A quarterly magazine of urban affairs, published by the Manhattan Institute, edited by Brian C. Anderson.
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What New York Should Learn from Detroit « Back to Story
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Of course there is the simple, unspoken solution to Detroit's problems. All city workers, current and retired, must live within the city to collect their retirement checks and wages. As it is, a vast portion of Detroit's retirement benefits go to Florida Cities and Detroit suburbs. Medical care under benefits packages, must be dispensed within the city limits. Make those that benefit from unfair pensions and benefits, reside in the hell-hole their excess has created, and pay the taxes their pensions and benefits require. You either cut costs, or increase revenue. Win win.
Detroit is unique, it’s not like New York City or Chicago or Los Angeles – that plaintive cry immediately went up from the Democrat’s various media houses. And they’re right because bankruptcy won’t save Detroit, it is truly a doomed city in that respect. Assume, by the proposed deadline in 2014, Detroit files a bankruptcy plan with the court. Does that mean: “Whew, the problem has been successfully solved”? Voter illiteracy will remain among the highest within our nation’s cities, unemployment will stubbornly remain at a record high, new businesses will stay out of Detroit in droves and the property tax base will remain absurdly low with many Detroit homes remaining unsold even with an attractive sale price of $100.00. How does bankruptcy save Detroit when nothing will actually change?
Since we can’t respond to that long term question, we’ll focus on the immediate instead and bicker over the proposed sale of valuable art. Certainly auction off the art, Detroiters much prefer their now famous graffiti park when it comes to art appreciation – an enviable collection of Rembrandt masterpieces holds little personal interest for Detroiters. But then today’s Detroit residents didn’t buy the DIA’s valuable art - as usual, someone from the city’s past gave it to them free of charge.
And sell Belle Isle to someone who will develop it and maintain its faded but existing attractions – Detroit’s residents are the only ones who will benefit from such a sale due to the island’s location – another freebie for the city’s lifelong panhandlers to enjoy. But put the mayor’s mansion up for auction as well, the mayor can live in the City-County building once the state’s taxpayers refurbish it to his taste. And that pretty much closes the book on Detroit’s marketable assets, the city doesn’t have much more of worth to peddle.
What Detroit does possess in abundance is its traditional union philosophy. Mysterious and unknown forces are, as usual, conspiring to deny city retirees and existing municipal union members something they deserve, something they sweated for and is theirs by right. Is that fair? Is that equitable? And if we helped the UAW’s retirees shouldn’t we also help the municipal workers with their pension and wage demands?
Unfortunately, Detroit’s rich heritage of union related beliefs and concepts can’t be put on the auction block, no one wants to buy the moribund ideas, the myopic self-interest or the unreasoning demands – pity that because those ideas seem to be the only assets which will never run out within Detroit.
"'They basically let us know that the collection was not off the table,' said museum director Graham Beal."
US taxpayers should not be asked to bail out Detroit when they have an art collecton that would pay for their debt. If I owned such a collection and declared bankruptcy, you better believe that art would be on the table.
The politicians that helped arrange or supported unrealistic retirement and medical plans should be held responsible for the disasters they have created in our Cities and our National Government. Socialism, which is, according to Marx, an intermediate step between Capitalism and Communism, DOES NOT WORK AND NEVER WILL WORK. Detroit is what Obama is successfully doing to our Nation.
Solid, no-bull appraisal of the financial situation for Detroit and NYC. Beautifully written, as always.
One should note that the Republicans and that includes Giuliani and Bloomberg, did not a whit better than Democrats at meeting pension obligations or providing balanced budgets.
The evidence is here:
The Comptroller web site provides links to years of these financial reports. His front page has the archive links from 2001 to 2011.
Missing is the ratio of property values -- the tax base. It's property value ratio, not the income ratio. How much is Detroit worth and how much is NYC worth at market value?
Gee, what about Detroit ????? Selling the whole city lock-stock-and-barrel is not going to repair the mess. What is left of Detroit is post-apocalypse for half the neighborhoods and the realatively tiny Renaissance Center for the 1%.
DETROIT HAS A $ MULTI-BILLION COLLECTION OF ART THAT CAN BE SOLD . . . THE CITY CAN AFFORD TO PAY ITS DEBTS.
Detroit owns 60,000 works of art valued in the BILLIONS, the city can afford to pay its debts. I am certain that Sothebys could liquidate this collection quite readily over the next two years, freeing up billions to meet municipal debt obligations.
Public pension benefits are part of a worker's earnings (deferred pension compensation.)
Bonds are investments. The possibility of default is assumed by an investor in bonds, and the investor is compensated through the receipt of interest (coupon payments on the bonds.) These are two very different things. The Contract Clause of the U.S. Constitution requires payment of earned employee compensation when the employee has performed under the contract.
"'They basically let us know that the collection was not off the table,' said museum director Graham Beal."
"Nowling conceded that while the city has not made any plans to sell assets, 'it is possible that
the city's creditors could demand the city use its assets to settle its debts.' Beal maintains that DIA's collection is among the top six in the Western Hemisphere. While he could not specify a value, Beal said it would likely be in the billions of dollars."
"Laura Bartell, a bankruptcy law professor at Wayne State University in Detroit, said she
believes Orr is just doing his job and that it would be irresponsible for him not to consider what assets Detroit has and what they are worth. 'I don't think anyone argues that Detroit
does not have the legal authority to sell something that Detroit owns. It's a question of whether Detroit will -- and if Detroit should,' said Bartell."
"Gov. Snyder has been working with Orr to try to ward off the city's bankruptcy and the sale of
the DIA's art. However, Snyder admitted that he is not legally empowered to declare the collection hands-off."
DIA Museum Counsel:
"'Chapter 9 of the federal bankruptcy code is different than most people realize. Under Chapter 9, state law cannot be overriden,' Pirich said."
(My comment: Of course, the Michigan State Constitution, state law I presume, deems public pension contractual rights inviolate.)
"There's not a lot of previous case law that tells us what's going to happen here," said Paul Secunda, a Marquette University law professor who specializes in labor and benefits issues.
"It's not just an issue of bankruptcy law and pension law, it's also an issue of federalism," Secunda said. "Can a federal bankruptcy court basically ignore a state constitutional provision and allow a city like Detroit to ignore its previous promises concerning public employee pensions?"
"It's essentially similar to salary - you just don't reach inside somebody's savings account and take their pay back, nor should you reach inside their pension and deny them their pension benefits," said Steve Kreisberg, director of collective bargaining and pensions for the American Federation of State, County and Municipal Employees.
"If the city declares bankruptcy, the state-appointed emergency manager, Kevyn Orr, can sell off its assets to repay creditors—and artworks housed in the 128-year-old museum are not exempt. The city’s debt about equals the worth of the museum’s holdings."
"Senate Majority Leader Randy Richardville recently introduced a bill that would protect the museum’s collection from being sold off during bankruptcy proceedings. Even if that legislation passes, it may not help the museum: Federal bankruptcy laws tend to trump state laws in
"A Metro Detroit bankruptcy expert already has indicated Schuette’s opinion may be for naught.
'Federal law trumps state law' in a Chapter 9 municipal bankruptcy, said Douglas Bernstein, a bankruptcy attorney at the Plunkett Cooney law firm in Bloomfield Hills, so DIA art would not be protected from sale to satisfy creditors."
Earned, accrued, contracted public pension benefits (deferred compensation for work performed over decades) are also “treasured assets,” property protected by the Takings Clause. Works of art are relatively liquid assets of the city, and may very well be used to meet municipal debt obligations. The art could be sold to other public institutions where it would continue to be available to the public. Even if the art were to be sold to private individuals, much of it will eventually return to public institutions in coming decades.
Detroit's pensioners should not to forced to surrender contracted benefits earned over a lifetime in order that elite Detroit art lovers may more easily engage in their hobby.
Support public pension contractual rights and the rule of law in the USA. Contribute at saveperacola.com, Friend Save Pera Cola on Facebook!
It is a basic corruption of government that a politician can create obligatons that will endure far beyond the end of that politician's term of office.
The consequence is, a corrupt politician will create new obligations to obtain political support, but those who follow can only refrain from adding still more.
The result is the familiar ratchet by which government employee benefits can increase, but never decrease. Perhaps (state) constitutional amendments are necessary to prevent corrupt politicians from creating binding obligations that will exist beyond these politicians' terms of office?
Interesting article. One wonders about Detroit - what, after all IS a city? It is a place where people gather to do business, City's are centers of commerce, the marketplace where people come together to buy and sell. It's why cities are located in centralized locations, near centers of transportation or on the confluence of rivers, or in places that have good harbors. The highway moves, the railroad stops serving a line, some other location ends up being better, the city dies.
The idea that a city can die due to the mismanagement of its fiscal house which in turn is due to insatiable demands from government workers is a modern phenomena. So is the idea that a city can demand more from its surrounding areas, than it gives, which is what has happened in many cities in my state, New Jersey,
The warning in this article will not be heeded, since the forces that are arrayed against getting New York's fiscal house in order are too well organized, too ideologically driven and too short sighted. A public union's ability to use taxpayer money to donate to political candidates is what is at issue, and no one is even discussing ending this corrupting practice. Democrats rely far too much on campaign contributions from government unions to ever turn off the money spigot. Democratic control over the media means that this corrution never even gets mentioned - in fact, there's never been a proposal that I'm aware of to end this practice. (are there any dying cities under Republican control?).
Politically, Democrats have nothing to gain by prosperity, the Party does much better when the people remain poor. Giuliani's 1993 election was a fluke, and a near thing at that - even with the city on the edge of a cliff, Dinkins came close to being re-elected. When the choice is Democrat or Democrat, what hope can there be of saving the New York City? (It's not as if Republicans have ever found a way to be competitive, since the media is arrayed against them, among other things).
The election of a Democrat means that it is inevitable that bad times come back to New York City - we are at the end of the City's 20 golden years that started with the Giuliani's election. The ancient historian Cassius Dio put it best - when the death of Marcus Aurelius led to the rule by his corrupt, inept son, Commodus, Dio said that the Rome went from a golden age to one of iron and rust.
We are all about to learn, as the Romans did, that good governance matters.
Sultan Knish points out that Detroit lost its reason for being--the car-producer of the world. Now, why would people live there?
"Detroit is the urban endgame. Its Motown cultural capital wasn't enough to keep it going the way that the cultural capital of New York's literary industries or Los Angeles' moviemaking industries have been. But those too will run out. The publishing world is collapsing and the movie industry is becoming a multinational monstrosity. A few dot coms churning out apps and IPOs while working off Chinese manufactured gadgets will not be enough to save the city.
"There was a time when GM had 700,000 employees. Facebook has 3,000 employees. Google has 40,000. The 1 percenter twenty-somethings opening campuses with catered Thai food and coolers full of energy drinks are a nice employment appetizer for a city, but with few exceptions, not an industry."
Contrary to what agwisreal wrote below, the problem is not with defined benefit plans. Ohio has a number of defined benefit plans in which both the employee and the employer (state, local, school district, etc.) contribute each payday. The contributed moneys go into different retirement systems that are then in charge of delivering the defined pensions. By law, the Ohio systems recently had to modify their regulations, contributions, eligibility rules, etc. to remain viable over a 30 yr period.
The problem in Detroit and elsewhere is that the governmental unit either does not contribute real money, is in charge of the system so can remove money, or collaborates with the employees' agent (union) to postpone the contribution.
Defined benefit plans work very well when they are well run and removed from political and union control.
As a general rule, cities, states, and corporations should not be allowed to incur pension obligations of any sort. Instead, pensions should all be of the defined-contribution variety: the entity paying the worker puts an agreed sum of money into an account owned and directed by the worker, subject to some limitations on the nature of the investments he/she can choose from. (No Nigerian lottery mutual funds, please!)
That way, there can be no games with pensions. The worker may do very nicely, or so-so, or may take a real haircut with his/her investments, but there will be safe options and none of the options will amount to swinging for the fences. The city or other entity will be able to see its costs up front. And so will the voters or stockholders.
Wages were falling the 2000's, but workers/ people were encouraged to keep on spending. The banks reacted to de-regulation and lent more, house prices rose and the people borrowed and spent more.
Profit margins on firms declined, they laid staff off or reduced hours, no issue borrow against the house or on credit card, there always seemed to be a interest free six months from one.
The party ended, now we are faced with a 1930's recession or keep pumping in money.
There is no way we can pay this level of debt make, we default or we inflate - not right, but they are the options - moralists and Neo-liberals get over it.
As a post scripe I don't have debt and think non payment is wrong, but can you see the US or Greece having austerity for 30 years to repay?