Detroit may be bankrupt, but more federal aid dollars are set to go to the country of Colombia than to America's 18th-largest city next year, according to a report from Bloomberg News.
Bloomberg reports that the South American nation will receive almost $323 million through President Barack Obama's new proposal to fight drug trafficking and violence. A State Department memo cited by the report says three-quarters of the money will be used to maintain "peace and security" in Colombia.
Conversely, Detroit, which filed for bankruptcy almost two weeks ago with at least $18 billion in long-term debt, will receive just $108.2 million in funds from the U.S. government in 2014, according to Bloomberg. Some $33 million of that total award is funded by a Community Block Grant distributed each year to urban cities and counties.
Detroit's murder rate is nearly twice as high as Colombia's, increasing 10 percent in 2012 to 53 murders for every 100,000 residents -- second only to New Orleans among U.S. cities. Despite that sobering fact, the Detroit Police Department is currently eligible to receive just $2 million in funds next year from the feds.
Colombia isn't the only country set to receive more aid under Obama's 2014 foreign assistance budget than Detroit, according to ForeignAssistance.gov, a website created by the U.S. Department of State. Leading the way in aid received is Afghanistan, which will get almost $2.2 billion in foreign aid. Other countries receiving more federal assistance than Detroit in 2014 include Egypt ($1.5 billion), South Africa ($445 million), the Democratic Republic of Congo ($235 million), Mexico ($205 million), the Philippines ($187 million) and Indonesia ($182 million).
The Obama Administration has made no moves suggesting a federal bailout of Detroit is a possibility. Left in the hands of a bankruptcy judge, pensions promised to more than 21,000 city government retirees face cuts, along with health care for current and retired workers, active worker pensions and payments owed to bondholders.
Robert Johnson, president of the Institute for New Economic Thinking and a former chief economist of the U.S. Senate Banking Committee, cited the gap between aid for Colombia and Detroit on a call with reporters Wednesday to argue that Washington must change the way it funds and helps urban areas like Detroit.
"Obviously many people are demoralized in the United States now because they see that we don't help our cities, because that's not a systemic risk," he said.
Also on the call Wednesday was Nobel Prize-winning Economist Joseph Stiglitz, a professor at Columbia University in New York, who pointed to suburbanization and instability as destroyers of Detroit's finances. He said the lowered quality of services, public safety and education available to Americans in cities creates a fragmentation that wields "a gross effect on our society."
"Our approach has been: let everybody fend for themselves," Stiglitz said of the federal government's unwillingness to fix urban problems. "The consequence of that is just a huge waste of human and fiscal resources that would have been far better [used] to try to preserve the assets that are in Detroit ... better than basically [letting] the city decay as jobs decrease by more than 50 percent."
A federal bailout of Detroit would be unusual, but by no means the first -- New York City was bailed out under President Gerald Ford in 1975 to the tune of $2.3 billion (or $9.9 billion in today's dollars). Of course, more recently, federal bailouts have become more common for corporations than for cities. Domestic automakers General Motors and Chrysler received $80 billion in loans from the federal government beginning in 2008.
"We do help our auto companies -- some of which are headquartered in Detroit -- which have plants in Mexico and China and all around the world," Johnson said. But while some analysts credit the bailout of Chrysler and GM for saving 1 million jobs, many of those benefits didn't trickle down to Detroiters. "What works out to the benefit of General Motors or Chrysler does not work out to the benefit of these communities," Johnson said.
Facing down a recession, the federal government also invested over $700 billion in troubled banks and financial companies through The Troubled Asset Relief Program (TARP), more commonly known as the Wall Street bailout.
Johnson said the sort of financial protection and help that has been extended to Wall Street, foreign nations like Colombia, and other multinational companies should also be available to ordinary Americans.
"The real question is, once again," he said, "who is in and who is out of the kind of guarantees and assurance that our society provides."
Could Detroit Come Back After Bankruptcy?
We combed through Detroit Emergency Manager Kevyn Orr's 150-page-plus restructuring plan he released to the public in June 2013, weeks before the city's bankruptcy filing, after meeting with bondholders. Orr met with those creditors to negotiate Detroit's structural long-term debt, now said to total over $18 billion. Along with finances, the plan proposes 10 years' worth of improvements, priorities and changes that will affect residents, businesses, neighborhoods and visitors. Click through the slideshow to read our analysis of how Detroit could change after bankruptcy. You can see the nitty-gritty details for yourself by <a href="http://www.huffingtonpost.com/2013/06/14/detroit-restructuring-plan-bankruptcy-kevyn-orr_n_3442263.html?utm_hp_ref=detroit" target="_blank">reading the full report here</a>.
Mayor Dave Bing launched a program in April 2010 with the goal of demolishing 10,000 vacant structures by the end of his term. Over 5,000 of those abandoned buildings have been torn down, with the remainder scheduled to go by the end of 2013. But there was never enough money to fully rid Detroit of its blighted buildings. Orr's report says a funding gap of $40 million exists before Bing's goal can be completed. And while 10,000 demolitions is an insanely high number, Orr's report says that only covers 13 percent of the city's vacant buildings, and 26 percent of those that have been deemed dangerous.
Orr's restructuring plan presents a number of ways the city can speed up blight removal. One tactic involves coordinating and simplifying the myriad local, regional and national agencies and statutes that regulate demolitions. Another priority is moving blighted land through the demolition process faster, in order to return those properties to private ownership (Pages 72 and 73). Police and fire departments will integrate their data so demolitions can be targeted to reduce crime and arson. Orr's budget calls for $50 million annually in 2014 and 2015 to battle blight, to be increased to $100 million each year for 2016 through 2018. Some of that money will have to be raised through grants and public-private partnerships.
According to the city's preliminary analysis, Detroit hasn't kept up on its obligations to beneficiaries of the General Retirement System and Detroit's Police & Fire Retirement System. By how much? A staggering $3.5 billion, says Orr, who writes, "At this level of underfunding, the City would have to contribute approximately $200 million to $350 million annually to fully fund currently accrued, vested benefits. Such contributions will not be made under the plan."
Retiree Health Benefits
Under Orr's plan, pension funds would receive a proportional (pro rata) share of $2 billion in notes that the city would issue. But since that share of $2 billion won't equal the total amount of unfunded pension costs, the report notes, pensioners should expect "significant cuts in accrued, vested pension amounts for both active and currently retired persons." According to the Detroit Free Press, retiree health benefits will likely be<a href="http://www.freep.com/article/20130614/NEWS01/306140084" target="_blank"> transferred to modified medical benefit plans</a> that will come into effect with the Affordable Care Act. Those over the age of 65 would be transitioned to Medicare.
Hiring a new police chief was the first task on Kevyn Orr's Detroit Police checklist, but it's not the only change he recommends. Orr envisions using a data-driven approach to restructure DPD from top-to-bottom. Another priority is improving officer morale and giving the force the tools they need to do their jobs: bulletproof vests, tasers, vehicles and functional IT. He's also a fan of the "Broken Windows" policing theory piloted last year in the city's Rosedale Park neighborhood. In total, Orr plans to spend $26 million more on DPD in 2014, with an additional $66 million investment over the next four years.
It should come as no surprise to readers that Detroit is bonded to the hilt. Creditors may take a <em>huge</em> hit on payments from the city, reportedly as little as 10 cents on the dollar. Orr has stopped paying some debts entirely, and his plan calls for reinvesting that money into city services after bankruptcy.
Detroit Fire Department
Aging fleets of fire engines and facilities to maintain them threaten the impact of the Detroit Fire Department, which responds to around 30,000 calls every year. The restructuring plan calls for at least $6 million in additional investment over the next five years, with an $18.4 million facility investment in 2017. But the restructuring plan doesn't talk about hiring any more fire investigators -- as of Dec. 2012, the <a href="http://www.myfoxdetroit.com/story/20388988/detroit-only-has-12-arson-investigators-for-5000-fires-annually" target="_blank">department only had 12 on staff</a> to investigate more than 5,000 suspicious fires set in the city's neighborhoods every year.
The restructuring plan mentions that DDOT, Detroit's underfunded bus system, could eventually be merged with a private company or SMART, the suburban public transportation system. There's also talk of bringing DDOT under the control of the new <a href="http://www.huffingtonpost.com/2013/07/12/rta-detroit_n_3586137.html" target="_blank">regional transit authority</a>. A consultant is apparently studying long-term solutions, including outsourcing (Pages 74 and 75). While it could make more sense long-term to have all of the region's transit under one umbrella, the RTA is too new to make that determination and doesn't yet have funding. In the event of a merger, gains in savings and efficiency may be balanced with layoffs.
Managing and maintaining the 982-acre Belle Isle Park costs the city of Detroit some $6 million annually. Orr's verdict on Belle Isle comes as no surprise: He says the city "intends to enter into lease transaction with State on generally the same terms as the State’s prior proposal," though no timetable is given (Page 87). That means "Detroit's crown jewel" is slated to become a state park managed by the Michigan Department of Natural Resources. Under the <a href="http://www.huffingtonpost.com/2013/01/29/belle-isle-state-park-plan-dead_n_2575256.html" target="_blank">previous 30-year lease proposal</a>, pedestrians and bikers would still be able to access the park for free. Motor vehicles would have to pay an annual $11 Recreation Passport fee to the MDNR, good for accessing any state park.
36th District Court
Orr proposes possibly transitioning to "paperless" transactions at the 36th District Court (Page 73). Welcome to the 21st century, guys!
Residents Who Work Outside The City
Orr's report proposes levying an income tax for reverse commuters -- those who live in Detroit but work outside the city (Page 81). The City loses approximately $30 to $45 million of income tax revenue every year, claimed to be 15 to 20 percent of the total tax collected, from reverse commuter non-filers. Expect new legislation to tax these residents.