Detroit, Michigan — once the fourth-largest city in the United States and now 18th — was declared by a federal judge Tuesday to be eligible for bankruptcy. Known as the Motor City, its automobile industry once birthed the middle class; now it faces approximately $18 billion in debt, including $3.5 billion in pension obligations and $6 billion in health care costs.
Unions are big in Detroit, but they may not be big enough to stave off cuts to those pensions as the city figures out how to restructure itself. An average Detroit pensioner receives $19,000, which doesn’t leave much wiggle room for cuts. The problem here is not local. Detroit, rather, is seen as a test project for many other cities facing budget issues and the ongoing burden of pensions.
Another part of the plan to regain solvency could involve selling off assets such as public utilities and the Detroit Institute of Arts collection to private bidders, but that would raise only chump change in contrast with the city’s problems. Meanwhile, plans to build a nearly half-billion dollar hockey arena for the Detroit Red Wings, at the taxpayers’ expense, are going forward.
Detroit was already struggling financially when the 2008 recession struck a devastating blow to its housing market. At this point, about one third of the city’s 700,000 residents live in poverty, amidst insufficient services and record levels of violent crime.
However, most news outlets are not covering the role of state government in Detroit’s current situation.