Why Chicago Won’t Go Bankrupt—And Detroit Didn’t Have To

Source: Saqib Bhatti, In These Times, June 22, 2015

Detroit’s bankruptcy wasn’t inevitable. Neither is Chicago’s. But the austerity hawks don’t want you to know that. …

….Because conventional wisdom held that bloated pensions had bankrupted Detroit, the conversation revolved around other cities with large pension shortfalls, such as New York, Philadelphia and Jacksonville, Florida. …. All of this uproar rested on a basic falsehood in the dominant public narrative around Detroit: that pensions played a key role in driving the city bankrupt. But those who studied the bankruptcy closely know that the reverse is true: The city filed bankruptcy so that it could cut pensions.

Detroit’s bankruptcy was not borne out of financial necessity and was not a foregone conclusion. It was a political decision made by state officials. Gov. Rick Snyder and the Michigan Legislature chose to push the distressed city over the edge in order to accomplish two otherwise difficult political goals: slashing pensions and regionalizing the Detroit Water and Sewerage Department. It was disaster capitalism at its finest.

Austerity hawks are now hoping to use the Detroit playbook in other cities to force the public to accept extreme measures to fix budget crises. ….

….The $198 million shortfall could have been addressed fairly easily—in part, simply by undoing state actions that had pushed Detroit into bad financial straits in the first place. For example, Detroit had taken a major financial hit over the course of 2011 and 2012, when Snyder and the Michigan Legislature decided to cut annual state revenue sharing with the city by $67 million. Restoring that funding would have filled one-third of the city’s shortfall. Second, there were state-imposed restrictions on the city’s ability to raise local taxes, dating back to the 1990s. Lifting those restrictions would have allowed the city to raise taxes and bring in new revenue. …..