Detroit files Chapter 9

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http://www.freep.com/article/20130718/NEWS01/307180107/Detroit-f...

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Philly has a tax abatement program similar. I have a 5 year old rental where the taxes are $34/yr

EDIT: I just noticed so... (more)

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The important question here isn't why/how Detroit filed bankruptcy, it's what deals it can work out with its creditors. I've read some chatter that Detroit went to Obama who told them to go pound sand. This is a good thing. If this bankruptcy is carried out and a fair deal is reached by all, then that means municipal bonds continue to be safe investments. If the same ignorance that happens that happened in the GM bailouts and a favored group stays whole while an unfavored group gets the shaft, run from muni's. You don't know when the next one fails whether you're in the group of "good people" or "bad people".

Who I feel for are those who were promised a certain pension and planned their financial life around that, lived modestly and responsibly, etc. and now through no fault of their own, their main retirement funds could go poof.

mwa423 said:   The important question here isn't why/how Detroit filed bankruptcy, it's what deals it can work out with its creditors. I've read some chatter that Detroit went to Obama who told them to go pound sand. This is a good thing. If this bankruptcy is carried out and a fair deal is reached by all, then that means municipal bonds continue to be safe investments. If the same ignorance that happens that happened in the GM bailouts and a favored group stays whole while an unfavored group gets the shaft, run from muni's. You don't know when the next one fails whether you're in the group of "good people" or "bad people".

Who I feel for are those who were promised a certain pension and planned their financial life around that, lived modestly and responsibly, etc. and now through no fault of their own, their main retirement funds could go poof.


why would the pension funds go poof?
i see pension payouts lowered to be in line with the underfunded value of the pension.

and why didnt Michigan step in and take over?

when nyc had financial difficulty last century, ny state took it over via financial control board.

Hardcore Pawn bails them out?

Everyone tends to focus on things like the city's pension, the size of the government, etc. when talking about Detroit. None of those things matter until Detroit gets a sane economic development plan and sticks to it. No amount of reforms - not even bankruptcy - can save it until it realizes this. Detroit's leaders have decided to completely ignore sound economic development strategy by tying the city's success to the success of the automobile industry. To put things simply, they put all their eggs in one basket and then dropped the basket.

No amount of good financial management will bring economic prosperity to a city with a doomed economic development plan. Detroit is, in so many ways, no different than the dozens of company towns and mill towns that once dotted the American landscape. Any city beyond a certain size (>150,000, in my opinion) needs a diversified economic base, but it has never realized that. It has to be willing to compete to draw companies (that aren't connected to automobile manufacturing) to its location and get them invested in the community so they don't pull out when business gets bad. As early as the 1970s, I have seen consulting reports with Detroit elected officials being told that all this needed to be done - that a city that large with almost total reliance on the automobile industry for its economic base would eventually fail in epic fashion. For whatever reason, Detroit through the decades has ignored this reality.

Anyone who has watched what is going on in Detroit knew this day was coming for at least the past few years, so I have been keenly interested to see if anyone in the government was going to try to even suggest a proposal to stop the inevitable. Not even a proposal was made, as far as I can tell. And that is why even if the Chapter 9 goes well, we will be back here again - its just a matter of time.

yurgreat said:   

and why didnt Michigan step in and take over?

when nyc had financial difficulty last century, ny state took it over via financial control board.


Michigan's version of a financial control board is appointment of a emergency manager, which they did do several months ago. States vary on how they handle city governments when they get in financial trouble to this degree, and for Michigan they basically declare a financial emergency and a city manager is brought in to get things under control to stop the need for bankruptcy. In this case, none of Detroit's creditors (including its vendors, union, and pension board) wanted to settle for less because everyone thought a bail out was coming.

Detroit should be demolished and sold to the Amish.

chicago will be next

This day of reckoning is way overdue. Hopefully municipal bond investors will come to their senses and stop loaning these cities endless amounts of money that they can never afford to repay. They have been enabling the financially irresponsible policies... I won't be holding my breath though.

The fact that the federal government hasn't stepped in yet for a bailout is surprising. They are willing to bailout the fat cat bankers Goldman Sachs but not the city of Detroit?

Man, they owe me $50....
Now I'll never see it.

brettdoyle said:   The fact that the federal government hasn't stepped in yet for a bailout is surprising. They are willing to bailout the fat cat bankers Goldman Sachs but not the city of Detroit?
They made Goldman take their money, even though they didn't need it, to disguise how badly Citi and others did. Remember the Feds booked a nice profit on the loans to the banking sector, and have almost uniformly been repaid... More than can be said for GM.

I'm in for a vacant lot or two. I've heard some artists are moving there, buying up houses for a song to fix up as art houses. No idea how much of that is going on (no doubt not enough) but if true it points to a rebound. New York was a basket case in the 1970's - drugs, abandoned blocks, crime, bankrupt government -- and look at it today.

It could happen yet to Detroit, IF they get their act together and change enough policies to make it a pro-growth city. If they continue with the same whining and pleading results will not look much different than they always have.

woowoo2 said:   Man, they owe me $50....
Now I'll never see it.

Think about it this way. For $50 they're out of your life forever.

Brings back memories of this...

good job, unions!

Kanosh said:   I'm in for a vacant lot or two. I've heard some artists are moving there, buying up houses for a song to fix up as art houses. No idea how much of that is going on (no doubt not enough) but if true it points to a rebound. New York was a basket case in the 1970's - drugs, abandoned blocks, crime, bankrupt government -- and look at it today.

It could happen yet to Detroit, IF they get their act together and change enough policies to make it a pro-growth city. If they continue with the same whining and pleading results will not look much different than they always have.


I'm thinking that NYC recovered due to wall street, not because of cheap housing. Or artists...

I'd love to see a clawback on the pols who lined their pockets....

Take Kent, who worked in the citys Building and Safety Engineering Department as an inspector from 1997 until his retirement in December 2011. Now living in Southfield, Kent says that after generating nearly $30 million in fees and fines through his work, his pension is about 38 percent of his final salary.


Wow you can work from 1997 till 2011 and retire in Detroit... I wonder how they could possibly have financial problems.

I wouldn't be surprised if political pressure is placed on the creditors to make them accept bad terms to the benefit for the public labor unions.

xerty said:   brettdoyle said:   The fact that the federal government hasn't stepped in yet for a bailout is surprising. They are willing to bailout the fat cat bankers Goldman Sachs but not the city of Detroit?
They made Goldman take their money, even though they didn't need it, to disguise how badly Citi and others did. Remember the Feds booked a nice profit on the loans to the banking sector, and have almost uniformly been repaid... More than can be said for GM.


The banks repaid the treasury with money borrowed at a lower interest rate from the treasury.

For Example,First California Financial repaid all of their TARP money ($25 million) with $25 million borrowed from the treasury.

depalma13 said:   xerty said:   brettdoyle said:   The fact that the federal government hasn't stepped in yet for a bailout is surprising. They are willing to bailout the fat cat bankers Goldman Sachs but not the city of Detroit?
They made Goldman take their money, even though they didn't need it, to disguise how badly Citi and others did. Remember the Feds booked a nice profit on the loans to the banking sector, and have almost uniformly been repaid... More than can be said for GM.


The banks repaid the treasury with money borrowed at a lower interest rate from the treasury.

For Example,First California Financial repaid all of their TARP money ($25 million) with $25 million borrowed from the treasury.


Not to mention the banks sold all of their toxic assets that were essentially worth $0 to Fannie, Freddie, and the Federal Reserve at inflated price close to face value.

It's a good day for America.

bigdinkel said:   Hardcore Pawn bails them out?

Do you what to sell it or pawn it?

magika said:   Everyone tends to focus on things like the city's pension, the size of the government, etc. when talking about Detroit. None of those things matter until Detroit gets a sane economic development plan and sticks to it. No amount of reforms - not even bankruptcy - can save it until it realizes this. Detroit's leaders have decided to completely ignore sound economic development strategy by tying the city's success to the success of the automobile industry. To put things simply, they put all their eggs in one basket and then dropped the basket.

No amount of good financial management will bring economic prosperity to a city with a doomed economic development plan. Detroit is, in so many ways, no different than the dozens of company towns and mill towns that once dotted the American landscape. Any city beyond a certain size (>150,000, in my opinion) needs a diversified economic base, but it has never realized that. It has to be willing to compete to draw companies (that aren't connected to automobile manufacturing) to its location and get them invested in the community so they don't pull out when business gets bad. As early as the 1970s, I have seen consulting reports with Detroit elected officials being told that all this needed to be done - that a city that large with almost total reliance on the automobile industry for its economic base would eventually fail in epic fashion. For whatever reason, Detroit through the decades has ignored this reality.

Anyone who has watched what is going on in Detroit knew this day was coming for at least the past few years, so I have been keenly interested to see if anyone in the government was going to try to even suggest a proposal to stop the inevitable. Not even a proposal was made, as far as I can tell. And that is why even if the Chapter 9 goes well, we will be back here again - its just a matter of time.


Magika: While I don't believe anyone would disagree that Detroit is too automotive-centric, this is not the City of Detroit's #1 or #2 issue that needs solved. What you've described is not the root cause of Detroit's demise. Case in point, the Big 3 have been doing very well financially for the past 2-3 years. So then, under your premise, why has the city just now declared Chapter 9? GM, Ford, DC are doing fine right now. Truth is - Detroit has been on a consistent downward slope since the 1950s irregardless of the performance of the automotive sector.

Detroit's #1 issue is the demographics of it's remaining residents, it's inability to attract new medium-to-upper class residents, and its lack of an adequate tax base to support a physical city of it's size. Detroit is a BIG city -- 142 square miles and was built for a population of 2M residents, which peaked in the 1950s around 1.8M, and they're now down to barely 700k. So, just from an infrastructure maintenance cost perspective, each resident needs to cover almost 3x the intended per capita tax burden. To add to that problem, Detroit is #1 in the USA for large cities with a high percentage of low income residents (> 36%). A majority of the people who live in the city can't even afford to cover their own taxes, let alone try to make up for only having 1/3 of the intended population. Want me to keep going? I believe the average Detroit police call response time is 50 minutes - compared to 11 minutes on average for large cities in the US. Detroit can't afford to keep their city streets lit - major roads are in the dark. Keep going??? How about the fact that ~33-50% of the residential homes in the city are abandoned, dilapidated, a health & safety risk... and need to demolished... costing $ Billions -- and the city is bankrupt. How do you get middle & upper income individuals to move into the city given these issues?

Detroit's #2 issue is the politics - residents electing leaders for the wrong reasons, 40+ years of piss poor city leaders and management, their fiscal policy, corruption, and utter arrogance/negligence. You have a very liberal city spending money they don't have, with no feasible plan to be able to pay the money back & who don't see that as an issue. The majority of city clowncil were still in denial as of a couple weeks ago that BK was even a realistic possibility for the city! Can't fix stupid... and most of the people in the suburbs are sick of honestly/legitimately trying to help the city, only to then be accused of abuse or acting on self-interest. The Belle Isle lease is a perfect example of the latter.

best way to make money on this, a la Greek bonds??

Killjoy1991 said:   
Magika: While I don't believe anyone would disagree that Detroit is too automotive-centric, this is not the City of Detroit's #1 or #2 issue that needs solved. What you've described is not the root cause of Detroit's demise. Case in point, the Big 3 have been doing very well financially for the past 2-3 years. So then, under your premise, why has the city just now declared Chapter 9? GM, Ford, DC are doing fine right now. Truth is - Detroit has been on a consistent downward slope since the 1950s irregardless of the performance of the automotive sector.


Its the #1 issue because the consequences of a economy structured in this way creates a structural employment problem that is linked to ALL the issues you mentioned. Detroit's demographics problems are tied to its reliance on the automobile industry - manufacturers are both (1) doing more work with less employees, and (2) they are locating manufacturing plants (and thus business clusters that are associated with those plants) outside the area. Failure to acknowledge that both (1) and (2) were foreseeable and plan for it is why the city ended up in its current position. That is why the recent "success" of the industry post-bailout has had no net effect on the city (and also because the size of the debt had ballooned to such an extent that even recent industry successes would not have had enough of an economic impact to stop the bleeding).

The lack of a diversified economic base - or really, any sane economic development planning - is what caused the population decline. Dealing with the shrinking size of the population in and of itself is a big issue, I agree, but its fairly easy to deal with - demolish the buildings and convert it all to urban farming. Compared to the other problems with its economy, that is an easy fix. You can get middle and upper income people to move to a city in decline if the jobs are there. The problem is the jobs aren't there, and even if GM decided tomorrow to open up 10 automobile manufacturing facilities in the city limits those jobs would be taken by people already in the city.

Also, I don't think there is any disagreement Detroit's government has corruption issues, but so does Chicago - and they don't have this problem. The corruption is an issue, but again a symptom of the bigger failures in economic development issue in my opinion.

Magika: I understand your point, agree that it's an issue that needs to be on Detroit's fix-it radar, but I still don't see it as being the top issue. As someone who has lived in metro Detroit for 40 years, worked at one the Big 3 downtown for over a decade, and honestly wants to see the city recover & thrive -- what I listed in my previous post are the top issues IMO. If GM opened 5 new plants all within Detroit's city limits and payed 20k new workers $60k+/year, 98% of those people would choose to reside in the suburbs - not the city. And while Detroit may get some incremental business & income tax revenue from those new plants/employees... the bigger issue is that pretty much no one has any desire to live there. The money, the wealth, the community service & activism, the "go get'ers"... all commute north of 8 Mile everyday around 5pm. What you have left as city residents are either the people that have no choice but to live there (e.g. the poor) or are the extreme 0.5% local population diehard Detroit Fanatics that feel the need to live in the city regardless of the issues/costs/risk/logic.

An an aside, there are many large cities that are overly dependent on one industry and are doing fine. San Fran/San Jose (IT), Houston (Oil & Gas), DC & northern Virginia (Fed jobs), etc. I don't think it's a good idea to be so dependent on one sector, and it may be a contributing factor for Detroit... but not the #1 issue.

a Detroit resident said: Mr. Orr was appointed by Obama to assist with the Chrysler bankruptcy. If you follow how the Chrysler case was handled...secured creditors took a back seat to unsecured creditors. (UAW) Good luck if you have any Detroit bonds. Mr. Orr is was quoted in the Detroit News as saying that bond holders knew the risk that they were taking.

I heard on another site;

Can't we just move the boarder a little bit and make this Canadas problem?

Just have Ponytail work some overtime.

A big problem with Detroit is the 2.5% income tax... they successfully managed to tax all of the citizens and jobs out into the suburbs. Now they have run out of other people's money to spend.

No one in their right mind would give up 2.5% of their income for the "privilege" of living in one of the highest crime cities in the country. No employers are going to relocate there either as it would mean a pay cut for all of their employees.

brettdoyle said:   A big problem with Detroit is the 2.5% income tax...

You got to have income to pay income tax.

magika said:   

Also, I don't think there is any disagreement Detroit's government has corruption issues, but so does Chicago - and they don't have this problem. The corruption is an issue, but again a symptom of the bigger failures in economic development issue in my opinion.


Chicago actually has very similar problems. They are experiencing population loss and have been selling off their incoming producing assets just to make ends meet. They sold a 99 year lease on all of the cities parking meters... sold toll roads, etc. They are taking on more debt and will have less future income available to service the higher debt... essentially selling off the farm to pay the bills.

When interest rates rise many government entities are going to find that they are unable to service their heavy debt burdens at the higher rates.

Plus the entire state of Illinois has significant financial problems, raised income taxes causing employers to leave (FatWallet included), has delayed payments to creditors, has had credit downgraded many times to near junk status, pension issues, etc.

Chicago is only a few steps behind Detroit.


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http://news.yahoo.com/detroit-files-bankruptcy-stage-set-0144037...

But Ed McNeil, chief negotiator for a coalition of 33 unions that represent most of the service workers for the city of Detroit said the bankruptcy filing was about "busting the unions."

"I've said all along that this is a power grab," said McNeil. "This is not about fixing the city's finances. It's about the governor and his own agenda to take over the city of Detroit."

yurgreat said:   and why didnt Michigan step in and take over?

when nyc had financial difficulty last century, ny state took it over via financial control board.


They did that already. This isn't Detroit suddenly saying "we give up", this is the state-appointed financial experts saying "This city's never gonna be able to pay all this debt, so bankruptcy is the only logical option remaining."

atikovi said:   brettdoyle said:   A big problem with Detroit is the 2.5% income tax...

You got to have income to pay income tax.


A city has to have citizens with income to *collect* income tax.

History lesson: Detroit has been run by some of the most corrupt management officials in history. For those of you who don't know/don't remember, Kwame Kilpatrick is still in jail for the things he did as mayor.

Democrats at work - http://www.thegatewaypundit.com/2013/07/she-broke-detroit-files-...

Where are the headlines of cities in Texas going bankrupt.

SUB said:   http://news.yahoo.com/detroit-files-bankruptcy-stage-set-0144037...

But Ed McNeil, chief negotiator for a coalition of 33 unions that represent most of the service workers for the city of Detroit said the bankruptcy filing was about "busting the unions."

"I've said all along that this is a power grab," said McNeil. "This is not about fixing the city's finances. It's about the governor and his own agenda to take over the city of Detroit."


That's the biggest part of the problem . . . no body wants to give and it's not my fault mentality.

As to opening plants in Detroit . . . there's a reason why all the foreign car companies are opening non-union plants in the south. Sadly with today's job market and economy we're all expendable.

Skipping 71 Messages...
depalma13 said:   Killjoy1991 said:    How do you get middle & upper income individuals to move into the city given these issues?

You give them tax incentives. You offer them no property tax on newly built homes for 10 years and make it transferable.


Philly has a tax abatement program similar. I have a 5 year old rental where the taxes are $34/yr

EDIT: I just noticed someone else said this a bit ago.



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