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Watchdog: Follow the Money

Top 10 reasons Detroit went bankrupt

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Photo - Like the city it once helped define, Detroit's once stately Grande Ballroom has fallen on hard times. (Wikimedia Commons photo)
Like the city it once helped define, Detroit's once stately Grande Ballroom has fallen on hard times. (Wikimedia Commons photo)
Watchdog,Governor,Detroit,Federal Bailouts,Waste and Fraud,Follow the Money,Detroit Bankruptcy

Detroit declared Chapter 9 bankruptcy July 17, making it the largest city in American history to enter the municipal bankruptcy process.

A local judge ruled that filing unconstitutional July 19, but, as the city sorts out its next move, here are 10 key facts about the causes of Detroit's financial mess.

1. The population has collapsed in the past six decades.

Detroit was America's fourth-largest city in 1950, when it had 1.8 million people. In the 2010 census, the city had fewer than 702,000 residents -- an astonishing decline of 60 percent in 60 years.

Yes, fewer people means a smaller tax base, but the real problem is the city's government did not shrink along with the population -- more on that in a bit.

2. Detroit has the highest unemployment rate of any major city in the nation.

This is both a cause and an effect of the population situation. Detroit is caught in a vicious cycle. There are few jobs, so people leave to find work elsewhere. Meanwhile, the high cost of the city's government (more on that in a second) drives employers away and makes other less willing to relocate there. That means fewer jobs, which further erodes the tax base and causes more people to leave the city.

3. Detroit has $18 billion - yes, billion -- in general-obligation debt.

That's a lot more than some of the other high-profile municipal bankruptcy cases in recent years. When Central Falls, R.I., declared bankruptcy in 2011, it had only about $80 million in debt. Jefferson County, Ala., had about $4 billion in debt when it declared Chapter 9 bankruptcy that same year.

"Detroit has been working its way to a level of insolvency for decades. We cannot continue to carry this level of debt," Kevyn Orr, the city's state-appointed emergency manager, tweeted on July 17.

4. A lot of that debt is the result of public employee pensions.

According to Moody's, Detroit has about $3 billion in unfunded pension liabilities. But Orr says those numbers are understated. And it didn't take long for the pension funds to sue the city in an attempt to stop the bankruptcy proceedings.

5. Why is the city buried in pension costs? Because it has too many public workers.

Though Detroit's population has caved in the past several decades, the public sector just keeps on growing. In 2011, the city had more than 12,000 employees -- more than any other comparably sized city in the country, according to an analysis from The Detroit News.

That works out to one public employee for every 55 residents of the city. By comparison, nearby (and financially much better-off) Indianapolis has one city worker for every 115 residents.

6. And the guys running the pension funds aren't exactly helping.

In April, Reuters reported that four of the men charged with running the city's broke pension funds were on an all-expenses-paid trip to Hawaii for a conference. The final tab was $22,000.

The heads of the pension funds said the trip was for work, not play. But Orr's spokesman said they shouldn't have gone, anyway.

"It especially doesn't look good when you have city employees, police, firefighters having taken pay cuts," said Bill Nowling, spokesman for Orr. "Middle-class, blue-collar workers, their dream vacation when they retire may be a two-week trip to Hawaii -- they don't associate Hawaii with a place you go to work."

7. But they are hardly the only corrupt public employees in town.

Former mayor Kwame Kilpatrick, a Democrat, was convicted in March on 24 federal felony offenses, including mail fraud, wire fraud, tax evasion, racketeering and extortion. Prosecutors said he doled out jobs to friends and family, wasted city tax dollars on fraudulent contracts and pocketed more than $1 million in illegal kickbacks.

He previously had pleaded guilty to charges of obstruction of justice in a criminal investigation in 2008.

8. Basic city services are nonexistent.

In his letter authorizing the city to enter Chapter 9 bankruptcy, Michigan Gov. Rick Snyder, a Republican, pointed to some amazing statistics.

"Only a third of the city's ambulances were in service in the first quarter of 2013. Similarly, approximately 40 percent of the city's street lights were not functioning in that quarter, and the backlog of complaints is more than 3,300 long," he wrote.

9. Crime is up and the police have no way to respond.

While much of the city's financial trouble is due to the public pension it must pay to retired teachers, city employees, cops and firefighters, that leaves little money on the table to pay actual cops to keep actual people safe in Detroit.

The average response time for an emergency call was 58 minutes, according to Snyder's letter, compared to a national average of 11 minutes.And only 8.7 percent of crimes in the city are solved, compared to a statewide average of 30.5 percent in Michigan.

10. There are 78,000 abandoned buildings in Detroit.

This is a result of all of the above. Fewer people, fewer jobs, less economic activity and tons of crime have created a city-sized collection of abandoned buildings. We only had room for a few photographs here, but Snyder says there are 78,000 such structures in Detroit.

Snyder described the bankruptcy filing as a low point in the city's long history of decline.

"I think it will also be a foundation of the city's future," he said. "With this decision, we begin to provide a foundation to rebuild and grow Detroit."

They've got a long way to go.

Eric Boehm is a reporter for Watchdog.org, which is affiliated with the Franklin Center for Government and Public Integrity.

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