City of Detroit – Filies for bankruptcy protection

Posted: July 19, 2013 in Community
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Businesses file for Chapter 11 protection in the USA and CCCA protection in Canada all the time. Some successfully emerge from protection, others do not. Now we have the largest municipal filing in US history – Detroit. It’s decline has been continuous – since 2000 the population (ie tax base) has dropped 25%. At it’s peak in the 1950s, Detroit’s population was 1.8 million. The most recent census pegged the population at 700,000.

Detroit’s debt load is anywhere between $13-$20 billion.  The main concern is that the pension plans of municipal employees (that have been underfunded) will result in pension plans that will become insolvent.  Police, fire service and emergency responder costs have been slashed and the pathology on the community is evident: 300+ homicides a year and row upon row of boarded up businesses and homes.

There is a lesson here for municipalities all over North America. Your tax base is comprised of realty/business taxes and fees. Yet citizens demand all the services that can’t be afforded. The citizen can opt out – and move out. The City council has to deal with the mess that previous administrations have created. People place too little emphasis on municipal elections yet, this level of government is closest to us. In Canada, municipalities look for provincial support for infrastructure programs yet assume dangerous debt loads, and infrastructure maintenance costs as well as increased unionized labour costs. The notion that the costs that future generations of taxpayers will have to bear is pooh-poohed because “we are creating a great living environment.”

Stockton and San Bernardino California used Chapter 9 bankruptcy protection to stave off liquidation. Detroit’s mess will be year and years in cleansing.  It is ironic that companies (like Chrysler and GM) can get support but Detroit must go it alone.

There will be more to come…………………

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