By Eric Boehm | Watchdog.org
The city of Detroit declared Chapter 9 bankruptcy on Thursday, making it the largest city in American history to go through the municipal bankruptcy process.
On Friday, a judge ruled that filing unconstitutional, but as the city sorts out its next move, here are 10 facts about the causes of Detroit’s financial mess and 10 photos that reflect just how badly the city is doing these days.
1. The population has collapsed in the past six decades.
Yes, fewer people means a smaller tax base, but the real problem is the city’s government did not shrink along with the population — more on that in a bit.
2. Detroit has the highest unemployment rate of any major city in the nation.
This is both a cause and an effect of the population situation. Detroit is caught in a vicious cycle. There are few jobs, so people leave to find work elsewhere. Meanwhile, the high cost of the city’s government (more on that in a second) drives employers away and makes other less willing to relocate there. That means fewer jobs, which further erodes the tax base and causes more people to leave the city.
3. Detroit has $18 billion – yes, billion — in general-obligation debt.
That’s a lot more than some of the other high-profile municipal bankruptcy cases in recent years. When Central Falls, R.I., declared bankruptcy in 2011, it had only about $80 million in debt. Jefferson County, Ala., had about $4 billion in debt when it declared Chapter 9 bankruptcy that same year.
4. A lot of that debt is the result of public pensions.
According to Moody’s, Detroit has about $3 billion in unfunded pension liabilities. But Orr says those numbers are understated. And it didn’t take long for the pension funds to sue the city in an attempt to stop the bankruptcy proceedings.
5. Why is the city buried in pension costs? Because it has too many public workers.
Though Detroit’s population has caved in the past several decades, the public sector just keeps on growing. In 2011, the city had more than 12,000 employees — more than any other comparably-sized city in the country, according to an analysis from The Detroit News.
That works out to one public employee for every 55 residents of the city. By comparison, nearby (and financially much better-off) Indianapolis has one city worker for every 115 residents.
6. And the guys running the pension funds aren’t exactly helping.
The heads of the pension funds said the trip was for work, not play. But Orr’s spokesman said they shouldn’t have gone, anyway.
“It especially doesn’t look good when you have city employees, police, firefighters having taken pay cuts,” said Bill Nowling, spokesman for Orr. “Middle-class, blue-collar workers, their dream vacation when they retire may be a two-week trip to Hawaii — they don’t associate Hawaii with a place you go to work.”
7. But they are hardly the only corrupt public employees in town.
Former mayor Kwame Kilpatrick, a Democrat, was convicted in March on 24 federal felony offenses, including mail fraud, wire fraud, tax evasion, racketeering and extortion. Prosecutors said he doled out jobs to friends and family, wasted city tax dollars on fraudulent contracts and pocketed more than $1 million in illegal kickbacks.
He previously had pleaded guilty to charges of obstruction of justice in a criminal investigation in 2008.
8. Basic city services are non-existent
In his letter authorizing the city to enter Chapter 9 bankruptcy, Michigan Gov. Rick Snyder, a Republican, pointed to some amazing statistics.
“Only a third of the city’s ambulances were in service in the first quarter of 2013. Similarly, approximately 40 percent of the city’s street lights were not functioning in that quarter, and the backlog of complaints is more than 3,300 long,” he wrote.
9. Crime is up and the police have no way to respond.
While much of the city’s financial trouble is due to the public pension it must pay to retired teachers, city employees, cops and firefighters, that leaves little money on the table to pay actual cops to keep actual people safe in Detroit. The average response time for an emergency call was 58 minutes, according to Snyder’s letter, compared to a national average of 11 minutes. And only 8.7 percent of crimes in the city are solved, compared to a statewide average of 30.5 percent in Michigan.
10. There are 78,000 abandoned buildings in Detroit.
This is a result of all of the above. Fewer people, fewer jobs, less economic activity and tons of crime have created a city-sized collection of abandoned buildings. We only had room for a few photographs here, but Snyder says there are 78,000 such structures in Detroit.
Snyder wrote this Thursday’s decision was a low point in the city’s long history of decline.
“I think it will also be a foundation of the city’s future,” he said. “With this decision, we begin to provide a foundation to rebuild and grow Detroit.”
They’ve got a long way to go.
Boehm is a reporter for Watchdog.org . Contact him at [email protected] Follow him on Twitter @EricBoehm87