Should We Bailout the City of Detroit?

Joann Watson - Detroit Council Member

JoAnn Watson,
Detroit Council Member

 

 

Detroit, MI — According to its Secretary of State, Michigan cast 54.2 percent of its 4.7 million votes for Barack Obama in the 2012 presidential election. Wayne County, where the city of Detroit is located, favored Obama with 73 percent of its votes. And now, one Detroit official wants her city and The White House to remember it.

In a Tuesday Council session, Council Member JoAnn Watson cited overwhelming African American support of Obama merits a quid pro quo return of “bacon” today in the same way former Mayor Coleman Young returned financial resources to Detroit during the Clinton presidency. Detroit is cash strapped with only $3 million in its treasury, without a viable option to re-direct its ominous future.

Watson’s choice of words conjures up images of government waste and rare political transparency in others. Aside from her language choices, arguments can be made for and against Detroit Mayor moving in the direction of seeking help from Washington.

PROS:

The merits of Watson’s suggestion include:

  • The idea of Detroit filing for bankruptcy is by no means an anomaly. According to GlobalResearch, 42 municipalities have filed for bankruptcy protection since 1981 under The Municipal Bankruptcy Act of 1937. According the U.S. Courts.gov website, over 600 municipalities have filed a common form Chapter 9 bankruptcy petition since 1937. On June 28, the 290,000-resident city of Stockton, CA became the largest city in US history to file bankruptcy.
  • The precedence has been set for federal and state jurisdictions coming together to support a financially strapped municipality. Most notably, in 1970s the excessively leveraged city of New York, NY, unable to receive credit in private capital markets, had reached a fiscal crisis. In response, President Gerald Ford signed the New York City Seasonal Financing Act of 1975 [P.L. 94-143] that provided the troubled municipality $2.3 billion in loans. Subsequently, President Jimmy Carter signed the New York City Loan Guarantee Act of 1978 [Public Law 95-339] to extend additional federal assistance. Both direct loans and loan guarantees continued until 1986. A set of internal and external conditions that came together in New York’s fiscal emergency in the same way a multiplicity of factor now plague Detroit.
  • Governor Richard Snyder has intimated moving Michigan to Right To Work state. The controversial action would prohibit unions from requiring workers to join. Snyder predicts what advocates of the measure call Labor Freedom will attract businesses to the state. This anticipated growth would enable Detroit to repay emergency loans similar to the New York City bailout.

CONS:

Critics of Watson’s idea might cite:

  • At a time persistent federal deficits, the nation’s looming fiscal cliff signals potential shifts in revenue and spending. As such, Washington is not in a position to engage serious budget talks by laying onto Washington a massive measure to save Detroit.
  • A number of other cities are facing serious fiscal challenges. A Detroit bailout energize other requests, Earlier this year, Atwater, CA reported a $95 million debt load that will not be mitigated given its $3 million deficit. Atwater declared financial emergency on October 3rd, making it the fourth California municipality to move in the direction of filing for bankruptcy. Indeed, a number of municipalities across the country face similar financial woes of-late, including: Providence RI; Scranton, PA; Rockland County, NY.
  • Obama’s Stimulus Bill largely targeted the automobile industry, and by virtue of the industry’s geographic footprint, “Iron City”. Taxpayers might reject the idea of shouldering a bailout, citing the city’s inability to convert Joe Biden’s “GM is alive” into a corollary celebration “Detroit is alive”.
  • The extent and complexities of Detroit’s woe are so great that even a significant financial infusion would not turnaround conditions. Extraordinarily high unemployment, rampant foreclosures, an incessant crime problem, failing public schools, aging infrastructure, all without a strategic thrust to redress these problems places a public resolution highly unlikely.
  • With a major criminal case underway in federal court, the aftermath of scandals involving former Detroit Mayor Kwame Kilpatrick still envelops the city. The shroud includes, but is not limited to, private investment not as available in an already difficult climate.
 
The challenges facing the City of Detroit are many and they are complicated. Recent scandals the engulfed Kwame Kilpatrick seriously damaged the city’s image. The politics of a nation constitutes an ideological divide; one side of which favoring a reliance on free market forces to sort out economic/financial conditions. And we cannot avoid the question of race as 82.7 percent of the city’s population is African American. These factors, notwithstanding, Detroit has a special place in the history of our nation. And as New York City recovered from its long dark night of financial crisis, so can the once bustling center of commerce.
 
 
The next Congressional session will likely take up this discussion, leaving citizens around the country with an opportunity to express their sentiment to their legislators.For now, the question is yours to decide. Should the nation save struggling Detroit? Share your thoughts…
 
 
 

Related Video Library:


 

 

Detroit Councilwoman JoAnn Watson urges that the city approach President Obama for a bailout.

 
 
 
 
Envision Capital Management CEO, Marilyn Cohen, appears on CNBC to discuss California municipal bond bankruptcies.  Among the problem children are Atwater, Fairfield and Compton.
 
 
 
 
ABC News: Nightline Covers Detroit Mayor Kwame Kilpatrick scandal.
 
 
 
 
Kwame Kilpatrick Sentenced to 1-1/2 to 5 Years. Keep the comments clean or I will have to lock them down. 
 
 
 
 
New York City asks for a bailout (1975). Mayors press the case for New York City bailout.
 

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