Detroit Goes Bankrupt?

Detroit jpeg

Detroit filed for bankruptcy.  City planners received this news with shock and dismay, like the death of an ailing uncle, the conversations around the water coolers made it sound like the City was living on borrowed time. But the big question is why? Why Detroit, which in the 1950’s was the nation’s fourth largest city, with a population of 1.8 million, was allowed to slide into this sad state of affairs, and where it had to seek Court’s protection to ward off the debtors?

Kevyn Orr, the Governor-appointed emergency manager for Detroit, issued a report to the City’s creditors. It described the present state of Detroit. The city was  run into ground, billions of dollars in debt and limited sources of revenue.  It was physically blighted, and overburdened with a sprawling and unsustainable infrastructure. And the demographic shift of the city’s wealthier classes leaving for the suburbs was the City’s death-blow. Some stark facts about Detroit’s financial troubles are sobering to city managers and planners: 

  • The City is burdened with $18.5 billion of debt
  • 18.6% of the City’s residents are unemployed
  • Detroit’s per capita income has declined to an abysmal $15,261/year, as compared to Michigan as whole with $37,497/year, and national income of $42,673/year
  • Real state tax revenues declined by 20% 
  • Income tax revenue also declined by 30%
  • Utility User’s and Excise Tax declined by 28%
  • On top of that, the City lost more than half of its population. It went from being the country’s fourth largest city in 1950, with a population of 1.8 million, to only 700,000 in 2012
  • There are 66,000 vacant lots in the city, and another 78,000 properties abandoned
  • Out of 88,000 street lights only 35,200, or 40%, are in operating order.

Now the question arises: how were things allowed to go this far? Of course there is no simple answer; the period of decline stretches over half a century and the reasons are complicated and interrelated. But one thing is obvious: the city administrators, state officials, and corporate leaders failed to arrest these obvious trends that were leading the city down to this path.  

Detroit was not the only Rust Belt city to suffer from the decline of industry.  However, the loss of manufacturing jobs was acute for Detroit, especially in the absence of other industries such as banking or education to fill the gaps, like they did in Pittsburgh or New York City. Urban sprawl was partially to blame as well; spurred by the National Highway Plan, which allowed city dwellers to move out of their downtowns to neighboring counties, allowing the businesses and services to follow. At times, our national housing policy also worked at cross purposes. While city after city embarked on Urban Renewal Plans, building housing for the urban working-poor, it also facilitated the departure of the middle-classes to the suburbs by providing them with FHA subsidized home loans. Urban sprawl was also influenced by the unique American phenomenon of considering cities as place of sin and squalor, and encouraged people to own a piece of grassy front yard in the supposedly-unlimited open spaces beyond the city limits.

There were many complex economical and social reasons for the decline of industrial cities in North America, but another question must be asked: did race play any part in the neglect shown to Detroit that allowed it to go bankrupt? 

People often compare Detroit with Pittsburgh; another rust-belt city that was able to pull through, even with a similar loss of industrial jobs.  The comparison is suggestive: Detroit’s population is overwhelmingly African-American (comprising 82.7%), while Pittsburgh only had about a quarter (26.1%) of its population comprised of African Americans (US Census figures for 2010).  Also, Detroit’s leadership was predominantly African American while Pittsburgh’s was Caucasian.  Do the different outcomes for Detroit and Pittsburgh represent a willingness of state and federal government, as well as businesses, to support and invest in one case and not in the other? Was this based on racial makeup, or the willingness or ability of the local population to take action in the one case and not in the other?

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3 Comments on “Detroit Goes Bankrupt?”

  1. David-Kevin September 9, 2013 at 6:37 pm #

    Syed, You have written another excellent article. Not to oversimplify the problem w/ Detroit but here it is :

    1.) Middle and upper management in the Big Three moved to the suburbs.

    2.) When they were performing well, the subsequent wealth followed to the areas outside the city.

    3.) Massive layoffs eventually hit middle management and factory employees.

    4.) Upper management continued to thrive, ironically, in the suburbs while the city, where a large number of factory employees lived, subsequently collapsed.

    5.) Back in the 80’s, when Chrysler came back to live, it didn’t occur to anyone the city needed to diversify the way Pittsburgh did.

    6.) That city offered major incentives to Med / Pharmaceutical / Research companies which moved to the city in droves. Its young population, upon earning their college degrees, had job opportunities there and found no reason to leave Western PA.

    Like

  2. Syed S. Ahmed September 10, 2013 at 12:35 pm #

    Thanks David. I agree with your observations.
    Syed

    Like

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