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2013-07-23

Detroit Goes Bankrupt: Will Unelected Manager Pit City’s Needs Against Rights of Pensioners?

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Facing an estimated $18 billion in debt, Detroit has become the largest U.S. municipality to file for bankruptcy. It is a grim milestone in the decline of what was once the country’s fourth largest city. Known as the Motor City and the birthplace of the middle class, Detroit’s auto industry and manufacturing sector have collapsed. A steady decline in population has decimated its tax base, leaving the city with massive cuts to basic services and one of the nation’s highest rates of violent crime. The Chapter 9 bankruptcy filing has set off what could be a prolonged legal battle with thousands of current and former city employees entitled to pensions and medical benefits. Detroit’s unelected Emergency Manager has said that cutting pensions will be vital to restoring basic services that have shrunk with the decline of city revenues over the years. We’re joined by Mark Binelli, author of "Detroit City Is the Place to Be: The Afterlife of an American Metropolis."

Transcript

This is a rush transcript. Copy may not be in its final form.

AMY GOODMAN: We begin with Detroit, which last week became the largest-ever U.S. municipality to file for bankruptcy. Facing an estimated $18 billion in debt, Michigan Governor Rick Snyder and Detroit Mayor Dave Bing said the city has no other choice.

GOV. RICK SNYDER: Today I authorized the emergency manager for the city of Detroit to seek federal bankruptcy protection. This was a difficult and painful decision, but I believe there were no other viable options. Why did I do this? What’s the rationale? And what’s the impact for both the city of Detroit and the state of Michigan? Well, let me start with the fact that this is a situation that’s been 60 years in the making in terms of the decline of Detroit. From a financial point of view, let me be blunt: Detroit’s broke.

MAYOR DAVE BING: One of the things that I want to say to our citizens is that as tough as this is, I really didn’t want to go in this direction, but now that we are here, we have to make the best of it.

AMY GOODMAN: Detroit Mayor Dave Bing and, before that, Michigan Governor Rick Snyder. The Chapter 9 bankruptcy filing has set off what could be a prolonged legal battle with thousands of current and former city employees entitled to pensions and medical benefits. Detroit’s Emergency Manager Kevyn Orr has told public unions to brace for "significant cuts" but hasn’t laid out details. Speaking to Chris Wallace on Fox News Sunday, Orr said he is talking about a "significant sum of money."

KEVYN ORR: We’re going to have a dialogue with the pension funds about what we can do. And there are two different funds: police and fire, and general services. And they may have different levels of funding. And all we’re talking about in this restructuring is the unfunded component of those pension funds. So I want to be clear, the pensioners—

CHRIS WALLACE: But that’s billions of dollars.

KEVYN ORR: It’s a significant sum of money. Make no mistake about it. And there are going to have to be concessions. Concessions may be different for each fund, and they’re going to be focused on the unfunded portion. But they will have some component of their pensions.

CHRIS WALLACE: But you are saying that pensioners who worked for the city for decades are not going to get the benefits they thought they were going to get.

KEVYN ORR: There are going to be some adjustments. There are probably going to be need to be some adjustments.

AMY GOODMAN: Detroit’s unions have mounted a series of legal challenges in a bid to protect their pensions and benefits. The unions won an initial victory Friday when a Michigan judge ordered Detroit to withdraw its bankruptcy petition because cutting pensions violates the state’s constitution. Michigan’s attorney general has appealed. With federal bankruptcy law usually trumping state law, the unions’ victory may be short-lived. The issue will come before a federal court Wednesday when the judge overseeing Detroit’s bankruptcy effort will begin hearing arguments. The judge could protect the bankruptcy filing from legal challenges and ultimately force creditors to enter into negotiations on accepting reduced payments.

Detroit’s bankruptcy filing marks a grim milestone in the decline of what was once the country’s fourth-largest city, known as the Motor City, the birthplace of the middle class. Detroit’s auto industry and manufacturing sector have collapsed. A steady decline in population has decimated its tax base, leaving the city with massive cuts to basic services and one of the nation’s highest rates of violent crime.

For more, we’re joined by Mark Binelli, author of Detroit City Is the Place to Be: The Afterlife of an American Metropolis. He is contributing editor at Rolling Stone magazine and Men’s Journal. He was born and raised in the Detroit area.

Welcome, Mark, to Democracy Now!

MARK BINELLI: Thanks so much for having me.

AMY GOODMAN: What has happened in Detroit?

MARK BINELLI: Well, he sort of laid it out. I mean, it’s been about 50 years in the making, going all the way back to—you know, a lot of people look at the 1967 riots and think—think, you know, that’s where everything started to go wrong, but the seeds of what’s happening today go all the way back to the 1950s, really, when there was a steady flow of capital out of the city and then a steady flow of population. You know, and a lot of this had to do with race, of course. Detroit was a predominantly black city surrounded by predominantly white suburbs, and so there was definitely a long, simmering tension between the two—the two areas, and as a region it never really coalesced over the years. And that’s taken us up to the present moment.

Of course, along the way there’s also been political corruption and, you know, the general decline of U.S. manufacturing. And then the final death blow came, you know, with this recent financial crisis where you had the foreclosure crisis hitting cities like Detroit especially hard, decimating the tax base and just really kind of delivering a death blow to a city like Detroit that didn’t have the same sort of, you know, structure that other cities had to fall back on.

AMY GOODMAN: Detroit’s unions have accused Detroit of refusing to negotiate in good faith before declaring bankruptcy. Speaking to PBS News, Steve Kreisberg, the director of collective bargaining for the American Federation of State, County and Municipal Employees, AFSCME, said Detroit is seeking to force workers into devastating cuts.

STEVE KREISBERG: We requested that they meet with us and negotiate, and they refuse to do so. As recently as the 2nd of July, I personally sent them a letter urging them to meet with us. They responded on the 3rd of July saying they wouldn’t do it. The following week, they invited us to a meeting, which was largely a presentation to talk about the process, and we agreed to go forward with that process. And at those meetings, they reassured us that we had literally months to resolve this issue, and then they caught us by surprise by filing the bankruptcy petition last week.

We do know that a number of retirees will be devastated by any sort of cut. The average pensioner in the general city’s retirement plan gets a pension of $18,000 a year. They have no room, no room whatsoever, to get a loss of benefit. On healthcare, we had a little bit more specificity. And essentially what the city proposes for healthcare is to stop providing it and to offer people the ability to go to the federal government for "Obamacare" and to Medicare. That’s not an acceptable alternative, in our members’ view. They had worked for those benefits, and they expect to see the city pay those benefits.

AMY GOODMAN: That’s AFSCME’s Steve Kreisberg. If you could comment on that and also on the governor, on Rick Scott’s approach to—Rick Snyder—

MARK BINELLI: Snyder.

AMY GOODMAN: Scott, of course, is Florida—on his approach to—on how he’s dealing with Detroit right now?

MARK BINELLI: Well, it was interesting. At the very top of this segment, we saw Mayor Dave Bing speaking. And it’s—you know, since March, Detroiters have been living under this emergency manager, Kevyn Orr, who Rick Snyder, a Republican governor, appointed.

AMY GOODMAN: How does that work? Explain how a bankruptcy lawyer becomes ultimately the major decider, the one decider in Detroit.

MARK BINELLI: Right, the benevolent dictator. Well, there is a Michigan law that allowed the governor—if a municipality was approaching financial insolvency, the governor could appoint a so-called emergency manager. And the idea was to do everything possible to prevent that municipality from going into bankruptcy. Last November, Michigan voters, in a ballot referendum, voted to overturn that law. And then a few weeks later, Rick Snyder and the lame-duck Republican Legislature passed basically a new version of the same law.

And I think, you know, everyone agrees that Snyder saw the writing on the wall. He saw Detroit moving towards bankruptcy, and he wanted to have some sort of control of the wheel when the city drove off the cliff. So he appointed this guy, Kevyn Orr, in March. Mayor Bing and the city council have really had no power since then. I mean, having him be up there speaking is kind of comical, because he’s had no say.

AMY GOODMAN: So, a city which is well over 80 percent African American does not have democratically elected leadership.

MARK BINELLI: Exactly. They have leadership appointed by, you know, a white Republican governor who definitely did not get the majority of votes in Detroit.

AMY GOODMAN: On Friday, Detroit Emergency Manager Kevyn Orr, as you just mentioned, said releasing the city from its obligations to public employees will help free up money to improve city services.

KEVYN ORR: We’re going to try to do this in a fair way. In addition, in freeing up the cash flow, it allows us to focus on the key issue that the governor has reiterated again and again, the health, safety and welfare of 700,000 citizens in the city of Detroit. Yes, there are 9,700 employees, and there are 19,700—20,000 retirees, but there’s 700 citizens, who don’t deserve a 55-minute response time, who don’t deserve endemic blight and crime, who don’t deserve no hope and future and just continued debt over debt and debt and borrowing. So we have to do this in some fashion, and bankruptcy will allow us to achieve that in some way.

AMY GOODMAN: That’s the Detroit emergency manager, Kevyn Orr. Mark Binelli, why is there no talk of a federal bailout? I mean, the minute you hear about corporations and banks having trouble and going bankrupt, you have this discussion and, ultimately, a fact, the bailout of these corporations and banks. What about the city?

MARK BINELLI: It’s kind of astounding. I mean, the Free Press reported earlier this week that Orr was apparently talking to Valerie Jarrett, one of the top Obama aides, about this and got no traction. And especially in a place like Detroit, when you think about—you know, if you think about the last campaign and how the president ran on saving the auto industry, right? Which, of course, meant saving huge corporations, but that—you know, that was Chrysler and General Motors going into managed bankruptcy, the same sort of bankruptcy that Detroit is about to enter now. The big difference is they were given $82 billion of federal stimulus money. And that’s kind of a standard thing when a corporation goes into a managed bankruptcy. You clear the old debt, but then you need some new capital to move forward. When it comes to a city, though, not a corporation, there’s no—there’s no talk of that.

AMY GOODMAN: Well, let’s go to what Obama said, playing down the prospect of a federal bailout for Detroit. On Monday, this is White House Press Secretary Jay Carney, who said the city’s fiscal crisis is something that Detroit and its creditors must solve. Asked at a Cabinet meeting what the administration could do for Detroit, Vice President Joe Biden said, well, he’s unsure.

VICE PRESIDENT JOE BIDEN: Can we help Detroit? We are now going through exactly in detail what—we had a meeting yesterday, just getting a brief on the status. The question is—we don’t know at this point.

AMY GOODMAN: Mark, explain.

MARK BINELLI: You know, it’s the same old story. I mean, even if you go back to the auto bailout, you know, to me, that was—I mean, it was an important thing to do. If the auto industry had just been allowed to collapse, of course, it would have devastated the economy. But it was very similar to the bank bailout, in that it was a transfer of a huge amount of federal money to a corporation without forcing these corporations to allow some of this largesse to trickle down to the average person. In the case of the auto bailouts, you know, yes, these companies are profitable again, and this is touted as this great thing, but if you look at the new jobs that were created, these are people working at half the rate that they would have been making before the bailout. All the union agreements were thrown out the window. So you’ve got people starting at like $14, $15 an hour, and these aren’t the sort of great jobs that Detroit—a city like Detroit was built on, and a city like Detroit that, you know, basically played such a huge role in creating the American middle class. I mean, those sorts of jobs are gone, and the Obama administration has not done much to bring them back.

AMY GOODMAN: I wanted to ask you about one of the pieces you’ve written about: the Detroit Institute of Arts. Talk about what was proposed and what’s happening and what this means for cities around the country.

MARK BINELLI: That was an interesting thing. The city owns its art museum, the DIA, which is this beautiful kind of grand Beaux-Arts palace that was built back in the day when Detroit had lots of auto money, and has a great collection, a very famous Diego Rivera mural of—depicting the floor of a Ford factory. In about a month or so, after—

AMY GOODMAN: This is a world-renowned museum.

MARK BINELLI: Yeah, I mean, people—it’s really one of the great collections. And when Orr—about a month or so after Orr was appointed, his spokesperson just sort of kind of gently floated the idea that, you know, if creditors really want to take a hard line, we might have to think about selling things from the Detroit Institute of Arts. Then they quickly backed off from it, but it’s still not really off the table. I mean, the interesting thing about now—the fact that we’re now moving towards bankruptcy court, the judge cannot order the city to sell municipal assets, like art from the art museum.

AMY GOODMAN: I mean, they could get possibly billions?

MARK BINELLI: Possibly. I mean, there’s, you know, very famous Van Gogh paintings. The other day, they—I think to sort of make the museum look somewhat absurd, somehow it was leaked that the museum holds the original Howdy Doody puppet, which is worth, I think, a million dollars or something. So, of course, you know, it created this dynamic where it was basically like, "Oh, why would this museum hold onto this Howdy Doody puppet when it could be helping retired auto workers?" And that’s been the whole process all along, a sort either/or—a false kind of even/or choice. You know, it’s like we can either increase police presence, fix the streetlights, hire more firefighters, or we can continue paying people’s pensions. And they’re trying to make it seem like it’s one or the other. And that seems like a very limited range of options.

AMY GOODMAN: So what is the fightback? What is the organizing that’s going on?

MARK BINELLI: A lot of the fight has come from the pension lawyers. Detroit has two major pension funds. They are the ones who basically triggered this bankruptcy, in a way, because they filed a lawsuit in the middle of last week to stop the bankruptcy from going forward. Kevyn Orr all along has been insisting that he wants to treat the pension funds the same way he would be treating bondholders. Those are the two—the two main creditors holding Detroit debt are, you know, banks, basically, bondholders, and retired cops, firefighters, teachers, librarians. And so, Orr is trying to say, you know, he wants to treat everybody equally; they both—everybody needs to take a haircut.

Unfortunately for him, the state constitution prohibits touching pensions. So, all along, he’s been threatening bankruptcy, using that as a sort of bargaining tool and saying, "Look, federal law supersedes state law. If I go into bankruptcy, the judge will rule with me. You will definitely have to take some cuts. So take the cuts now." The pension boards, you know, didn’t think it was good-faith bargaining, so they started this lawsuit to stop—stop the bankruptcy altogether, and that triggered this immediate bankruptcy filing. So that’s what the law—that’s what the court hearing tomorrow will decide, whether or not the bankruptcy can move forward, if they illegally rushed that through while another court proceeding was going on.

AMY GOODMAN: And the schedule? What would happen then, after this?

MARK BINELLI: That’s the thing. Nobody really knows. I mean, there’s no U.S. city that’s gone through such a—this size of a municipal bankruptcy. I mean, right now you see Stockton and San Bernardino in California; you’ve seen Jefferson County, Alabama. But Detroit is just another scale altogether. The governor and the emergency manager are somewhat optimistically saying they’re hoping it could be resolved in months. Other lawyers have said it could take years, so...

AMY GOODMAN: On one of the talk shows today, they said, I mean, if Michigan would actually work on Detroit’s behalf, as opposed to against it, Michigan itself has something like more engineers than the rest of the United States and Canada combined—just engineers alone. But the approach that Rick Snyder is taking right now and how people are organizing in Detroit and what you feel needs to happen in Washington, D.C.?

MARK BINELLI: Well, you know, Snyder, one of the first things he did when he came to office was to cut the corporate tax rate in the state, which, you know, he claimed the state needed to do to become competitive. And, you know, yeah, there has not been—there’s been a steady decline in state revenue sharing and also federal revenue sharing, of course, with cities like Detroit over the years. And you’ve seen—in Michigan, particularly, you’ve seen the emergency manager law. You can sort of track how many emergency managers have been appointed alongside how state revenue sharing with cities has declined. And so—

AMY GOODMAN: You mean basically pushing out, or out of power, the democratically elected leaders of cities.

MARK BINELLI: Of cities that are generally cities that look like Detroit—poor and predominantly African American—cities like Benton Harbor, cities like Highland Park, which is a little city within the city of Detroit that I write about in the book. I mean, that’s a city where you have—I spent time with these firefighters whose firehouse was condemned, and they were operating out of an old Chrysler warehouse. They were literally sleeping in tents in this warehouse, while they were going out to risk their lives. So, that’s the kind of thing that happens, you know.

AMY GOODMAN: I mean, voters rejected the emergency manager law, and the state Legislature, the Republican state Legislature, and Governor Snyder overrode them.

MARK BINELLI: Yes, just weeks later. I mean, it was flagrantly, you know, a thumb in the eye to democracy.

AMY GOODMAN: We’re going to continue to follow this, of course. Mark Binelli, I want to thank you for being with us, author of Detroit City Is the Place to Be: The Afterlife of an American Metropolis. It was published last November. Also contributing editor at Rolling Stone magazine and Men’s Journal, born and raised in the Detroit area.

This is Democracy Now!, democracynow.org, The War and Peace Report. When we come back, how many civilians have drones killed in Pakistan? We’ll go to London to speak with a British researcher who has broken this story. Stay with us.

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