No city was hit as hard by the recession as Detroit, America’s one-time industrial capital whose decades-long decline cut its population in half and left $18 billion in debt it can’t afford to pay.
Even so, the pressures that pushed Detroit into the largest municipal bankruptcy in U.S. history are playing out on a smaller scale around the nation. Diminished tax revenue and rising labor costs have left four cities insolvent since 2007. Service cuts were made by others such as Detroit, where street lights are dark and police are scarce.
“None of the other cities are as far along, but there are dozens, if not hundreds of cities that have similar issues,” said Alan Mallach, a senior fellow at the Brookings Institution, a public-policy research organization in Washington. “Every other industrial city has problems that could send them down the same path.”
U.S. municipalities have recovered slowly from the 18-month recession that ended four years ago, depressing property-tax revenue and leading to investment losses for pensions that many cities haven’t fully funded for years. Projected pension and health-care obligations for the 61 biggest cities will top assets by about $217 billion, according to a study by the Pew Charitable Trusts, a Philadelphia-based research and public- policy group.
Not Unique
“Detroit is a very high-profile example of some of the challenges our cities continue to face, but it’s by no means unique,” said Kil Huh, an analyst who tracks local finances for Pew. “Detroit is indicative of governments living beyond their means -- and they are going to eventually have to pay the piper.”
Detroit’s bankruptcy capped a decades-long slide for a city that once-symbolized U.S. industrial might and the union-covered manufacturing jobs that propelled the growth of America’s middle-income families.
The Motor City’s fortunes ebbed along with the nation’s automotive industry. The tax base dwindled starting in the 1950s as more than 1 million residents left, an unprecedented exodus that left about 40 percent of the city’s lots vacant or unused. In the decade through 2010, Detroit lost a quarter of its population, dropping it to about 700,000.
On July 18, the city sought court protection, a step Emergency Manager Kevyn Orr said was the only way to deal with $18 billion in long-term obligations, including more than $3 billion owed to its retirement system. Detroit borrowed, skipped pension contributions and put off paying bills, deepening its insolvency, Orr said at a news briefing last week.
Upends Assumptions