<p>Just heard that population drop number on ABC news. Poor Detroit. Wonder if Michael Moore’s impending divorce had anything to do with the reduction in spending in the city? Oh wait- he lived in Flint. Never mind. ;)</p>
<p>Ha, Romani-- we were there, too! When my fiance and I were driving through the city we remarked on what an enormous amount of money it would cost the city just to remove the abandoned, heavily vandalized buildings-- and we weren’t even talking about the streets and streets of abandoned homes, what we were looking at was giant former commercial buildings. We doubt that Detroit will ever really recover in our lifetime, but we really hope it does at least to a degree. We live 15 or so minutes away from downtown and I still didn’t have any idea how to get around when we got there because I’ve only been two or three times in my entire life… that’s such a shame. I don’t mind going into town for events and whatnot but I do not really feel safe there, so it’s not a chance I take day-to-day. I wasn’t even all that comfortable when we lived in Dearborn.</p>
<p>It will be interesting to see where Detroit goes in the next 5-10 years. It seems like they’re hitting rock bottom.</p>
<p>More on the causes.</p>
<p>Detroit “benefitted” from being treated as a project for urban renewal through the removal of blight. I mean bluntly they were early in the knock-it-down business. Other cities - Boston, Baltimore, etc. cleared areas for public housing. Detroit did some of that - see where Diana Ross grew up (though it was torn down) - but it led the way in eliminating buildings within continuing neighborhoods. Turned out to be a bad idea. Turned out that vacant lots created blight rather than eliminating it. </p>
<p>I wonder about institutions and how they hold a place together. My parents, for example, both went to high school in Detroit. My dad went to Central - and the list of people from his class is a roster of success, including a couple of major Hollywood directors. My mom went to, I think, Henry Ford (and her brother went to Mumford, I think, mostly remembered for Eddie Murphy’s shirt in Beverly Hills Cop). But one reason we grew up in the suburbs was for private school. The city didn’t have that kind of institution. I went to both Roeper and Cranbrook, both out in Bloomfield. The other big private schools - other than Catholic ones - were DCDS (Detroit Country Day - where Chris Webber went) and University-Liggett in Grosse Pointe. There was a large Catholic school but the biggest regional one was also out in Bloomfield (meaning Brother Rice, which is the neighborhood where I lived).</p>
<p>Again, like with corporate HQ’s and cultural institutions, things spread out. There aren’t natural barriers like a river or lake. There wasn’t a huge park with amenities that attracted the better off. I remember when we were looking for a house and my dad realized he could get to the hospital using Northwestern Highway and the Lodge Freeway while we could get to our school just as easily. </p>
<p>It wasn’t until recently that Detroit cobbled together a riverfront park/walk system. I was an adult when the Rivertown warehouse area became the first meaningful conversion into housing - rather than be torn down - and much of that was due to the presence then of Stroh’s HQ, just to emphasize the power of a large stakeholder.</p>
<p>But the main factor is likely that Detroit was the home of the single biggest generator of widespread wealth in industrial history - bigger than the mills by far - and that couldn’t last forever without attracting competition. The Japanese car companies didn’t spring up overnight. They developed over decades and tied their fortunes to both government subsidies and the concomitant effort to take over the steel business - the other big wealth generating industrial activity. The steel industry lost first and maybe that should have been a lesson but what made the Japanese car industry was OPEC and the oil embargoes of the 1970’s. That overnight made the smaller Japanese cars popular … and people realized they weren’t crap, that they were well made or at least made without many defects, etc. By the time Reagan came into office, I knew auto workers so desperate they were camping out in front of businesses looking for any work at all. </p>
<p>OPEC caused a revolution in the US car buying market. Once people were exposed to the Japanese product, they realized the trade-offs - like lousy air conditioners and heaters - were offset by better mileage and better construction and fewer repairs. </p>
<p>BTW, one issue that hit Detroit’s car industry with the financial crisis is they had been reduced to plying niches for their profits, with those niches being the trucks and SUV’s that people stopped buying when the crisis hit. Interesting how they were driven into that niche and how they were defending that against efforts by Toyota and others. But that’s another story.</p>
<p>As for bankruptcy, if possible, they need to default on all the bonds they can. Hit that. Make the insurers pay. That will have a ripple effect on the nature and even availability of financing for authorities and cities but I think that would, at least for now, be a good thing because that lending has become detached because of insurance from actual underwriting of risk.</p>
<p>Mongrel, you are spot on about the japanese cars. I grew up in a GM family, and we bought Pontiacs. My first new car was a 73 pontiac, which I had for 3 years and 42,000 miles before moving to where a car wasn’t needed. </p>
<p>Over that period it:</p>
<p>Was delivered with an inoperative odometer. Had to pull the dash to fix it, and the dealer dented the hood somehow while he had it.
Developed a heater-core leak that put coolant into the passenger compartment rug.
Rusted the paint off the rear marker lights repeatedly (repainted 3 times).
Lost the center caps on the fake mag wheels because of faulty clips.
Blew a radiator hose because of a faulty thermostat.
Burned out a voltage regulator on a 1000 mile Christmas trip.
Had the plastic trim around the bucket seats break off.</p>
<p>In 1980 I bought a Toyota Celica and owned it for 13 years. It was perfect and never had anything go wrong. Literally. i gave GM another try with a Buick Park Avenue in 1985, and jettisoned it after 8 months with problems with the transaxle, and a wiper motor failure that the dealer tried to cheat me on the warranty. I won’t ever buy another american car.</p>
<p>This has been a major problem for Detroit, and they have been blind to it nearly forever. They just didn’t care as much about making a near perfect car as Toyota did. And that really wasn’t the fault of the assembly line workers, IMO.</p>
<p>My guess is that auto manufacturing jobs in Michigan are down well over 50% in the past 20 years. If that is your major economic platform, as it was in Detroit, there is no way to sidestep it or manage it. The only alternative would have been to try to capture some of the foreign plants for the state, and my understanding is that there was no interest in that, until very recently. A serious error.</p>
<p>Lergnom, I really appreciate your perspective on Detroit and its problems (Not that I don’t like the other comments, too!) My H has worked in downtown Detroit for almost 30 years, and we both still go into Detroit frequently. (Our D has been a regular at concerts at the Shelter, Saint Andrew’s Hall, and the Fillmore.) What always amazes me about Detroit is how big and spread out it is. There’s been a lot of talk about downsizing and reinventing the city, and while I like the idea of urban gardening I have my doubts that it would work.</p>
<p>I hope the bankruptcy plans work but I fear it will not.</p>
<p>Ema, we parked by the jail (on Gratiot) that built about five walls before losing funding. There are so many projects down there that are like that- half completed.</p>
<p>There were alot of errors on the east side of the state. Along with rampant entitlement mentality, gross corruption and absolute blindness to what was happening in other regions of the country let alone the other side of the state was a myopic dependence and devotion on one industry and a ton of blustery verbal BS about this or that. If anything was going to be “fixed” it should have started over thirty years ago when other major cities began redevelopment. It’s sad, but silly to be surprised to any degree.</p>
<p>I listened to Detroit Mayor Bing on Tv. He comes across as a pretty smart and realistic guy. It seemed like he knew the city was screwed but that they would work through it. I hope he is successful.</p>
<p>It looks like this judge didn’t get the memo.</p>
<p>[Michigan</a> AG challenges judge’s ruling that Detroit bankruptcy is unconstitutional | Detroit Free Press | freep.com](<a href=“http://www.freep.com/article/20130719/NEWS06/307190075/Michigan-AG-challenges-judge-s-ruling-Detroit-bankruptcy-unconstitutional]Michigan”>http://www.freep.com/article/20130719/NEWS06/307190075/Michigan-AG-challenges-judge-s-ruling-Detroit-bankruptcy-unconstitutional)</p>
<p>Bing will have very little, if anything, to do with this as his term is up in December and I foresee a legal fight for quite a while.</p>
<p>The judge’s ruling makes no sense to me: he argues that because MI constitution protects pensions, that you can’t file bankruptcy because that might compromise pensions. Huh? Bankruptcy does a lot of things and the argument over the scope of that provision - which I quoted in another post - is the kind of thing that is fought in law. </p>
<p>But judges are elected in MI. I don’t know who this person is.</p>
<p>One thing that interests me is the way this bankruptcy plays politically. Gov. Snider seems intent on getting the slate cleaned, which means taking on creditors, but the standard GOP position is that creditors need to be protected. If they can’t reduce these debts by a huge amount, Detroit has no future … not enough people, not enough revenue. </p>
<p>One real battle will be the arguments by the insurers that Detroit isn’t insolvent - it pays some bills. Their contracts specify what constitutes default that pays off the bond. And the contracts usually give them the right to step in, which means more intransigence. They want to argue against default so they don’t have to pay while the bond holders themselves want the contracts to be ruled effective so they get paid. And so on. This is why I say insurance can be perverse: in the old way of doing things, you’d lend and be stuck dealing with the debtor about the continuing value, if any, of your debt. That meant you’d lock up security - as opposed to general revenue promises - and you had an incentive to work with the debtor to find a way to solvency. The system now pushes for all out war.</p>
<p>The judge is a she :)…</p>
<p>Lerg, I very much enjoy your posts and I hope you continue to write about this issue. I’ve learned a great deal.</p>
<p>I thought this was interesting. I can’t comment on it as I’m pretty ignorant of modern state history, but i thought it was interesting: [Detroit</a> bankruptcy: Handshake deal between Gov. John Engler and Mayor Dennis Archer haunts city | MLive.com](<a href=“Detroit bankruptcy: Handshake deal between Gov. John Engler and Mayor Dennis Archer haunts city - mlive.com”>Detroit bankruptcy: Handshake deal between Gov. John Engler and Mayor Dennis Archer haunts city - mlive.com)</p>
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<p>This…and of course your mad men posts too :-)</p>
<p>I’ve read a bit about the filing but didn’t got through the documents. I see that the pension argument is not what it might look like. The $3.5B funding gap is really part of the larger argument about whether pensions are funded properly given the state of actuarial practice. [url=<a href=“Detroit Gap Reveals Industry Dispute on Pension Math - The New York Times”>Detroit Gap Reveals Industry Dispute on Pension Math - The New York Times]Here[/url</a>] is a good article.</p>
<p>This argument got traction with the financial crisis but it’s more complicated than the article makes out. Because of the big setback, people naturally questioned earnings assumptions, especially 8% or whatever. That was when the Dow was nearing 6k while of course it’s now over 15k. The actuarial techniques aren’t as simple as just picking a return and inflating and discounting numbers to future and present values. The article makes it sound like the minority view is clearly correct. Just wanted that point to be clear because I have no interest going through this stuff because it’s largely a distraction from the real issues that face pensions, which is the extent of the promises. </p>
<p>To take a moment, these plans were designed when incomes were much lower. You can say that if we deflate income back to 1960 or some other time - meaning not to plan start but to when the plans were thought up - that the nominal values of today are the same as in the past - or less or more, I don’t care. But if you do that, you miss the basic point that you have to come up with these dollars now. I’m saying that nominal values matter in the moment while real values matter over time. If the average moves from $5k to $50k, then the amount of money you have to raise to fund 100 pensions each and every year moves from $50k to $500k. Since top salaries have grown by much more, if you have a slice averaging $100k - which is typical in cities because of police and fire pensions along with some administrators - the numbers get really large. </p>
<p>That’s one part. The other is qualification. We keep finding out that some plans let a person retire with a calculation based on final salary - or highest salary - and so we have people promoted for a day and thus reaping hundreds of thousand more over time. Or rules that include vacation pay as part of salary so if you have unused vacation pay - as many municipal employees do, in part because they are sometimes allowed to take time off without counting that as vacation days - then a giant pile of vacation days becomes part of the determination of salary. All these rules need to be scrapped. But that problem is not the same as funding levels for future benefits and the imputation of earnings, etc.</p>
<p>For the city and state, the pension number might be useful as leverage against other creditors. That is always part of the argument: your debt isn’t worth as much as you claim. </p>
<p>BTW, I don’t see a problem with Detroit agreeing in the 90’s to cut income tax in exchange for revenue sharing promises. The promises ran out. The tax cuts were a deal to prevent greater revenue sharing cuts that would have canceled the tax cuts. Maybe not exactly but that was the idea. The goal was to make the city more attractive and to put more money in the pockets of people who live and work there. That the world failed to cooperate is no one’s fault.</p>
<p>Most plans take an average period-3 years I believe is average. Veterans usually get a pension based on the one year highest pay.</p>
<p>The big issue is political people -say some operative being paid a low salary for 20-25 years in some non-descript job and then being placed in position as a judge or some Division Director for a year and now earning $150-300k and having their pension based on that salary. That is the game and so far none of the so called reforms have touched it.
I would also like to see an actuarial report that calculates the extent of the problem if the funding was made every year and not tell me there is a problem because the plan is too generous but it really is not because we made no payments into the plan for x number of years.</p>
<p>Kind of random, but this is the type of fighter spirit Detroit needs right now. </p>
<p>“Kwame We Pray For You”</p>
<p><a href=“Kwame We Pray For You - YouTube”>Kwame We Pray For You - YouTube;
<p>Other cities have Detroit’s problem of being run for the sake of unionized government workers, and their days of reckoning also approach.
[New York Is Not Detroit. But …
by Bill Keller
New York Times
July 21, 2013](<a href=“http://www.nytimes.com/2013/07/22/opinion/keller-new-york-is-not-detroit-but.html”>http://www.nytimes.com/2013/07/22/opinion/keller-new-york-is-not-detroit-but.html</a>)
</p>
<p>Cannot continue with the $18bil unfunded liability, over 50% of which is unfunded union pensions… No bailout or whatever, there is nobody who can provide the $$ of this magnitude. …and if they are provided…it will be just a temporary solution. City spends much more than it takes in and “taking in” part diminishes. There are so much NOT done that has to be done in terms of services. For one, there are about 70k empty houses, that have to be demolished, otherwise they are potential crime scenes. It is not going to be done any time soon and this number will grow as more are leaving the city…</p>
<p>Detroit just can’t catch a break. One of our favorite feel-good guys was hit by a driver this morning who took off. </p>
<p>[Report:</a> Detroit’s 'Eat ‘em Up Tigers Guy’ killed in hit-and-run | MLive.com](<a href=“Report: Detroit's 'Eat 'em Up Tigers Guy' killed in hit-and-run - mlive.com”>Report: Detroit's 'Eat 'em Up Tigers Guy' killed in hit-and-run - mlive.com) </p>
<p>Sigh :(</p>
<p>Gov. Snider seems intent on getting the slate cleaned, which means taking on creditors, but the standard GOP position is that creditors need to be protected.</p>
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<p>Gov. Snyder may be Republican, but he generally (not always) ignores party politics - he is first and foremost a businessman, and he runs the state as he would a business.</p>