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Tuesday, December 03, 2013 10:02 PM


Bottom in for Detroit?


I mentioned to my wife Liz tonight, that I thought "the bottom was in for Detroit". She asked "why?"

Here's my lengthy answer.

Unlike Vallejo, California, it is highly likely Detroit will actually shed pension obligations in the first go-around.

A mere 25% of students graduate from high school. Can Detroit schools get any worse?

In 2010 I wrote about Mayor Bing's plan to Cede 20% of the City to gangs

Detroit has been bankrupt for years. It simply refuses to admit it. Detroit's schools are bankrupt as well. A mere 25% of students graduate from high school.

Yet, in spite of hints and threats from mayors and budget commissions, and in spite of common sense talk of bankruptcy, Detroit has not pulled the bankruptcy trigger.

In a futile attempt to stave off the inevitable one last time, Mayor Bing's latest plan is to cutoff city services including road repairs, police patrols, street lights, and garbage collection in 20% of Detroit.

Would you want to live in one of the gang war-zones that his plan would create? Would you want to live in a bordering neighborhood or in a bordering city?

Regardless of your answer, Bing's plan cannot and will not work and I believe Detroit will, sometime in 2011, file for bankruptcy.
Here we are today. The city finally pulled the bankruptcy trigger, but it took two more wasted years.

Here's a picture of Detroit's Michigan Central Train Depot.



Image courtesy of the Journal and the AP.

Also in 2010, Business Insider posted a fantastic set of images of the beautiful 3.5 million square foot Packard property worth $13 million (but no taxes collected for years). Here are a couple of those images.





Bottom Catalyst

Still, things do not bottom until there is a catalyst.

Today we had that catalyst. It came in the form of a Lesson for Union Dinosaurs: Detroit Bankruptcy Judge Rules Public Pensions Haircuts OK.

After discussing the above, I happened to read some comments from the New York Times article Detroit Ruling on Bankruptcy Lifts Pension Protections.

The article itself did not say much more than I said on my blog earlier. But check out this comment by Kathleen Kelly ...
I was born in and grew up in Detroit. My parents moved to Detroit from another country with their three other children, prior to my birth. The city was, at that time, a gleaming jewel, and a global center of manufacturing.

Yes, the city has taken a turn downward for the past several decades. It's been sad, painful, and sobering to watch. The key question is "what now?".

A lot of turnover has occurred on City Council in the past year. The city also has a new mayor and a new police chief. Young artisans, craftsmen and business people are moving into the city, specifically into downtown and midtown, to take full advantage of affordable rents. Business owners like Dan Gilbert are funding revitalization efforts in terms of rehabbing or demolishing empty buildings.

Areas of NYC have been renowned, over my lifetime, for re-gentrification. Detroit may learn something from that. Yes, the tune was called & played, and now the piper must be paid. But for those of us who've stayed close and who love the city, we see a blank slate now, replete with new possibilities. And yes, it won't be like "it was" with auto plants dotting the city landscape. But that doesn't mean it still can't or won't be great in its own way.

Finger-pointing won't help, and I'd have thought we'd moved beyond that. Safe, affordable housing, stable infrastructure, education and jobs. That's where our focus needs to be, and that's what will make Detroit great again.
I was in Ann Arbor, Michigan over Thanksgiving with Liz's family. Jan, a niece of Liz who runs a property management company in Detroit made similar comments about revitalization of Detroit by young artists.

Fresh-Start Proposal

Let's hope Detroit makes the most of this bankruptcy opportunity. But it can only do so if it sheds a huge chunk of pension and bond obligations.

Here is my six point fresh-start proposal.

  1. An agreement to end collective bargaining for all city workers
  2. An end to defined benefit pension plans for new workers and also for workers with less than 10 years of service
  3. A sustainable benefit model for existing workers with over 10 years of service, with pension plan assumptions equal to the long-term treasury rate
  4. Automatic provisions for further pension cuts if plan assumptions were not met
  5. An end to the right to strike for public safety workers
  6. An end to all prevailing wage laws


It may take years, if ever, for Detroit to be "great" again. But for the first time in decades, Detroit actually has a chance.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com


Copyright 2009 Mike Shedlock. All Rights Reserved.
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