It is hard to imagine now, but Detroit was once known to some as the Paris of the West. At its peak, it was one of America’s largest cities, boasting a population of 2 million, spectacular architecture, a host of mansion-dwelling industrialists and a world-class art collection currently valued at over 4.6 billion dollars. Yet after decades of decline, the city that gave birth to Motown Records and Henry Ford’s Model T filed for bankruptcy last July; it was the largest municipal bankruptcy case in American history.
The simplest explanation for Detroit’s decline in both population—the city has lost about 1.3 million residents since the 1950s—and revenue is the American auto industry’s inability to respond effectively to German and Japanese competition during the post-World War II era. The collapse of General Motors, Ford and Chrysler effectively broke the backbone of Detroit’s economy. Motown has lost 90 percent of its manufacturing jobs, and nothing has replaced them.
Detroit has also had more than its fair share of social problems over the years—race riots, corrupt labor unions and the highest violent crime rate of any major American city. But at the heart of the city’s record setting 18.5 billion dollar debt is its government, which owes at least 9 billion in unfunded healthcare and pension liabilities.
Since at least 1985, the City Council raided the city’s pension fund—even as the auto industry continued to struggle and the city lost residents—writing extra “bonus” checks to city employees and retirees instead of reinvesting the earnings. The pension fund lost at least 2 billion dollars this way, which not only prevented reinvestment but also launched the city down the road to insolvency.
As the Detroit Free Press explained last year in its feature article “How Detroit Went Broke”:
Instead [of making politically and economically tough decisions], amid a huge exodus of residents, plummeting tax revenues and skyrocketing home abandonment, Detroit’s leaders engaged in a billion-dollar borrowing binge, created new taxes and failed to cut expenses when they needed to. Simultaneously, they gifted workers and retirees with generous bonuses. And under pressure from unions and, sometimes, arbitrators, they failed to cut health care benefits — saddling the city with staggering costs that today threaten the safety and quality of life of people who live here.
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Harry R. Jackson Jr.