<p>Many cities and a few states, including Illinois, have Detroit’s problems in less acute form.
[Chicago Sees Pension Crisis Drawing Near
By MONICA DAVEY and MARY WILLIAMS WALSH
New York Times
August 5, 2013](<a href=“http://www.nytimes.com/2013/08/06/us/chicago-sees-pension-crisis-drawing-near.html”>http://www.nytimes.com/2013/08/06/us/chicago-sees-pension-crisis-drawing-near.html</a>)
</p>
<p>As an update, the Detroit Free Press has a great interactive article about the financial history of the city and how it ended up this way, with an emphasis on the main drivers of the financial mess. [url=<a href=“http://www.freep.com/interactive/article/20130915/NEWS01/130801004/Detroit-Bankruptcy-history-1950-debt-pension-revenue]Here[/url”>http://www.freep.com/interactive/article/20130915/NEWS01/130801004/Detroit-Bankruptcy-history-1950-debt-pension-revenue]Here[/url</a>].</p>
<p>These points really stand out to me:</p>
<ol>
<li><p>The mayor - Archer at the time - fought the practice of taking “excess” pension returns and handing them out as a 13th check but there were lawsuits and the city lost. In other words, a court / legal failure not a managerial one. That cost about $1.9B.</p></li>
<li><p>That perhaps the biggest financial issue is something for which the mayor - then Kilpatrick was not only praised for but was awarded the “Midwest Region Deal of the Year” by Bond Buyer magazine. Wall Street sold these complex financial schemes, which involve getting favorable interest rates to fund pension obligations using derivative swaps, and they blew up, just like they did all over. So that is now about 20% of the total city debt. </p></li>
<li><p>Archer borrowed to upgrade infrastructure. I’m not sure criticism is fair: how else would you reverse the decline except by investing to improve? That’s a part of the debt, but most striking is this: the debt only grew in the 2000’s, just like in the rest of the country. The debt was level and even declined under Coleman Young - though with a rather dramatic loss of services as cuts were made - but this last decade …</p></li>
</ol>
<p>Is it hopeless Lergnom?</p>
<p>I think that if Detroit remains in its historic configuration, yes. As I’ve pointed out, it’s huge: bigger than Boston, SF and Manhattan combined. If broken into pieces … </p>
<p>Years ago, I thought they should rethink Detroit along the lines of Indianapolis, but on a 3 county not single county scale. (Indy has a unified government for most services within Marion County.) There was and is tremendous antagonism between the counties and between individual counties and Detroit. </p>
<p>A huge factor is health costs. A “solution” has been floated which would give people under Medicare age a voucher to help pay for insurance. The amount floated was low, but I think that needs to be looked at in the context of subsidies available under the ACA, meaning the voucher is better than it looks for those who need it most. I think it’s sad these people will end up much worse than the Wall Street money that caused so much of this run-up in debt.</p>