Yesterday evening, the City Emergency Manager Kevyn Orr, who had been picked by Governor Rick Snyder to keep Detroit from filing for bankruptcy, raced to the courthouse to submit a filing indicating that Detroit Michigan would seek bankruptcy reorganization. Immediately, the news and pundits went in to high gear.
Detroit isn’t the first big city to declare bankruptcy. Stockton, CA, did so in 2012. So too did several other California cities as well as Alabama’s Jefferson County (the county where Birmingham is located) but Detroit is the largest and most noteworthy to make the attempt. Several other high profile cities/regions managed to avoid that ignominious outcome, including New York City and Nassau and Suffolk Counties in New York (all three of which had major state support to avoid the bankruptcy process).
The thing is that Detroit’s situation was a long time coming and was a combination of a shrinking tax base, shrinking industrial base, and a government that didn’t adjust its spending habits accordingly to say nothing of the rampant corruption and graft among top officials.
Having a bunch of billionaires who held the city over a barrel doesn’t help. When significant parts of the city are under the control of one guy (or a small group of very powerful real estate interests), who do absolutely nothing to maintain or revitalize those areas, something is wrong - with that billionaire.
Epitomizing this mindset is Manuel Maroun - the same guy who’s fighting to prevent the Canadians building a bridge to the US free to US taxpayers because it would supposedly devalue his bridge monopoly (or force him to make significant improvements to his bridge, which he’s been fighting every step of the way). He’s hardly alone, Michael G. Kelly who owns more than a 1,000 parcels, many of which are dilapidated and who has been slapped with $100k in blight violations since 2005.
For instance, Kelly bought up a bunch of plots that are where the alternative to Maroun’s bridge would be located - so if it happens, Kelly stands to hit the jackpot.
Kelly and Maroun are flippers, but without actually improving the properties they buy in the interim. More than a third of Detroit properties are vacant. They wont improve the properties themselves, and are instead waiting for municipal or state revitalization projects so that they can sell them back to the state at a substantial profit.
It’s a dysfunctional situation, and a successful bankruptcy filing would potentially shed significant debt from the Detroit ledger, but the city has to reform the tax rolls, get properties back on to the tax rolls, change the implementation of municipal services across the entire municipality to address the reduction in population, and will need to reconsider bulldozing and consolidating areas to reduce the burden on the government.
Most significantly is that it would mean addressing the pension obligations to current and former municipal employees -many of whom still live in the area, and there’s going to be a whole ton of pain for those living in and around Detroit.
These are issues that the Emergency Manager was supposed to be tackling, but he ended up going the bankruptcy route as the solution to the problems, instead of doing everything possible to avoid that outcome.
Despite the chorus of cheers and smugness from conservatives who thought that this somehow meant that their worldview was superior to those of liberals because a longtime Democratic city has been felled by economic troubles, the filing itself is in trouble.
The Detroit bankruptcy filing is unconstitutional according to a court ruling earlier today because the filing violates the state constitution, which prohibits any action that threatens to cut the pension benefits of public employees. Ingham Circuit Judge Rosemarie Aquilina issued a declaratory judgment Friday finding the filing violates Article IX, Section 24 of the Michigan Constitution that protects accrued pension benefits.
In other words, the Emergency Manager and Governor Synder are in violation of the State Constitution for attempting to file for bankruptcy (and which just barely made it with minutes to spare before the court ruled on several other matters yesterday afternoon)
The State AG and Gov. Synder are already filing an appeal against the ruling.
They’re going to hope that the appellate courts all ignore the state’s constitutional protections for pension benefits so as to eliminate the obligations to current and former state and local workers. If that fails, watch Gov. Synder and GOP move to expunge that protection from the constitution.
Even though Detroit is in serious economic trouble, there are those who are betting on a positive future for the city. That includes folks like Dan Gilbert, who’s bought up 1.8m sf of space downtown, making him the biggest property owner downtown besides GM and the City of Detroit itself. He’s betting on revitalization - and hoping for the city’s financial picture to turn around (though how that happens he wasn’t sure when he was asked in 2012 - before the bankruptcy came down).