeed, and the biggest problem that Detroit faces is the fact that it continues to bleed population as people become fed up with the lack of opportunity, not to mention the general decay of the city. It’s rather difficult to create economic growth in that kind of scenario.

    New York City managed to get itself out of the financial crisis of the 1970s thanks largely to the massive growth of the financial sector that started roughly around the time Ed Koch was serving his first term as Mayor. I don’t see where Detroit can get that kind of spark to light its economic fire, especially since other cities in the Rust Belt (Toledo, Cleveland, etc) that are in far better economic shape are fighting for the same sources of potential growth.

  4. HarvardLaw92 says:

    @Dave Schuler:

    growth is far slower than they had projected

    Unless I’m mistaken, Detroit isn’t growing. It’s shrinking, and most of the actual wealth fled to the burbs (Bloomfield, et al) long ago.

    I’d also want to see the books for these enterprise agencies. Water and sewer, between then, generate almost $1 billion a year in revenue, yet they are appropriated at 100%. Nobody can tell me with a straight face that Detroit Sewer requires $539 million a year to meet expenses and operate, so where does the surplus go?

  5. Gustopher says:

    I’d really like to see a change in the bankruptcy law that puts payments to the pensions higher than bond obligations.

    This is just another case where the pensions have been underfunded, and the workers who are relying upon retirement benefits get screwed over. These are benefits that they earned, and which they accepted lower pay for.

    Of course, if the pension payments were above bonds in these proceedings, then the bond ratings would have to take the unfunded and underfunded pensions into account, but I would consider that a feature.

  6. Jenos Idanian says:

    @Gustopher: I’d really like to see a change in the bankruptcy law that puts payments to the pensions higher than bond obligations.

    And if that happened, who in their right mind would buy those bonds? The issuers would have to offer higher returns to get people to buy them, and that would drive up the cost of issuing the bonds.

  7. michael reynolds says:

    Sometimes cities die. Anyone seen Ur lately? Or Persepolis?

  8. @Gustopher:

    And your proposal would dramatically increase borrowing costs for municipalities, states, and corporations. With the consequent economic impact of the same.

  9. @michael reynolds:

    Or Gary, Indiana.

    Okay, that one’s premature, but based on the last time I drove from Chicago to Indianapolis several years back, it’s not far off

  10. @Gustopher:

    The real problem is that the cities are allowed to run their own pensions, which allows them to get away with things like continually underpaying as an easy way of balancing the books. If pensions were required to be run by independent parties, it would be far harder to get away with such things.

  11. Dave Schuler says:

    @Doug Mataconis:

    In 1950 St. Louis had nearly 900,000 people living in it. Now it has just over 300,000. There are areas that were once busy residential and shopping areas that are now mostly empty lots and rotting shells. I could make a list of Midwestern cities that’ve similarly fallen on hard times over the last half century but St. Louis pretty much takes the cake.

    As mentioned above there’s been a lot of flight to the suburbs. St. Charles County, north of St. Louis, was one of the fastest-growing counties in the nation not too long ago. We might want to reflect on why this is happening.

  12. michael reynolds says:

    @Doug Mataconis:

    I hope you stayed on the freeway going through Gary.

    Oh, wait, silly me: you’re alive, so of course you stuck to the freeway.

  13. @michael reynolds:

    Hey I may still be (mostly) young, but I’m not stupid.

    Nonetheless, even the view from the highway was incredibly depressing.

  14. @Dave Schuler:

    Obviously, the decline of the Midweastern industrial base is a huge contributor to that phenomenon. You can see it in places like Detroit and St. Louis and as far east as PA cities like Erie, Scranton, and Bethlehem/Allentown. I’m not sure what the answer is, other than to just admit that these cities that were once industrial behemoths are going to shrink. At some point, it becomes pointless to fight the inevitable, doesn’t it?

  15. @Dave Schuler:

    One other thought. If there is going to be an industrial revival in the United States, I would expect it to happen in the Sun Belt regions instead of in the Midwest. Perhaps Midwestern states need to consider why that is likely to be the case.

  16. michael reynolds says:

    @Doug Mataconis:

    Gary is the outskirts of Mordor.

    As for why midwestern cities don’t fare so well, I’m sure you and Dave have economic reasons to offer. But there’s also a very basic one: if you don’t absolutely have to live in a place with miserable weather you may just grab a chance to live in sunshine. I’m not in California for the low taxes or the cheap rents.

    Then, too, there are other lifestyle issues which boil down to: why the hell would anyone live in Saint Louis?

  17. superdestroyer says:

    @Gustopher:

    If you try to screw over the bondholders, then Detroit city debt will be downgraded and the city will have to pay even higher interest rates in the future. If Detroit tries to screw over its creditors today, who will loan them money tomorrow. If Detroit defaults, it will have to operate using only current year income. I doubt if any city can survive very long if it cannot borrow money on the bond market.

  18. Gustopher says:

    @Doug Mataconis:

    And your proposal would dramatically increase borrowing costs for municipalities, states, and corporations. With the consequent economic impact of the same.

    Which will accurately reflect the cost of the obligations the municipality, state or corporation has. Part of this would then lead to pressure in contract negotiations limiting the benefits to something sustainable, part of this would lead to municipalities and states being forced to raise taxes to meet their obligations rather than kicking the can down the road, and the rest of it would be reflected in bonds priced accordingly.

    The fabled invisible hand of the market would sort it out.

    And a whole lot less people would be screwed out of their retirement, which likely means less dependence on government services.

    It’s a bit of meddling in priorities during bankruptcy — but we already do that in personal bankruptcy, making most credit card debt unforgivable. Why should we treat credit card companies better than workers?

  19. Dave Schuler says:

    @michael reynolds:

    Since I grew up there without air conditioning, St. Louis’s summers hold no terror for me. I consider 100° temperatures coupled with 100% humidity at least tolerable if not pleasant.

    St. Louis’s winter is quite mild and its falls and springs absolutely glorious. But its summers are pretty beastly by most people’s standards.

  20. Woody says:

    @Doug Mataconis:

    Perhaps the Midwestern states could adopt the encomienda system of the South.

    Hero Walker and Hero Snyder are already emulating Southern education systems. Think of our pride when Mississippi becomes above average!

  21. Jenos Idanian says:

    @Gustopher: OK, Gus, do it your way — but make that change up front, not after the fact. Give the would-be bond buyers the honest truth up front.

    Or cut out the middleman and fund the pensions with bonds. Why not do that?

  22. superdestroyer says:

    @Woody:

    The bluest city in a blue state is going bankrupt and the only thing you can say is something snarky about Republicans. Since progressives are supposedly data driven, you should look up how black students do on NAEP tests for 8th graders in Michigan versus other states. The results do not support your hypothesis that blue states have great education systems.

  23. rudderpedals says:

    What does a city get out of Chapter 9? It can reject contracts and maybe self liquidate portions of itself with 362 sales (a la GM?) but the debtor won’t get a discharge and the secured creditors keep their liens and expect adequate protection of some kind. What’s missing?

  24. michael reynolds says:

    @Dave Schuler:

    I grew up with a lot of intense weather, but the fateful early years were in LA. I think I’d have been about seven when we left LA and I’ve spent the last 5 decades bitching about the weather.

  25. Brett says:

    I wonder if they could just pay everyone to leave, then condemn the entire inner city for demolition. The empty land left over afterwards might have some value.

  26. Woody says:

    @superdestroyer:

    Bluest city in a blue state. With a Republican governor. And a Republican Senate. And a Republican House of Representatives. And who boast that they are the defenders of democracy – then negate the voters in a district and grant dictatorial powers to an appointed apparat.

    Face it: an American Republican circa 2013 is nothing more than a toady who will literally say anything – truth be damned – in favor of authoritarian power.

    Can’t wait until you start awarding noble titles. For democracy.

  27. anjin-san says:

    Spent the day in the more fortunate peoples republic of SF. Free concert in the park w/Boz Scaggs. The most diverse and fun crowd I have ever seen at a concert. The music and the vibes were both fantastic. 54 years in, not a day goes by that I don’t think about my good fortune living here.

    Bumped into Nancy Pelosi and passed along best regards from Jenos, JKB, & super, AKA “The nest of three”…

  28. HarvardLaw92 says:

    @rudderpedals:

    The biggest benefit, by far, is the ability to negate prior collective bargaining agreements and, in some cases, recharacterize / rework pension obligations.

  29. Moderate Mom says:

    @Woody: Cities are not run by Governors or State Legislatures. Cities are run by Mayors and City Councils. The last Republican to serve as Mayor of Detroit was Louis Miriani. He served from 1957 to 1962. That was before Detroit became a cesspool.

  30. HarvardLaw92 says:

    @Moderate Mom:

    To be precise, this one is currently being run by an administrator appointed by the governor.

    Detroit has seen an almost 50% depopulation and a massive drop in property values. No administration, of whatever party, would be able to deal well with that.

  31. superdestroyer says:

    @Woody:

    Are you really going to argue that Detroit was fine until 2011. Are you really going to argue that Jennifer Granholm was not governor for eight years? Are you really going to argue that Debbie Stabenow and Carl Levin do not exist? Has John Conyers not represent Detroit in Congress for decades. When was the last time a Republican was mayor of Detroit? How many Reupublicans are on the city council of Detroit?

    To blame people that the residents of Detroit have never voted for is laughable. I guess progressives will do anything to keep from hold minority Democrats responsible for their own actions.

  32. Scott says:

    @HarvardLaw92: That is the real issue, isn’t it? We don’t have a model for downsizing a city. Growing is easy and fun. Shrinking is not. So what to do? Do the reverse of the process of growth? Unincorporate sections of the city? Do a kind of reverse homesteading (paying people to leave). A formula hasn’t been found. To turn this into a kind of red/blue political debate is fruitless.

  33. NickTamere says:

    These areas are all screwed up now because they put all their eggs in one basket and the American car manufacturing sector screwed up 30+ years ago. In a lot of cases these cities were built around a single major industry and they very much tied their futures to said industry and didn’t plan for any future where it wasn’t still flourishing and they’re running huge deficits now because the tax base has fled the city and there’s no businesses or people left, not because of a janitor who retired 20 years ago is being paid outlandish amounts. Get businesses opening and people living in the city and you’ll avoid this occurring again.

  34. Rick DeMent says:

    The idea that Detroit’s problems are due to it being any more of a corrupt cesspool than any other city in the US is stupid beyond measure. Mid-Western US cities are in decline due to things completely out of the control of city government; specifically, declining job base due to the decline in manufacturing. This is the problem, period, end of story. Detroit has another problem that you could blame on city government which is that in an effort to kowtow to the main benefactor (car companies) of the endless bounty that served the city in the post war period, they decided not to build a world class transportation system. So when it came time to diversify the economy it was much easier for business to locate someplace else other than the city because the private auto is virtually the only reliable form of transportation. Building on green space is much cheaper than building on brown and you don’t have to bother contributing to a city infrastructure (of course I could write a novel on the problems that this kind of sprawl causes but that’s for another time).

    So you have a city already bleeding population due to the decline of manufacturing, you have sprawl contributing to even more population decline due to equally short sited policies by these smaller communities (my town has a huge white elephant High School \ Middle school situation where we can’t utilize it fully because the main employer that literally filled and contributed to the tax base took a dump). Meanwhile those communities that were the recipients of the largess that comes with “business friendly” polices are already feeling the negative effects of a big back-handed bitch slap from the invisible hand of a free market that moves with no regard whatsoever to the community where they make their bones. So while it is tempting to make snarky comments about liberals, Stalinism and the great moral decay that comes with it the real story is much more complex the when you would like to but on your bumper sticker du jour.

  35. Rafer Janders says:

    @Stormy Dragon:

    The real problem is that the cities are allowed to run their own pensions, which allows them to get away with things like continually underpaying as an easy way of balancing the books. If pensions were required to be run by independent parties, it would be far harder to get away with such things.

    Actually, the real problem is that we don’t have one unified federal system of pensions. Instead of letting each company, city, state, etc. run its own pension system, which exposes their workers to default risk by those entities, we should have one national pension system, a la Social Security, so that risk is broadly collectivized rather than being put on the back of each individual worker. This is the way much of the rest of the developed world already does things, and Walter Reuther actually proposed this in the 1950s, but sadly the car industry killed that initiative, to their later regret.

  36. Rafer Janders says:

    @Doug Mataconis:

    And your proposal would dramatically increase borrowing costs for municipalities, states, and corporations.

    If those municipalities, states and corporations don’t actually have the money to meet the various obligations they enter into, then shouldn’t their borrowing costs actually dramatically increase? That would more accurately reflect the riskiness of their credit situation.

    There’s nothing that entitles them to have low borrowing costs, after all — what you’re saying is, essentially, that “but if we have to pay all our bills, then we won’t be able to pretend we have money that we don’t have, and then we won’t be able to get others to lend us more money!”

    Which, yes, is the way it should work.

  37. Rafer Janders says:

    @Jenos Idanian:

    The issuers would have to offer higher returns to get people to buy them, and that would drive up the cost of issuing the bonds.

    Again, what’s wrong with that? It turns out that as currently structured, these are incredibly risky entities. Investors should demand a higher coupon for lending to them, given that they have liabilities which far exceed their assets and expected income. Issuers have no inherent right to low borrowing costs, and bond investors have no inherent right to a risk-free return.

  38. Mikey says:

    @Rick DeMent:

    Detroit has another problem that you could blame on city government which is that in an effort to kowtow to the main benefactor (car companies) of the endless bounty that served the city in the post war period, they decided not to build a world class transportation system. So when it came time to diversify the economy it was much easier for business to locate someplace else other than the city because the private auto is virtually the only reliable form of transportation.

    Man, you know it. This is a big reason so much business is done in Southfield and the northern suburbs, rather than within the city limits of Detroit. Why deal with Detroit’s bureaucracy and taxes when it’s just as easy to put your business in Troy or Novi? Easier for employees, too, most of whom would live in the northern or western suburbs anyway, because if you have to commute by car–and if you live in the Detroit metro area, you have no other choice–might as well commute somewhere closer to home, and safer.

  39. Rob in CT says:

    That is the real issue, isn’t it? We don’t have a model for downsizing a city. Growing is easy and fun. Shrinking is not. So what to do? Do the reverse of the process of growth? Unincorporate sections of the city? Do a kind of reverse homesteading (paying people to leave). A formula hasn’t been found. To turn this into a kind of red/blue political debate is fruitless.

    This.

    Whether it’s Detroit, Gary, South Bend, St. Louis/East St. Louis, Cleveland or Hartford, CT, the problems are largely the same. This has been going on for decades. Does anyone have an example of a municipal government that managed it well? Everyone can pick the rotting city nearest them and provide a rant about the poor government, and lo and behold it all sounds the same.

    Re: pension obligations – I don’t know what the best framework would be, but *something* has to be done to prevent governments from agreeing to generous pensions in good times and then underfunding them when the good times stop rolling. The one that occurs to me is to do away with pensions completely and pay your employees better up-front. Give ’em 401(k)s and be done. If I’m a municipal or state worker, I might not like that my pension is being converted to an inferior product. On the other hand, is my pension actually worth what I think it’s worth, if it’s built on fairy dust? Do I really want to be approaching retirement and see a big political battle over cutting my pension down to size, when I’ve planned based on it? Obviously, there is uncertainty with 401(k)s as well, but a lot of that could be avoided if the program had a default setting that put the money in Vangard Target Retirment funds. That tends to prevent the “holy shit the market just crashed and I’m all in stocks at 65!” thing.

    That doesn’t address the decline that Detroit faced, of course. It just makes managing the decline a little easier. How do you deal with a 50% drop in pop? I don’t think you can, really.

  40. Rafer Janders says:

    @Rob in CT:

    I don’t know what the best framework would be, but *something* has to be done to prevent governments from agreeing to generous pensions in good times and then underfunding them when the good times stop rolling. The one that occurs to me is to do away with pensions completely and pay your employees better up-front.

    As I wrote above, the best option would be to do away with letting each city, state and company run its own pension system, and instead sign each worker up to one national pension pool.

    So, for example, a Detroit city employee would have his pension paid by the city of Detroit, but that money would go into the large federal pension pool. If Detroit goes bust, the pension money for that worker would still be there, since it would no longer be dependent solely on Detroit’s survival, but would be part of a collectivized pool, and therefore employees would be shielded from default risk by their employer.

  41. @Rafer Janders:

    No, the problem is that pensions (be they state government or coporate) is that they’re almost always controlled by the party paying into them than the party getting paid out. Not surprisingly, this creates a huge incentive to cheat on the payment and to choose managers that will let you get away with doing so. Eventually this ends up causing the system to go under.

    A unified federal pension wouldn’t solve that problem, as the groups paying in would use the political process to come up with various reasons to cut payments down until the system collapses. This is exactly the problem we’re having with medicare and to a lesser extent social security.

  42. Rick DeMent says:

    @Mikey:

    But you have to be careful about how you look at that problem, I mean you noticed that Chrysler decided against all of those locations like Troy, Southfield and Novi and opted to build in Auburn Hills because those cities figured out that they need more revenue in order to deliver services to their now built up communities. Meanwhile up and comer Auburn Hills was so desperate to get a giant employer that they gave away the store. Surrounding communities were also left holding the bag to upgrade schools to accommodate increased student population, more sewers, water, road infrastructure (not to mention bubble housing prices made much bubblier). Then when Chrysler hit on hard times, bam, businesses set out to find the next buffalo heard of cheap land and little regulations and the communities were drained of population and resources. Rinse … repeat.

    Sprawl is like throwing a big rock into a lake and watching the rings emanate from the big splash of activity in the middle. Each ripple is a new cycle of boom and bust. So the first ring cities are having the exact same problem as Detroit but on a small scale.

  43. bill says:

    @Brett: bing had a similar plan, to consolidate the city so the services weren’t stretched so thin- they wouldn’t go for it though. it was probably more like putting a band-aid on a severed limb at that point, detroit is beyond bankrupt and they can blame nobody but themselves- they continued to vote for things they could never pay for.

  44. Mikey says:

    @Rick DeMent: Of course, I didn’t mean to imply the lack of public transport is the only cause of business flight from Detroit. But I think it’s telling that of the Big Three automakers, only GM has a headquarters in Detroit proper. (Although given Ford’s history in Dearborn, I think it’s understandable for that company to locate there.) But it certainly makes it an easier choice, especially if the suburb does what Auburn Hills did to attract Chrysler.

    I moved away from the Detroit area 10 years ago, but much of my family still lives there, and it appeared to me during a recent visit that the northern suburbs are doing OK. The city itself…not so much. I think bankruptcy is probably close to inevitable at this point, unless Kevyn Orr has some really creative plans and the ability to sell people on them. I wouldn’t want to be in his shoes for any money.

  45. Moderate Mom says:

    @HarvardLaw92: My point wasn’t to blame Democrats for the current condition of Detroit, it was to point out to Woody, busily pointing the finger at a Republican Governor only in office since 2001 and the current political makeup of the state’s Legislative branches, that the state doesn’t run a city. A city that has been under Democratic control since the early 60s. There is a lot that could have been done differently since the start of Detroit’s decline decades ago, but it wasn’t. And now Detroit is where it is, and the current Governor had to appoint an Administrator to try to manage the mess. Would an Administrator appointed by a Democratic Governor being doing anything much different than this one is? Doubtful.

  46. Franklin says:

    @Dave Schuler: @michael reynolds: You guys laugh, but 50 more years of climate change and Michigan may be the place to be. It will be warmer, and the Great Lakes tend to moderate the highs and lows so we’ll have less extreme weather than the rest of the country. Not to mention they’re a great supply of fresh water.

  47. Rick DeMent says:

    @Mikey:

    Sure I think i got your meaning, my comment was mostly for lurkers. I live in North Oakland Co. though and while it’s not anything like Detroit the collapse of recently built infrastructure is starting to become apparent as may businesses have abandon those communities for even cheaper and less restrictive regulation.

  48. While your posts are interesting, none of them dealt with the primary causes of Detroit’s woes: too few employers paid their employees well enough, and too may employers left for other countries’ cheaper wages and less ‘government interference’.