Detroit declares bankruptcy

[a_majoor]

I just recently was in Detroit (my Daughter was taking a course at Wayne State University) and was never so discombobulated. The neighbourhood around Wayne State was emphatically NOT what you expect to see around a university campus, and signs of the rot were visible exerywhere. This article demonstrates how even this bankruptcy is going to be squandered by stupid politicians. Why this is important to us (besides being an object lesson and perhaps an experiment in how to deal with even larger scale insolvencies in Ontario and Quebec) is Detroit is the site of the busiest Canada/US border crossing, so important that Canada effectively loaned Michigan about a half billion dollars to build another bridge connecting it to Windsor. With Detroit effectively reverting to wilderness in some sections, what is the long term effect on Windsor and cross border traffic in that part of Ontario (and the Canadian economy?)

http://washingtonexaminer.com/without-big-changes-detroit-wont-have-a-second-act/article/2533247

Without big changes, Detroit won't have a second act
BY SHIKHA DALMIA | JULY 18, 2013 AT 6:00 PM

"I once thought that there were no second acts in American lives, but there was certainly to be a second act to New York's boom days," F. Scott Fitzgerald once wrote. It's a good thing he wasn't talking about Detroit.

Until the city's politicos treat its humble entrepreneurs with the same respect they show big investors, Motown's second act will never arrive.

Detroit just became the biggest city to file for bankruptcy in America.

Many people are hoping that bankruptcy, the largest of its kind on U.S. soil, will give Detroit another chance. But that'll remain wishful thinking until Detroit reverses its backward economic strategy.

Every mayor for the last two decades has tried to jump-start Detroit by reviving its crumbling downtown. In the 1990s, Dennis Archer erected stadiums and casinos. His successor, Kwame Kilpatrick (now serving time on federal extortion and racketeering charges) hosted mega-events.

The current mayor, Dave Bing, has been too bogged down in Detroit's fiscal quagmire to propose anything grand. But a group of rich investors led by Dan Gilbert, owner of Quicken Loans, is spearheading a massive effort to bring businesses, hotels and residents into the city.

Gilbert has pumped close to $1 billion to relocate his headquarters in Detroit and scoop up real estate for stores, hotels and apartment buildings. Whole Foods recently followed suit as did Moosejaw, a retailer for outdoor apparel.

But these ventures have been seduced by massive subsidies. Whole Foods' local partner received $5.8 million in state and local grants as well as sizable tax credits. Still, the business editor of Forbes declared two years ago that, thanks to Gilbert, green shoots were beginning to sprout in Detroit.

Since then, however, things have only gotten worse as more residents have fled and city services have deteriorated. Why? Because these shoots were Astroturf, not a spontaneous response to actual need. Worse, they were a wealth transfer from the average taxpayers to the rich who patronize these high-end stores.

Indeed, even as Forbes was praising Detroit's artificial green shoots, city regulations were busy nipping the real ones like Pink FlamInGo, a Latin-fusion food vendor responding to real market demand.

These regulations barred street vendors from selling any hot fare except hotdogs (but without sauerkraut) and that only in 16 approved locations. Pink FlamInGo built a roaring business by ignoring these rules — until the city shut it down.

The stink Pink FlamInGo raised forced the city eventually to reform its regulations. Even now, however, food trucks are required to maintain a 500-foot distance from restaurants and close before 11 p.m.

But this year Bing made Pink FlamInGo-style harassment his official policy by launching Operation Compliance.

The program seeks to cure the city's blight by shutting Detroit's 1,500 "illegal" businesses — tire shops operating from backyards, second-hand appliance stores perched in abandoned warehouses — if they fail to comply with city regulations. But worrying about blight in a city fast returning to the wild is insanity.

Moreover, noted University of Buffalo's urban studies professor Henry Louis Taylor to Black Detroit, a local magazine, these establishments might constitute only about 10 percent of the city's businesses — but they serve about 70 percent of residents.

A few of them might pose genuine public health issues. But the vast majority are being cited for technical violations like not having the proper zoning clearances or licenses or being behind on their taxes.

So a mayor who pleads he doesn't have the resources to provide street lights to half the city or arrange timely trash pickup or control Detroit's soaring murder rate nevertheless somehow has enough inspectors to unleash on poor residents trying to eke out a living.

"They're all worried about what's going on in the front of our stores," fumed a business owner who found puppy-sized rats in her back alley. "But the city needs to maintain its own business by keeping the public streets safe and clean."

Amen!

A city that showers subsidies on well-connected businesses while thwarting individual entrepreneurs and ignoring basic services is writing its obituary — not its second act.

 

[JorgSlice]

Let's also note that the reason people are abandoning the city and not doing business with, within, or near Detroit is it's extremely high crime rates and the danger that has skyrocketed over the years.

Now I'm not a crime analyst or an expert by any means, but from my work on the front line it is my observation that the poorest cities will tend to have the most crime.

 

[Robert0288]

I thought the loan for the bridge was because of the extreme length the owner of the current ambassador bridge is going to stall the project.  Also  as a toll bridge, Canada will be receiving all profits from it until the bridge is paid off.  I would also say the effect on trade will be negligible, just because most of the cargo passes through and doesn't stop at Detroit.  When 200,000+ people leave the town in less than a year, you have issues.

 

[cupper]

The could always market it to Hollywood as a post apocalyptic world for the crop of movies that seem to be churning out these days.

But seriously, there is opportunity for smart redevelopment, if it weren't for the cost of demolishing the existing deteriorated structures.

 

[Teager]

I just had a look at real estate in Detroit you can buy a place for as low as $39. I highly doubt its habitable and the neighbourhood is probably pretty rough but still you might profit more on any copper wire or scrap metal..if it hasn't been taken yet.

 

[Jed]

Turn it into the latest FIBUA training site.  ;D

It could replace Meaford.

 

[GnyHwy]

The could always market it to Hollywood as a post apocalyptic world for the crop of movies that seem to be churning out these days.

They already milked that one.  "Robocop"

Maybe the world's largest paintball site?

It was already mentioned about salvaging buildings, and I am guessing that all the good stuff is probably already gone.  Heck, the sewer covers have been stolen, I'm pretty sure the copper in the houses is gone.  They probably don't have a homeless problem though.  3 houses for every squatter.

It would be quite the endeavor though, to hire the citizens to tear the city's bad buildings down, salvage what they could, and potentially use it to build some new housing and/or office space.

 

[Fishbone Jones]

Let's also note that the reason people are abandoning the city and not doing business with, within, or near Detroit is it's extremely high crime rates and the danger that has skyrocketed over the years.

Now I'm not a crime analyst or an expert by any means, but from my work on the front line it is my observation that the poorest cities will tend to have the most crime.

The crime is no worse than most large US cities and actually less than some.

I thought the loan for the bridge was because of the extreme length the owner of the current ambassador bridge is going to stall the project.  Also  as a toll bridge, Canada will be receiving all profits from it until the bridge is paid off.  I would also say the effect on trade will be negligible, just because most of the cargo passes through and doesn't stop at Detroit.  When 200,000+ people leave the town in less than a year, you have issues.

You've got the bridge thing about right, but your exodus numbers and timelines are off. 200,000 people didn't just PUFO overnight, it's been happening since the '67 riots. They've gone from about 1.5 million back then to about 700,000 today. A lot didn't go far, just past 8 mile early on and now out past 14 mile. It's really the core that's rotten. Outside, like Dearborn, have healthy populations.

I just had a look at real estate in Detroit you can buy a place for as low as $39. I highly doubt its habitable and the neighbourhood is probably pretty rough but still you might profit more on any copper wire or scrap metal..if it hasn't been taken yet.

Investors are buying whole city blocks for $100,000.

 

[GnyHwy]

Another piece of info that is being left out is that the metro area has over 3.5 million people.  The city itself is around 700K.  There are still many people doing quite well in the area.  Anyone who has ever been through Detroit will see that it is an old, rundown and beat up city.  Believe it or not, some people actually appreciate that. 

 

[cupper]

The crime is no worse than most large US cities and actually less than some.

Problem is the 58 minute average response time of the underfunded and under manned police force.

There was a 25% drop in population in the past 10 years which severely hurt the tax base. But the problem was brewing for years.

Another piece of info that is being left out is that the metro area has over 3.5 million people.  The city itself is around 700K.  There are still many people doing quite well in the area.  Anyone who has ever been through Detroit will see that it is an old, rundown and beat up city.  Believe it or not, some people actually appreciate that. 

Was listening to an interview today with an economic analyst who pointed out that the communities around Detroit may be doing well economically, but with the bankruptcy looming (yes looming, I'll get to that in a moment) their own credit / bond ratings will take a hit regardless.

 

[cupper]

It seems that the bankruptcy proceedings could be held up based on a judge's ruling today that it violates the state constitution to cut government workers pensions.

Judge challenges Detroit bankruptcy process

http://www.cbc.ca/news/business/story/2013/07/19/business-detroit-bankrupt.html

A Michigan court judge has challenged Detroit's bankruptcy filing, saying it contravenes the state's constitution.

The ruling by Circuit Judge Rosemarie Aquilina in the Michigan capital of Lansing orders Detroit Emergency Manager Kevyn Orr to withdraw the bankruptcy petition, and says the state governor lacks the power to "diminish or impair pension benefits," a key demand on Detroit city unions as the city works out its financial problems.

The move comes Friday, after city officials sought to reassure concerned citizens, saying the move will be the best thing for the city in the long run.

At a press event, Gov. Rick Snyder and Emergency Manager Kevyn Orr told assembled media that the move to enter bankruptcy proceedings late Thursday will give the city options down the line.

"I didn't view this as a terrible answer, because it presents options," Snyder said. "Now is the opportunity to stop 60 years of decline. Did anybody like the Detroit of five years ago, 10 years ago?"

Snyder said the drastic move will give the city a chance to deal with its systemic funding problems. "People have not stopped … kicking the can down the street'," he said.

The city has entered into what's known as a Chapter 9, filing, based on the section of the U.S. Bankruptcy Code that applies. Individuals and companies are better known for so-called Chapter 11 proceedings, whereas Chapter 9 is the section that allows municipalities to restructure their debts, as long as they have the permission of the state government above them.

Friday's court ruling may slow proceedings, as it challenges the power of both the state and the city to restructure under Chapter 9 protection.

Orr proposed a deal in June in which creditors, including two pension funds representing city workers, would accept 10 cents for every dollar they were owed.

Detroit is already facing a number of lawsuits over this proposal and Aquilina’s ruling that the Michigan constitution prohibits actions that will lessen the pension benefits of public employees related to those suits.

Although the move has been on the table for months, as Detroit has struggled to get back to financial health for years. Municipal worker layoffs, service cutbacks and asset sales could be in the offing.

The city is even thinking about selling off its valuable art collection, including works by Picasso, van Gogh and Bruegel, to raise funds. There's also talk of selling venues such as the Detroit Zoo, or historic Fort Wayne, a tourist site in the city.

"Services will remain open, paycheques will be made, bills will be paid," Orr said.

Windsor reaches out

Windsor, Ont., the Canadian city across the river from Detroit, has had a close relationship with the Motor City and is concerned about the tunnel connecting the two cities.

Windsor Mayor Eddie Francis says his office has reached out to the office of Detroit's emergency manager to ask what will happen with the tunnel that runs beneath the Detroit River.

The U.S. section of tunnel is owned by the City of Detroit and leased to a private corporation.

Francis says he would prefer the tunnel stay in public hands, but if it is to be sold, Windsor will have to consider its options.

Slow decline

With $18 billion in outstanding debts, few cities have felt the demise of America's manufacturing sector as acutely as Detroit. With a population of close to two million in the 1950s, the city now has about a three quarters of a million residents. The population has declined by 25 per cent in the last decade alone.

Detroit had the highest per-capita income of major American cities in 1960, but today has an unemployment rate of 18 per cent — more than twice the national average.

The city has more than 100,000 different creditors, its two largest being underfunded pension plans for city workers, and one for police and fire services. Those two plans are owed $2 billion US and $1.4 billion, respectively.

Orr was unable to convince the city's many creditors to accept less than full value for their debt, so the city entered bankruptcy proceedings as a last resort. Orr pitched the process as a viable option for all sides, and he hopes it will be completed within about 12 months.

Detroit has more than double the population of the Northern California community of Stockton, Calif., which until Detroit had been the largest U.S. city ever to file for bankruptcy when it did so in June 2012.

Before Detroit, the largest municipal bankruptcy filing had involved Jefferson County, Ala., which was more than $4 billion in debt when it filed in 2011. Another recent city to have filed for bankruptcy was San Bernardino, Calif., which took that route in August 2012 after learning it had a $46 million deficit

Also has a good map showing how the population drop is distributed within the metropolitan area.

 

[GnyHwy]

Time for the Michigan Militia!!!

I think this must be Obama's fault... somehow.  Sickem boys!


For all dimwits and sensationalists, this is  :sarcasm:

 

[cupper]

For all dimwits and sensationalists, this is  :sarcasm:

Nooooo! Really? ;D

 

[Fishbone Jones]

Problem is the 58 minute average response time of the underfunded and under manned police force.

There was a 25% drop in population in the past 10 years which severely hurt the tax base. But the problem was brewing for years.

Was listening to an interview today with an economic analyst who pointed out that the communities around Detroit may be doing well economically, but with the bankruptcy looming (yes looming, I'll get to that in a moment) their own credit / bond ratings will take a hit regardless.

That response time, again, is not unique to Detroit.

It's not just a drop in population. People are still there. They just quit paying their taxes. Just like you're not counted as unemployed unless you're collecting benefits.

Places like Dearborn, Taylor, etc will do just fine despite what happens in Detroit. They always do.

 

[GnyHwy]

Places like Dearborn, Taylor, etc will do just fine despite what happens in Detroit. They always do.

Dearborn?  Dearborn has a lot of Muslims. 41% http://en.wikipedia.org/wiki/Dearborn,_Michigan#Demographics They must be saving their cash instead of spending it on fruitless ventures.  Friggin non-capitalists.

Frickin Obama! 

 

[Fishbone Jones]

Dearborn?  Dearborn has a lot of Muslims. 41% http://en.wikipedia.org/wiki/Dearborn,_Michigan#Demographics They must be saving their cash instead of spending it on fruitless ventures.  Friggin non-capitalists.

Frickin Obama!

So what? It's vibrant, clean, and solvent.

 

[GnyHwy]

Sorry, forgot the  :sarcasm: emoticon.

 

[a_majoor]

It seems that the bankruptcy proceedings could be held up based on a judge's ruling today that it violates the state constitution to cut government workers pensions.

Judge challenges Detroit bankruptcy process

http://www.cbc.ca/news/business/story/2013/07/19/business-detroit-bankrupt.html

Also has a good map showing how the population drop is distributed within the metropolitan area.

The Judge is economically illiterate and appalingly stupid to boot. How does he think Detroit went bankrupt in the first pace? The same farcical process is going on in California, where CalPERS is trying to intervene in the bankruptcy process of a number of bankrupt California communities, even though the extremely generous pensions and benefits awarded to civil service unions, combined with the iunwillingness or inability to fully fund these pension and benefit plans have been a major cause leading to the bankruptcies of these cities and Detroit.

With bankruptcy, there may be a partial payout and restructuring of the pension plans. Without, the city could default and any attempt to collect pensions will be locked up in endless lawsuits (that drain whatever financial resources any future Detroit city government could muster).

 

[a_majoor]

And fair warning, Detroit might actually be the lead domino knocking down large American cities as investors realize they may never see their money back. Many of the same factors have been in operation there for decades, leading to the same results. Remember it is thought that the funding shortfall for State and Municipal pensions in the US is $2 trillion dollars.

http://blogs.the-american-interest.com/wrm/2013/07/19/chicago-blues-tenured-teachers-laid-off/

Chicago Blues: Tenured Teachers Laid Off

Having closed 11 percent of the city’s public schools in May, Chicago Public Schools (CPS) has now been forced to fire 2,000 employees, including 1,000 teachers—half of whom were tenured. The Chicago Tribune reports:

“We’re not going to be able to cut our way out of this crisis,” [CPS Spokeswoman Becky] Carroll said. “Our revenues are simply not keeping in line with our spending increases.” […]

The district again blamed the lack of pension reform for many of its fiscal woes, noting that pension payments are growing this fiscal year by an additional $400 million.

The Chicago Teachers Union president blamed the school district’s duplicity for the layoffs:

“Once again, CPS has lied to parents, employees and the public about keeping the new school-based budget cuts away from the classroom,” [Karen] Lewis said.

It’s an interesting web the union has spun for itself: its power to negotiate lavish pensions for teachers has helped bankrupt the city, which is now forced to sack teachers. And with Chicago’s budget deficit at $1 billion and revenue declining, there’s no end in sight, and no tenure and no pension is safe. How teachers react to the declining ability of unions to secure their interests in one of America’s great blue cities will tell us a lot about the blue model’s current bill of health.

The immediate impact on children and families of Chicago’s fiscal failure is obvious enough, but the long-term impact is perhaps even more grim. The city’s budget cuts, harrowing crime rate, and broken politics are forcing people out: Chicago’s population has declined to numbers not seen since before the 1920s, with the black population falling by almost a fifth in the past decade alone.

This trend means even less revenue for the city, even fewer children to fill the classrooms, and even more talent and potential lost. Chicago is failing its poor, and hope for improvement is in short supply.

 

[Edward Campbell]

Millions of American voted themselves the American dream: well paying jobs, many in the public sector, early retirement and guaranteed (maybe) defined benefit pension plans.

Few private sector companies still offer defined benefit pension plans - the sort we, retired CF members, have - any more. In fact pension liabilities are amongst the biggest threats facing industrial enterprises, companies like Ford or General Motors. Defined benefit pensions were the "jewel in the crown" for most trade unions, and industrial works bargained, struck and picketed for them, trading off pay raises in the bargaining process. Public sector workers got them, too ... usually without any bargaining, much less strikes and tradeoffs at all. Defined benefit pensions were part and parcel of the old, pre-union civil service "iron rice bowl," along with great job security and, relatively, low salaries. It seemed, to taxpayers and workers alike, a fair bargain: civil servants worked hard, for modest (but adequate) salaries and they got a level of job security about which unionized, industrial workers could only dream and then they received a guaranteed pension.

But that's no longer the case; we (Americans, Brits, Canadians  Danes, etc, etc, etc) all voted for the American dream on credit ... for some of us. But the same we, although this time "we" are shareholders in corporations (either directly, or indirectly through our pension plans and RRSPs and mutual funds), voted to take the "jewel in the crown" away from industrial workers ... at least away from the relatively few who still work in industry in Western Europe  and North America. But we kept our old bargain with the public sector even after it unionized and negotiated higher and higher wage packages and gave us examples of "featherbedding" that would shame an old CNR unionized fireman in the diesel age. We - Americans and Canadians (and a lot of others) alike - now have large (many would say too large), well paid (broadly and generally better paid than private sector workers with similar jobs) public sectors with guaranteed pensions ... in some cases, like Michigan, with pension "rights" that are may be enshrined in the state's constitution. But, as Detroit shows those pension guarantees may be all smoke and mirrors. What happens to Detroit's firefighters or city workers when there is, quite simply, no more money to pay anyone's pensions? Will the State of Michigan pay up? For how long? Does it have an infinite supply of money? And what about California and, indeed, what about Quebec and Ontario?

Treasury Board President Tony Clement is, already, albeit slowly, taking steps to safeguard the pension rights of Canadian federal civil servants by changing the rules. The best protection, maybe the only protection, for public sector workers is smaller, more efficient and effective public sectors: governments that do less, that do only what is absolutely necessary, and that require Canadians, like you and me, to pay more for the services we want and to pay for them to private contractors.

It isn't just Detroit, it isn't just Ontario, it is also Brazil and Turkey and Greece and Spain, and, and, and ... it is every single too large, too careless (of the people's money) government. And of course, Pogo was right ...
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