Detroit, Michigan’s bankruptcy filing is causing fear that other major U.S. cities face a similar fate as they too are dealing with burdensome underfunded liabilities, such as retiree benefits.
Just months ago, Michigan Governor Rick Snyder brought in an emergency financial manager to examine Detroit’s dire financial situation. Four months later, that financial manager, Kevyn Orr, filed for a municipal 9 bankruptcy.
The New American’s Bob Adelmann summed up Detroit’s financial troubles:
The city has a cash shortfall of $162 million and is running a deficit this year alone of $368 million. It has already defaulted on a pension plan payment and has slashed services drastically. It takes police 58 minutes to respond to 9-1-1 calls, half the streetlights don’t work, trash often isn't picked up for days, the homicide rate is the highest in the country according to the FBI, unemployment is approaching one out of every five, and the population continues to shrink. At present nearly 40 cents of every dollar of revenue goes toward debt service and “legacy” costs (i.e., health and retirement benefits), and, if nothing is done, they will reach 65 cents in less than four years.
For some major cities in the United States, Detroit’s financial woes are all too familiar.
Last week, Chicago’s credit rating was downgraded by Moody’s Investors Service owing to its $19 billion in underfunded pension liabilities. According to Moody’s, the liabilities are “very large and growing” and warned that Chicago is facing “tremendous strain” in meeting future funding requirements.
And like Michigan, Illinois is in no position to bail out its struggling city. In fact, Illinois is facing its own $97 billion pension shortfall.
Detroit is not the only city to have filed for bankruptcy, but it is the first city of its size to be in such dire financial straits. The Detroit News reported, “Since 2010, 36 cities, counties and special districts — such as utility authorities — filed for bankruptcy, including Detroit, five other cities and two counties.”
The number of municipal bankruptcies has increased over the last few decades. Between 1970 and 2009, there were 54 municipal bankruptcies, including just four cities and counties, noted the Detroit News.
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Photo is of the former Packard automobile plant in Detroit