Sunday, July 21, 2013

Detroit Bankruptcy: What will Happen Next and Why I'm Worried

Now that Bankruptcy has been declared, Detroit can expect to face what other cities that have declared bankruptcy have experienced.

With bankruptcy, Detroit still has the obligation to attempt to get its fiscal house in order. They still have to balance their budget. They still have to settle the claims of their creditors/claimants. They still have to pay their legal bills. They have to deal with their “Unfunded Liabilities.” Read this to mean Pensions of City Workers.
Expect that Taxes will be raised, not only in Detroit, but across the State, to fund this Bankruptcy.

Bankruptcy protection will bring all parties to the table. This includes Vendors, Claimants, Bankers, City Contractors and Employee Organizations/Unions – for both active City Workers and City Retirees. Hearings will be held presided by an independent third party – a Bankruptcy Judge.  
These groups come to agreement on actions to be taken. Most often, this means:

1.    Determining amounts to be paid to creditors/vendors/bankers
2.    Cutting Pensions
3.    Cutting Services, Layoffs
Bankruptcy results in cutting services. The first thing to go is City Services, Waste Management, shutting down of Maintenance, then the closing of Police and Fire Stations and Shutting down Schools. With these closures, expect massive layoffs for City Workers and Contractors. Paychecks and benefits will be cut. Additionally expect that Retiree Pensions will be Cut/Vastly Reduced.
Roads do not get paved and deteriorate. The city’s capital equipment deteriorates, vehicles break down and are not replaced.

Today, on Meet the Press, Michigan’s Republican Governor, Rick Snyder confirmed all of these next steps. He also said there are 20,000 retirees dependent on Pensions. A portion of their Pensions are unfunded. This is the portion that will be in jeopardy. That is why it is important their representatives are at the Bankruptcy Table.
Snyder said they will look for immediate “Tangible” areas to improve. The first on his list “Blight Removal.”

Following Governor Snyder’s interview, former Governor Jennifer Granholm was interviewed. She did not agree with Snyder. She said what Detroit needs is Jobs. There needs to be a local and National strategy to revive Manufacturing jobs in Detroit and in America. We need Good Middle Class Jobs HERE.
The interviewer asked them both – WHY did Detroit go Bankrupt? Snyder was quick to blame the previous 50 years of (Democratic) Mayors and other State Politicians.
They both said the “Culture of Cronyism” was a factor. Granholm said we bailed out Wall Street and Banks, but we failed to invest in keeping Manufacturing jobs in America, in the urban areas. We have a collapse of the Middle Class. The rich were not impacted. The rich are getting richer and the middle class is becoming poorer. There is a Class Divide and a Race Divide.
As I listened to their interviews, I couldn’t help but think about Ed’s words about Detroit. His first-hand view of the Detroit neighborhood provided the same feedback as I heard on Meet the Press.

1.    Jobs were Gone
2.    Neighborhoods were Decimated
3.    Cronyism was Rampant
4.    Local Business and Local Looters have NO PRIDE in the City

In studying Snyder’s “Blight Removal” strategy, it turns out, this strategy has been in place for a few months now. There is a non-profit group called “Detroit Blight Authority” headed by Bill Pulty IV of Pulte Homes that is clearing areas of the city. This project is supported by Mayor Dave Bing and Governor Snyder. Snyder said this was "bi-partisan" probably because Bing is a Democrat, but I worry about the possible continued cronyism.

I am worried about Detroit.

With this bankruptcy, there will be massive layoffs, the end to the pensions of desperate seniors, more businesses closing, massive foreclosures, more blight across the city and Governor Snyder’s BIG PLAN is “Blight Removal.” In a way, this program reminds me of what ultimately happened to New Orleans after Katrina.

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