Bankrupt Detroit Shouldn't Count On the Government Coming to the Rescue
News continues to develop surrounding the colossally-indebted city of Detroit, which owes $18 billion, and its Chapter Nine bankruptcy files. While the White House continues to closely monitor the unprecedentedly-dire economic situation in the Motor City, it has also reaffirmed the stance it's taken for months now: while the White House "will continue to partner with Detroit," there will be no federal bailout for the crumbling metropolis.
This is sure to be a politically polarizing decision made by Congress and the Obama administration, but, in the end, it will be the right one to have made.
New York City became the last major American city to file for bankruptcy in 1975. There have been a number of cities that have filed in more recent years, such as Stockton, California, which holds the most recent record of high city debt, but all of these cases have fallen bellow the $26 million mark. Detroit is listed at $18.5 billion. So, if we want to use history as a guide, we should be looking back 40 years to the island of Manhattan.
When Governor Hugh Carey of New York approached Washington, D.C. and President Gerald Ford in October of that year, he was met with swift rejection. The president took a vow to veto any proposed bill that would provide federal money to New York — the headline "Ford to City: Drop Dead" ran in the papers the next day. The president's spokesperson even compared the city to a wayward daughter addicted to heroin, scoffing at the prospect of giving her $100 a day to feed her habit.
So, the city instead took it upon itself to clean up the mess it had made. A municipal assistance corporation was developed to raise money by selling bonds backed by sales tax receipts and stock transfer taxes with the ultimate goal of revitalizing the city's economy and balancing the hub's budget. The human effort to accomplish such a goal required unselfish bipartisanship and supportive corporate-union agreement: unions agreed to cut some jobs and freeze wages while corporations agreed to invest in the MAC program bonds; Republicans worked with Democrats, industries with labor. When the governor approached the nation's capital for a second time, he was met with better fortune: the federal government tacked on a $2.3 billion dollar (approximately $12.82 billion dollars by today's standards) loan to catalyze the city's rejuvenation.
Obviously, Detroit today is different from the NYC of 1975. Politicians are more partisan, debt has accrued in different ways, and the population has dropped precipitously from its 2-million-person past to just over 700,000 people today. But the federal government is also different, laden with more debt than ever before and devoid of the shared sacrifice and collaboration that characterizes the story of 75. Obama was able to bail out the auto industry in 2008 and save over one million jobs, yes. But this is different. The work is too great for the federal government to tackle just yet. The dividends are not great enough (compared to the huge paybacks from reviving Chrysler and GM's portions of America's manufacturing and trade economy) to justify any similar government action. Detroit should instead be looking to liquidate some of it assets and develop bond programs and union reorganizing to stimulate its economy.
Detroit is in rough shape at the moment. The city's unemployment rate has tripled since 2000; its homicide rate is at its highest in nearly 40 years; residents wait an average of 58 minutes for the police to respond to their calls (compared to a national average of 11 minutes). But Congress and the Obama administration should let the city attempt at least one more time to work itself out. Neither entity is in a particularly grand position to help the other out, so until at least some resolution commences on Detroit's side, it should be every man for himself.