Detroit going for broke

posted at 11:01 am on June 16, 2013 by Jazz Shaw

Last month, Ed gave us the rundown on the financial status of the Motor City. The prognosis wasn’t good, what with Detroit having billions more in outstanding bills than it could possibly generate in revenue. If anything, that doom and gloom outlook might have still been a bit on the rosy side, as the city’s emergency manager has essentially just told its creditors to pound sand.

A team led by a state-appointed emergency manager said Friday that Detroit is defaulting on about $2.5 billion in unsecured debt and is asking creditors to take about 10 cents on the dollar of what the city owes them.

Kevyn Orr spent two hours with about 180 bond insurers, pension trustees, union representatives and other creditors in a move to avoid what bankruptcy experts have said would be the largest municipal bankruptcy in U.S. history.

Underfunded pension claims likely would get less than the 10 cents on the dollar.

Those pension fund payments and other union / public worker costs are the elephant in the room. While they always merit some sort of mention, a lot of the media coverage of this story seems to try to roll them up as just one of many outstanding items, poor decisions or just plain “bad luck” which is dragging Detroit under. But it’s a lot more than that.

More than 42 percent of Detroit’s 2013 revenue went to required bond, pension, health care and other payments. If the city continues operating the way it did before Orr arrived, those costs would take up nearly 65 percent of city spending by 2017, Orr’s team said.

Kevyn Orr was given just 18 months to clean this mess up and he’s already burned 90 days of that. Everyone seems to agree that there isn’t any room for long term wringing of hands or dancing with the traditional power figures in the city. The house is already on fire, so it’s a bit late in the game to be talking about how many smoke detectors you should have installed. Orr has reportedly told all of the city’s creditors that Detroit is in “a death spiral” and Moody’s has marked down the Motor City’s bonds to below grade level. The unions and other public sector interests can either come to the table for vastly reduced portion of payments or they can stand in the road and allow the entire thing to collapse.

But, assuming 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.

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Biggest Winner: John Derbyshire.

Jaibones on June 16, 2013 at 11:32 PM

You are confusing private companies providing services and selling assets.

NotCoach on June 16, 2013 at 10:05 PM


What you linked is a discussion about selling city assets to pay the bills.

I threw the link in to show how desperate they are. The collection in the museum is public property. My comments were based upon Mr. Shaw’s article, not the link.

Dr. ZhivBlago on June 17, 2013 at 12:45 AM

Put up the mother of all firebreaks between Detroit/Dearbornistan and the rest of Michigan.

Steve Eggleston on June 16, 2013 at 5:57 PM

You ain’t lyin’. That movie 8 Mile is no urban legend, and if anything is going to break the firewall between the city and the ‘burbs, it might be the final downfall of Detroit. It would be ugly and would require the national guard, maybe the military. *shudder*

Grace_is_sufficient on June 17, 2013 at 5:16 AM

We moved to suburban Detroit in 1995. Back then, a local TV station had the tagline, “Stand up and tell ’em you’re from Detroit!” I mocked the heck out of it even then.

Yeah, they’re not running it now, for obvious reasons. Now, it would have to be, “Lie down and die, Detroit…just die, already!”

Grace_is_sufficient on June 17, 2013 at 5:20 AM

As in “worse than a third world country”?

VegasRick on June 16, 2013 at 3:46 PM

Yep. It’s where people with no education or marketable skills live as scavangers to subsist in the ruins of what once was a viable modern city. Like living in a bombed out city with no skills, resources or desire to build it back.

ROCnPhilly on June 17, 2013 at 8:21 AM

Perhaps we could relocate all these poor unfortunates that have been stranded in these decaying urban centers to the more vibrant and prosperous areas of the country and subsidize them to live there. Actually, as usual, Washington is way ahead of us in this. It’s already being done.

claudius on June 17, 2013 at 9:23 AM

Model City!

All hail the unbridled success of the Great Society and the War on Poverty!

The Schaef on June 17, 2013 at 9:37 AM

williamg on June 16, 2013 at 4:38 PM


bernzright777 on June 16, 2013 at 4:57 PM

You’re Dam Straight!

It’s overdue – LONG overdue!

One should be able to here the shrieking and screaming of human anguish all the way to D.C.

williamg on June 17, 2013 at 9:39 AM

This is the biggest municipal default in history, but not to worry, they are too radical to fail, so a couple of billion from the Obama stash should do it. We can’t have government union pensions being put at risk by a little bankruptcy!

virgo on June 17, 2013 at 8:33 PM