My City Was Pawned
Line up, everybody! It’s time for the Tough Lessons America Must Learn from the bankruptcy of Detroit. Please consult your center-right policy hymnal for the talking points.
Or, you know, pick up the August 5 issue of Time magazine, where the cover story on Motor City’s economic collapse earnestly sets out to explain “how Detroit’s epic bankruptcy can help the rest of the country.” It is, as writer Rana Faroohar sagely explains, a sad, and all too typical, case study in raging public debt. And don’t think because you may not happen to live in Detroit that you’re immune! In the deranged world of runaway liberal economic policy, our cities have become miniature dysfunctional People’s Republics unto themselves.
Behold Faroohar’s chilling testimony:
Though nearly everyone agrees that Detroit is in particularly bad shape, many of its underlying issues — crushing debt and unfunded and unsustainable retiree benefits — are not unique. And those legacy costs are at the heart of what many experts believe is a coming municipal-finance crisis in the U.S.
Scary, right? Why, it’s almost like that campfire story that the austerity-drunk American right keeps telling us about Greece–that feckless welfare state that merrily spent itself into fiscal oblivion. Except, you know, that Greece was its own sovereign economy that, egged on by the global explosion in securitized debt, concealed the true scope of its debt obligations, kept digging itself deeper in the vain hope that everything would be forgiven and forgotten by the nation’s entry into the Eurozone. And Detroit is an American city, despoiled by decades of deindustrialization, local political corruption, and capital flight. To conflate the two cases is pretty much like assessing the same tax liability on a high-flying bond trader and a fixed-income retiree.
Which, as it happens, is pretty much exactly how Detroit’s outstanding $18 billion in debt breaks down. Roughly half that sum is pledged to the city’s corps of retiring municipal workers–who, despite the drive-by characterizations of Faroohar and other chin-stroking austerians, works out to an average annual outlay of $19,000 per worker: hardly a lavish sum, particularly for workers who (as is almost never mentioned in these alarmist accounts) have paid money into the retirement system throughout their working lives.
The other half of the city’s debt belongs to bond traders–who, as Mark Binelli reports in the UK Guardian, are being tendered an initial, and unusually tough, redemption plan of 10 cents on the dollar. The terms of the Detroit bankruptcy are going to be litigation fodder for many years to come, but it seems unlikely that the investment class that’s been speculating for so long on Detroit’s public debt will face any austerity measures of their own. That’s just not how they weather financial embarrassments, as the long, ongoing history of our nation’s bailed-out financial sector shows in distressing detail.
So Time–which shamefully, is pretty much the nation’s only national newsweekly left standing–proceeds to recite the standard litany of neoliberal plans to gut the public sector as a model for Detroit in its great moment of reckoning. Why, just look at all the innovation on offer in Rahm Emanuel’s Chicago. That city of once-broad shoulders is now “at the forefront of some of the country’s most innovative experiments in educational reform [and] . . .public-private partnerships.” And get a load of the leaders of Providence, R.I., who’ve been busy “crafting compromises with public employees to resolve long-term liabilities.” Or Miami, which is savvily “funding infrastructure with private consortiums instead of public debt.”
Of course, nearly all of these ballyhooed breakthroughs in municipal financing boil down to two of the oldest tricks in the austerity playbook: pension-looting and union-busting. The bit about Chicago’s “innovative experiments in educational reform,” is especially rich, given Emanuel’s punitive assaults on the city’s teachers unions. And as for the rigidly test-based model of education reform that Chicago has embraced, well, this Baffler correspondent has already seen its prototype implemented here in Washington, DC, under the unmourned regime of corporate hacktivist Michelle Rhee, and about the only concrete “innovative” results that can be chalked up to it are a long, and growing, legacy of fraudulent test scores.
As for Miami’s ambitious private-public infrastructure campaign, this is one municipality where the corruptionism of the private sector easily rivals the worst excesses of Detroit’s political class. Just consider, as one of the most bloated recent cases in point, plans for the city’s fancy new billion-dollar convention center, which basically blew up last year amid an orgy of bid-rigging. Meanwhile, former Miami Beach Commission manager George Lopez was arrested on unrelated racketeering and big-rigging charges dating back to 2005; he and one outside consultant-cum-crony are alleged to have fielded more than $500,000 in kickbacks from 16 different companies. That’s public-private partnership, all right, but not the sort that makes one sanguine about how the city’s brave new “private consortiums” will go about doing business. That pretty much leaves Providence, in Faroohar’s litany of forward-thinking neoliberal innovation–and for a sobering look at the sort of “long-term liabilities” now being ironed out in the city and state’s fiscal picture, just recall the sorry tale of Curt Schilling’s great state-funded videogame fiasco.
For that matter, look at Detroit’s own big-ticket plans for economic revival. Awkwardly, just ahead of its plunge into bankruptcy, Detroit was finalizing plans to build a $440 million new stadium for its NHL franchise, the Red Wings. Two-thirds of the bond issue for the project–$283 million–comes from Michigan taxpayers, in the great tradition of the pro stadium boondoggle. Optimistic revenue assessments that the new stadium and its high-end environs could bring around $1 billion to cash-starved Detroit. But that’s over the 30-year lifespan of the bond–and the track record of public-funded stadiums in spurring urban economic growth is not exactly inspiring. (The most recent admonitory debacle comes from–wait for it–Miami, which forked over a cool $500 million for a new stadium for the Florida Marlins major league baseball franchise, only to see those costs balloon to $2.4 billion over the 40-year course of the bond deal, thanks to exorbitant interest rates locked in at the time of the bond issue.)
But Detroit is plunging on with the great hockey pavilion–and a $1 billion plan for a new mixed-use soccer stadium, just for good measure. Who knows? Maybe one stadium or another will end up hosting a gladiatorial competition of retired public employees, battling for the deeds to a foreclosed block of single-family homes. With apologies to Suzanne Collins, you could call them the Bond-trader Games.