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Detroit May File for Bankruptcy
Posted By Daniel Greenfield On May 13, 2013 @ 7:33 pm In The Point | 13 Comments
Obama bailed out GM and Chrysler, but from the looks of things, before too long he may have to bail out all of Motor City.
In a report to be presented to Michigan’s treasurer on Monday, Kevyn D. Orr, the emergency manager appointed in March to take over operations here, described long-term obligations of at least $15 billion, unsustainable cash flow shortages and miserably low credit ratings that make it difficult to borrow.
Detroit’s problem though is America’s problem.
“The City of Detroit continues to incur expenditures in excess of revenues despite cost reductions and proceeds from long‐term debt issuances,” Orr wrote. “In other words, Detroit spends more than it takes in – it is clearly insolvent on a cash flow basis.”
Detroit had only $64 million in cash on hand and current obligations of $226 million on April 26, 2013, a negative net cash position of $162 million, the report said.
Operating expenditures have exceeded revenues by about $100 million a year since 2008. Payments of Detroit’s long-term debt are eating up nearly 20 percent of Detroit’s budget.
And unfortunately, unlike Obama, Detroit can’t just print its own money. And even if it could, no one would take it.
The city also has $5.7 billion in unfunded retiree benefit obligations, more than previous estimates, the report found. To catch up on pension and health benefits to retirees, the city would need to spend $339 million, about a third of its fiscal 2013 revenues, Orr estimated.
All told, Detroit has liabilities totaling $9.4 billion in debts from special revenue bonds, revolving loans, pension obligations and other financial instruments.
So time to raise taxes on the rich? Right?
These large deficits are not for lack of taxes. According to a report released by the Office of Revenue Analysis of the Government of Washington, D.C., of the largest cities in each of the country’s 50 states, Detroit has the ninth-highest taxes.
Unfortunately while Detroit does have high taxes, only the rich pay them.
The News reviewed more than 200,000 pages of tax documents and found that 47 percent of the city’s taxable parcels are delinquent on their 2011 bills.
Delinquency is so pervasive that 77 blocks had only one owner who paid taxes last year.
Detroit relies on a shrinking sliver of businesses and neighborhoods to pay the bulk of the bills. The three casinos, General Motors Corp., DTE Energy, Chrysler Group LLC and Marathon Petroleum Corp. paid 19 percent of collected property taxes. Five city neighborhoods, most of them downtown and along the river, paid 15 percent of the city’s taxes and represent only 2 percent of the city’s total parcels. In all, only 41 percent of the city’s parcels produced tax revenues last year because of delinquencies and a large number of tax-exempt land
That means Detroit can’t afford much more flight, because the escapees are the remaining tax base. If GM and Chrysler had gone down, Detroit would have lost a huge chunk of its revenues. If a few stable neighborhoods empty out, the ripple effect would destroy Detroit.
Detroit is not salvageable with a population and government solution. Its government is too big for a population that is fleeing the city. Too much of its population does not work or does not pay taxes, but uses taxpayer services. This isn’t sustainable in the city. Or in the country.
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