Everything Upworthy Gets Wrong About Detroit's Bankruptcy In Animated GIF Form
October 23rd, 2013, 7:40 AM
Upworthy, the self-righteous website that tries to be Buzzfeed's pretentious, goody-goody little sister, tried to tell the story of Detroit's Chapter 9 bankruptcy with an over-simplified narrative and cutesy animated GIFs on a section sponsored by the AFL-CIO, which kind of has a big stake in the city's bankruptcy. The GIFs we like. The narrative, not so much.
We decided to retell the bankruptcy story with GIFs in a way that uses facts instead of the wishful thinking of political activists. Here we go . . .
It didn’t really begin in July when state-appointed emergency manager Kevyn Orr filed for Chapter 9 municipal bankruptcy protection, but that’s when you probably started paying attention.
Of course, the largest municipal bankruptcy in American history doesn’t come about overnight.
So let’s go back some 50 years.
Beginning in the 1950s, the city’s population began to decline rapidly thanks to suburbanization. In 1950, the city had 1.8 million residents. By 2010, its middle-class tax base decimated, Detroit’s population was 713,777. Sprawl, right? I know.
After a comprehensive review of Detroit's fiscal history, the Detroit Free Press concluded:
"If Mayors Jerome Cavanagh and Roman Gribbs had cut the workforce in the 1960s and early 1970s as the population and property values dropped. If Mayor Dennis Archer hadn’t added more than 1,100 employees in the 1990s when the city was flush but still losing population. If [Kwame] Kilpatrick had shown more fiscal discipline and not launched a borrowing spree to cover operating expenses that continued into Mayor Dave Bing’s tenure. Over five decades, there were many ‘if only’ moments."
But Upworthy would have you believe Detroit's fiscal situation is a manufactured "shock doctrine" crisis created because Gov. Rick Snyder cut the city's revenue sharing payments -- a convenient political narrative that drives page views and helps progressive fund-raising campaigns. But it's bullshit.
The truth is Detroit's revenue sharing money was cut significantly. That began a full decade ago because the state revenue's declined, thanks to a shrinking state economy. Local revenue sharing was cut across the board, and not just for Detroit.
And while revenue sharing cuts expedited Detroit's financial crisis, it certainly didn't create the problem. Detroit has $18B in outstanding debt. By Upworthy's math, revenue sharing cuts cost Detroit $700M over the last ten years. City leaders only made the situation worse by attempting to block efforts to regionalize the costs of Detroit assets including, most recently, Cobo Hall and Belle Isle.
Upworthy also points to the huge tax expenditure to subsidize the new Red Wings arena as a sign of the state's hypocrisy. That deal is terrible. However, it's a plan largely crafted by the Detroit Economic Growth Corporation's George Jackson, de facto development chief under the last three mayors.
The Free Press, in their above-mentioned report, notes that city officials have been overly generous with tax expenditures:
"Decades of mismanagement added to Detroit’s fiscal woes. The city notoriously bungled multiple federal aid programs and overpaid outrageously to incentivize projects such as the Chrysler Jefferson North plant."
The hockey arena deal may be bad news for taxpayers, but it was expected regardless of who controlled Detroit's purse strings.
While we are on the subject of emergency managers, they are not little dictators in place to usurp democratic rule. The emergency manager/emergency financial manager thing has been around in Michigan for more than 20 years and they've been appointed by both Republican and Democratic governors. In 2011, a new law (Public Act 4) broadened EM powers. This happened after a court told Robert Bobb, appointed to manage the Detroit Public Schools under Democratic Gov. Jennifer Granholm, that the existing law didn't give him powers over academic policy. Last year, voters overturned PA 4. The state legislature then passed a newer, revised emergency manager law that gives EMs more power than the original law, known as Public Act 72, but isn't the overreach that was PA 4. As a Michigan voter, I cast a ballot against PA 4, but I am quite comfortable with the new rules.
Why? Because the state absolutely has the power to intervene when its local units of government are in financial disarray. The state is ultimately responsible for the debts created by local units of government and, under the U.S. Constitution as interpreted by a century-old Supreme Court precedent, local governments are not autonomous city-states. They are subservient agents of the democratically elected, constitutionally organized state government.
Yes, bankruptcy likely means city workers and retirees may feel a swift kick their nuggets as pay, benefits and pensions could be cut.
But current and former city employees are not entirely blameless for their predicament. Unions agreed to multimillion dollar deferrals of city pension fund contributions, even though there was never any plausible reason to believe the city's fiscal outlook would improve enough to ever repay these obligations. Also, the pension boards that were supposed to responsibly manage investments on behalf of employees often dumped cash into dubious schemes like a failed Alabama airline (pension funds repaid pennies on the dollar) or downtown hotel developments with smoke-and-mirror financing (pension funds are still owed millions). Worse, with the support of AFSCME, Mayor Kwame Kilpatrick and City Council approved a complex $1.44 billion dollar deal with Wall Street to finance pension debt in 2005. The arrangement has left Detroit with a $2.8 billion obligation plus interest and insurance. That deal was like attaching an anvil to a drowning man's leg.
That said, it actually remains an open question whether pension benefits can be legally cut because they are supposedly protected by the state Constitution. At this point in the adversarial process that is our legal system, it's really up to the retirees and their unions to present a solid legal case that pensions should be protected.
Meanwhile, and this is important, Kevyn Orr has also made it clear he intends to give Wall Street investors a massive haircut. For years investors bought Detroit's junk bonds because they assumed someone would bail out Detroit when the city's reckless borrowing and Wall Street's reckless investing reached a breaking point.
In truth, there are lot of problems -- this Barclay's loan proposal is a giant turd sandwich, for example -- with Detroit's bankruptcy. That's to be expected when something this big and unprecedented happens. Everyone should be vigilant about the process to ensure it is as effective as possible. It's also true that a lot of people will feel some pain as the city restructures its books.
But a lot of people, from rank-and-file union members to mayors to civic leaders to regional and state officials, acted badly and ignored manageable problems as they grew into an unprecedented financial quagmire. This bankruptcy, while tragic, isn't the product of an elaborate conspiracy. It's the inevitable result of a half-century of head-in-the-sand ignorance of a coming financial storm.
Don't let some smug, twee website tell you otherwise.