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A New Financial History of Detroit

Detroit Struggles To Re-Build A Bankrupt City Amidst Poverty And Blight

The story of Detroit’s decline has been told and retold so many times now that you’d be forgiven for assuming there’s nothing more to say. But the Detroit Free Press has put together a new, comprehensive financial history of the city from 1950 to the present, gleaned from tens of thousands of pages of archival data on the city’s finances. It provides a much clearer picture of the city’s collapse than anything we’d seen before.

It appears that the city took all of the hallmarks of blue governance to extremes. For years, it tried to address its revenue shortfall by raising taxes, which drove residents out of the city and shrunk the tax base in the process. Detroit lost 61 percent of its residents between 1950 and 2010, and the total value of its property fell from a peak of $45 billion to $9.6 billion in 2012. Meanwhile, even as the city’s revenue base was imploding, public employee benefits remained generous and in some cases even expanded.

The Free Press notes that there were a few periods of hope during thee postwar period when the city’s finances were relatively strong, but each time the city squandered these opportunities and used its good standing to borrow more rather than address the core problems that got it in the mess in the first place:

“Detroit got into a trap of doing a lot of borrowing for cash flow purposes and then trying to figure out how to push costs (out) as much as possible,” said Bettie Buss, a former city budget staffer who spent years analyzing city finances for the nonpartisan Citizens Research Council of Michigan. “That was the whole culture — how do we get what we want and not pay for it until tomorrow and tomorrow and tomorrow?”

The city has paid a heavy price. Today, Detroit has more pensioners than employees, and a debt that is more than twice what it had in 1960. It spends considerably more on police and fire retirees than active workers. And despite the fact that the city has the highest income and property taxes in Michigan—by a wide margin—the state’s inflation-adjusted revenue is lower than it was in 1960.

The piece incisively recounts an often confusing history, and a number of charts do an excellent job of depicting the decline of the Motor City. Read the whole thing.

[Remnants of Detroit's historic Eastown Theatre are seen on September 4, 2013 in Detroit, Michigan. Photo courtesy of Getty Images.]

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  • USNK2

    ViaMeadia reads the same outstanding Detroit Free Press analysis that I read yesterday, and VM’s main conclusion was:
    “…It appears that the city took all of the hallmarks of blue governance to extremes. …”

    Did VM miss the indictment of Wall Street peddling a nifty financial ‘mortgage’ of pension revenues? That’s the trick that New York uses, e.g., borrow a mountain of debt, secured by a bridge toll revenue stream, wherein the loan principal is never paid.
    Ok, maybe succumbing to the Wall Street Big Ideas IS “blue governance”?????

    • halcrawford

      That’s a false tautology. But spending beyond your means is bad no matter who does it.

    • Bruno_Behrend

      Wall Street is not blue, or red. It is green, as in greed. Both parties fall over themselves for its campaign cash.

      All that aside, would you support a moratorium on municipal debt until the bilges can be pumped and the economic ship righted.

      Easy to blame Wall Street, but it is the governmental entities that use, and abuse, the debt.

      VM is still mostly right. The American blue model is an utter failure.

      I’d be happy to entertain the Canadian or Swedish “red” model, though.

    • Whelk

      “borrow a mountain of debt, secured by a bridge toll revenue stream, wherein the loan principal is never paid” When a government does it, that is blue model. You can call Wall Street predatory, but no one made Detroit sign an awful deal. This wasn’t some dumb consumer, but a city with access to its own economists and lawyers.

      • Nate Whilk

        Allow me to repeat the best part of your post: “NO ONE MADE DETROIT SIGN AN AWFUL DEAL”.

  • Pete

    Let’s not forget the role that the mau-mauing done by Detroit’s first black mayor Coleman Young in destroying the city.

    Here’s a bit from Wikipedia on that:

    “Political scientist James Q. Wilson wrote that, ‘In Detroit, Mayor Coleman Young rejected the integrationist goal in favor of a flamboyant, black-power style that won him loyal followers, but he left the city a fiscal and social wreck.”‘

    http://en.wikipedia.org/wiki/Coleman_Young

    • http://www.tempeteaparty.org Lee Reynolds

      Tribalism always destroys.

      • NCMountainGirl

        It can destroy even faster when helped by an at large city council system that meant the smaller tribes had no chance of a seat at the council table. The irony is the DOJ ordered some cities in the South to ditch their at large system because the system was seen to excluded blacks and Hispanics. No one was interested in how such a system excluded white ethnic neighborhoods in Detroit.

        • http://www.tempeteaparty.org Lee Reynolds

          If I elect someone to represent me, does that person have to be of the same racial or ethnic background as myself?

          People who think that the answer to this question is yes, are guilty of tribalism.

          Elected representatives who only act to represent the interests of voters from their own racial or ethnic group are violating their oath of office.

          When the DOJ acts to institutionalize this kind of tribalism, they undermine one of the central principles upon which this nation was founded: e pluribus unum.

          When this principle is undermined, the outcome is Detroit.

  • AnnSaltzafrazz

    That article doesn’t mention crime. Crime >> businesses flee >> more crime >> more businesses flee >> even more crime >> etc.

    No discussion of Detroit is complete without a discussion of the crack epidemic and what the police tried, or didn’t try, to do about it.

    • f1b0nacc1

      The problem is that if they bring up crime, ESPECIALLY crack-based crime, the usual suspects will cry “racist”, and the discussion will be shut down…

  • Bandit

    It was because of Dick Jones fixing the new contract and trying to destroy Robocop

    • https://www.facebook.com/ritchietheriveter Ritchie The Riveter

      Both RoboCop and The Hunger Games are looking more and more like documentaries of Detroit and Washington DC, respectively.

  • Montgomery Draxel

    Detroit is a victim of demographic realities. There are left-leaning, democrat strongholds like Seattle that are doing well – primarily because of the percentage of White and Asians living there. Detroit has the highest black population percentage of any city in the nation.

    White flight is the inevitable result of the black underclass being hooked on Johnson’s Great Society welfare, destroying the black family and crippling the growing black middle class. Stable families are the foundation of a healthy community and nation. Replacing the need for a provider with free checks and an EBT card from “compassionate” Democrat pols has been an unmitigated disaster for the black community.

    There are many other factors at play in Detroit’s demise: Yes – the US manufacturing sector boomed after WW2 because every other industrialized nation was in shambles. Once Germany and Japan got going, manufacturing and industry and steel production sank back to reality.

    But to ignore race, demographics, crime – is disingenuous when talking about the absolute collapse of Detroit.

    Just compare pictures of Detroit and Hiroshima in 1945 vs 2014. What an eye opener.

  • wolfram_and_hart

    I was both fascinated and infuriated by the Free Press analysis when I read it Sunday. While the financial information presumably was accurate, it paid no heed to the social issues that destroyed Detroit.

    One key point claimed by the package of stories was that Coleman Young played no role in the city’s demise. In fact, Young was portrayed as a fiscal conservative who kept Detroit afloat during bad economic times.

    Indeed, Young was on excellent terms with a handful of wealthy white businessmen, but he treated all other entrepreneurs with scorn, especially those who were white. Young merely practiced a form of crony capitalism that would put Barack Obama’s efforts to shame. And when he did play ball with Henry Ford II or General Motors, he did it on his terms so it was profitable to him.

    Young’s militant black nationalism poisoned Detroit’s relations with the suburbs for generations. Then as now, any attempt by suburban leaders or businesses to forge new ties with the city were viewed as attempts by outsiders to steal the “gems” of Detroit.

    Slashing thousands of police officers and fire fighters, who were mostly white, from the city’s payroll pleased Young’s political base but certainly didn’t boost Detroit’s quality of life. Moreover, he leveled Poletown, one of Detroit’s few stable and vital neighborhoods, so GM could build an auto plant when vast tracts of land stood vacant. Then again, Poletown was mostly white.

    The point missed by the Free Press and so many pundits is that Detroit’s financial crisis was merely a side effect of the true problem: the city’s social collapse under the weight of racial tension and crime.

    Young was a brilliant man whose soul was warped by white racism in his younger days. If he had had the heart of Nelson Mandela, who overcame much greater obstacles and bore no thirst for vengeance when he took power, Detroit would still be a great city.

    • f1b0nacc1

      You are much more generous regarding Young than I would be, but you make a superb point regarding the Freep’s article. They essentially ignore any aspect of the social and racial cauldron that was Detroit during this period as a contributor to what happened.
      Another point that you allude to was that Young (and the rest of his wrecking crew) had excellent relationship with some of the big-money businessmen, but despised just about everyone else who was trying to make a living as entrepeneurs. Young prefered cronies who would pay to play, there were few who matched his corruption and creativity in its pursuit.
      This illustrates a classic misunderstanding that most on the left hold regarding business and capitalism, to wit that coziness with big business = capitalism, when this is obviously NOT the case. One of my favorite t-shirts comes from FreedomWorks and consists of the line “Crony Capitalism = Phoney Capitalism”. Cuddling up with a bunch of well-heeled cronies is not capitalism, it is simply corpratism and kleptocracy. Free markets require the rule of law (i.e. low corruption), low barriers to entry, and transparency, all of which are anathema to most big businesses, which prefer to use their size and influence to crush would-be competitors.
      The blue model fails because it encourages the growth of corparatist policies (after all, this benefits the insiders who are the leaders and managers of the blue model) at the expense of free markets, thus providing fertile ground for corruption and cronyism. Detroit is an almost flawless example of how this plays out in the real world.

      • NCMountainGirl

        The small, elected at-large city council made things easier for both Coleman and the crony capitalists. Fewer people to have to pay off and less likily

        • NCMountainGirl

          Sorry. Should read less likely for one council member to strongly fight for single neighborhood like Poletown.

        • f1b0nacc1

          That is why special interests like the Blue model…it is easier to buy off a smaller number of decision makers, and much easier to guarantee that they stay bought off…

  • teapartydoc

    Our future in black and white.

  • Maunalani

    This essentially is the same game plan Obama and the Democrats are implementing nation-wide.

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