For the past few days, people who previously hadn’t thought much about the city have been talking about Detroit and its request for Chapter 9 bankruptcy. But Detroit has been unable to keep up with its obligations for much longer than the past week, in ways that are just as detrimental to the welfare of its citizens as formal bankruptcy.
Traditionally, bankruptcies have involved cash and budgetary problems such as the infrastructure financing failures in Jefferson County, AL and Harrisburg, PA. Detroit adds to the list a new type of bankruptcy that involves more than just short-term problems. These new bankruptcies, such as those in Vallejo, CA and Central Falls, RI, involve the burdens of legacy costs and long-term structural issues.
Legacy costs: Paying for promises made in times of plenty
One result of the population and fiscal decline of struggling cities such as Detroit is the massive amount of liabilities left by previous administrations. These legacy costs, such as pensions and retiree health care, have not been traditionally monitored. In fact, retiree health care costs were not even required to be measured until 2007. Detroit’s unfunded retiree health care per capita was $6,965, and almost 50 percent of the city’s governmental debt is related to pension obligation certificates.
Service-level solvency: Providing crucial municipal services
It is difficult for a city to provide services when its population and revenue stream are half of what they once were. These new bankruptcies, therefore, also often involve service-level insolvency, or the inability of a city to provide basic services to its citizens. For years, the citizens of Detroit have had to deal with service-level insolvency in the form of high crime rates, long waits for emergency care and public safety personnel, and a lack of infrastructure that inhibits their ability to live their lives safely—things as basic as adequate street lighting.
This type of insolvency doesn’t always lead to bankruptcy, but it’s still a serious concern. A city that has balanced books but a high level of crime and inadequate education services is not a healthy city. For instance, the city of Flint, MI, had to shut down its jail in 2010 due to budgetary constraints – the same year that the number of murders in the city reached an all-time high. Police officers then had to issue tickets—rather than arrest warrants—for many offenses.
Why should we care?
Of course the ramifications of Detroit’s bankruptcy will reach beyond the borders of the city, but there are other reasons that we should care about the city’s financial well-being.
In 2011, in my role as an extension researcher with the State and Local Government Program at Michigan State University, I participated in a two-day workshop on the fiscal health of Flint. One of the attendees questioned why anyone should care about saving the city.
Another responded, “I’ll give you 100,000 reasons why – the people who are left in the city and cannot afford to leave.”
I’ll give you 700,000 reasons why we should start caring about Detroit. Maybe this bankruptcy is just the thing to make people take notice.