Less
than two years ago Detroit went bankrupt, and was the largest U.S. city to ever
do so. Recently, U.S. judge Steven Rhodes approved Detroit’s plan to recover
from the bankruptcy and turn its economy around. This plan includes a 4.5% cut
to pensions, and spending over $1.7bn to demolish abandoned buildings and other
such measures that will alleviate approximately $7bn in debt. One of the
demolition projects includes the deconstruction and reconstruction of Joe Louis
Arena, home to the red wings.
The pension cuts will definitely ruin the lives
of many retirees or soon to be retirees that were counting on that money. 4.5%
is a pretty big portion, so we should expect to see some serious unrest and
protesting, as well as older people struggling financially. However, on the positive
side the $1.7bn of government spending will increase the amount of available
jobs: especially those in the construction/demolition field which might even be
union workers. On that same note, the news that Detroit will be on the up will definitely give some positive financial vibes to the city and increase consumer confidence. This could lead to increased consumer spending.
As to why Detroit ended up bankrupt in the first place, this was
mostly the result of both bad and corrupt mayors, as well as bad deals, and
unreasonable promises to those receiving pensions. What is important to note as
well is the decrease in population from 1.2m in 1980 to 688,000 now, which
seriously decreased the amount of tax revenue for Detroit, and thus hurt it
financially. So, for the future, Detroit definitely needs to work on keeping
its mayors in line and not make financial promises that it can’t keep: which
includes monitoring its financials more closely.
Detroit is a city that has a lot of merits. The suburbs surrounding the city are full of life and culture, and the city itself has a great amount of history. It would be great to see things turned around, and to have it regain its former glory. As far as the building demolition goes, I truly hope that the city will retain any abandoned buildings and perhaps renovate rather than tearing them down completely. The pension problem will be interesting to see. These things are perhaps not the best way to alleviate debt, but hopefully after they are down the local government in Detroit will be able to turn their focus towards more sustainable ways of redevelopment.
ReplyDeleteI think Detroit is a very interesting situation as a whole; for a nation as developed as the US, a large city having as much trouble as Detroit has been recently is astounding.
ReplyDeleteAs a whole, filing for bankruptcy was probably a good move for the city, and as many articles outline will hopefully help in their economic recovery (http://www.freep.com/story/news/local/detroit-bankruptcy/2014/11/09/detroit-city-services-bankruptcy/18716557/ is an example).
It is sad to see the situation Detroit is in. There is a lot that played into why and how Detroit went bankrupt from the fall of the auto industry, to the huge borrowing-binge, skyrocketing home abandonment, corruption and bad business deals. However, I think bankruptcy could have been avoidable with decisive action by some of these mayors.
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