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Detroit has gone belly up. The Motor City declared bankruptcy last week setting the stage for a contentious battle to right the city's sinking ship. At more than $18 billion in debt, the city now must find a way to satisfy their creditors and cut costs so basic services like ambulance, fire and police protection can come back online.
Although a sad story, this outcome shouldn't surprise anyone. The Motor City has long been run by a liberal regime, full of corruption, largesse and excessive waste. At the heart of this fiscal disease is big labor. Public sector unions have ensured that city workers retire with fat pensions at the expense of the city's taxpayers. Some former city executives will earn six-figure annual payouts once they retire. That's a luxury that many in the private sector can only dream about.
With the massive decline in its population over the past 50 years, Detroit has kicked the can on dealing with a continually shrinking pool of revenue. Now they are faced with the inability to pay the nearly $10 billion in long-term liabilities owed to city pensions and retiree healthcare benefits.
Detroit emergency manager Kevyn Orr told the Wall Street Journal, "We cannot pay it. Everyone has know that for the last 20 years, and no one has wanted to deal with it."
Orr issued a June 14th report to Detroit's creditors that had some shocking statistics. According to Orr, the city's retirees have pensions where 80% to 100% of health costs are covered and include life insurance, vision and dental benefits. These numbers are far more generous than pensions offered in the private sector. With plans like this, Orr says will soon be allocating a whopping 65% of tax revenue just to cover health and retirement benefits for its employees.
Detroit has fallen on such hard times that only one in three streetlights work. The city has an estimated 80,000 abandoned or dilapidated structures. In neighborhoods throughout the city, entire streets may be deserted, with many of the homes falling apart or altogether bulldozed. The real-estate market has hit rock-bottom. In a search on the home-buying site Zillow, I found a house on sale in Detroit for $1. No, I didn't forget a few zeros. You can buy an entire house for less than a cup of coffee. A search for homes listed under $1000 returns nearly 200 properties.
If you are assaulted in your $1 home, the average response time for a police officer is nearly one hour, and officers rarely respond if the crime is not violent and in progress. Although, if it takes them nearly an hour to arrive to the scene, I can't imagine that most of those crimes will still be in progress. But don't worry, that 911 operator who took your call will most likely have a much larger monthly retirement check than you do.
Detroit's unions are in a full court press to keep their benefits untouched as the city negotiates a way out of their massive debt. A suit brought by labor interests argues that the Michigan constitution protects them from losing pension funds as a result of Detroit's bankruptcy. The claim is now part of a broader legal disagreement as to whether the state constitution supersedes federal bankruptcy laws in this case, a decision that could have reverberations in future bankruptcy proceedings across the country.
One Detroit city worker, Herb Jenkins, whose job is to fill in potholes, has lamented that this will keep him from retiring early at 50 instead of 65. "I was planning on retiring in October, but now I'm not sure. I have a lot of questions." How big labor managed to maneuver such excessive benefits and early retirement for city employees, including the guy who fills in potholes, is a testament to their incredible influence in liberal states and cities. Unfortunately for residents of Detroit, they now have a city that is bankrupt, basic city services almost unavailable, and a community so decimated by its own graft and corruption that it may take a generation or more for it to bounce back.