How Detroit Went Broke

September 15, 2013 5:19 PM

The Free Press investigates the causes of the Detroit bankruptcy. From 13th checks to Kwame's gamble, the story of Detroit's bankruptcy is surprising and often counter-intuitive.
posted by klangklangston (60 comments total)

"For every complex problem there is an answer that is clear, simple, and wrong." -- H. L. Mencken

This is a great article and worth reading. Thank you for posting it.
posted by gauche at 5:43 PM on September 15, 2013 [12 favorites]

I don't understand the logic behind 13th checks. It's a defined benefit plan, so bonus checks seem to skew it "heads I win, tails you lose". Well I guess except for the part where the employer's in bankruptcy now.
posted by pwnguin at 5:51 PM on September 15, 2013 [1 favorite]

They were a really short-term way of avoiding pay increases for city workers, but giving them a dividend, essentially, if the revenues exceeded the costs.
posted by klangklangston at 5:56 PM on September 15, 2013

Somehow, it's never the guy in charges fault.
posted by Confess, Fletch at 6:04 PM on September 15, 2013

This article has a very pro-business, anti-tax and anti-labor bias. For example:

Young was the only Detroit mayor since 1950 to preside over a city with more income than debt, although he relied heavily on tax increases to pay for services.

How the fuck else do you pay for services? I mean that's what government is. We all pay in money, and we all get back the things we collectively said we want. It doesn't always go according to plan, but I don't think anyone is dumb enough to think that you get to have government services without also paying taxes to fund them.
posted by maxwelton at 6:08 PM on September 15, 2013 [16 favorites]

One takeaway: Just because "Wall Street" approves of your anti-bankruptcy plan doesn't mean it'll work. Wall Street can be pretty dumb.
posted by lineofsight at 6:10 PM on September 15, 2013 [1 favorite]

Somehow, it's never the guy in charges fault.

Somehow it's always the fault of unions and retirees. If only they weren't so greedy.
posted by ennui.bz at 6:10 PM on September 15, 2013 [6 favorites]

Surprising and often counter-intuitive the article is not. If anything, it reads like a tea party's wet dream version.
posted by 2N2222 at 6:15 PM on September 15, 2013 [1 favorite]

maxwelton: "This article has a very pro-business, anti-tax and anti-labor bias. For example:

How the fuck else do you pay for services? I mean that's what government is. We all pay in money, and we all get back the things we collectively said we want. It doesn't always go according to plan, but I don't think anyone is dumb enough to think that you get to have government services without also paying taxes to fund them."

I think the point was taxes per capita. Which is still pro-business and ant-tax. But a different point than the one I think you're making on their behalf.
posted by pwnguin at 6:15 PM on September 15, 2013 [1 favorite]

This article has a very pro-business, anti-tax and anti-labor bias. For example:

Young was the only Detroit mayor since 1950 to preside over a city with more income than debt, although he relied heavily on tax increases to pay for services.

It's also full of the winking racism which is a characteristic of the wholesale abandonment of urban areas in the US after MLK was killed. Young was the best mayor Detroit had for 60 years, yet every other paragraph has to mention that he was "divisive." As if the division defined by "8 mile" wasn't the absolute creation of white racism, and the tax increases directly a result of the abandonment of detroit by white civic leaders who previously would have been characterized as "responsible."

Detroit had enormous physical infrastructure. Talking about "taxes per capita" without talking about white racism... is a form of racism.
posted by ennui.bz at 6:19 PM on September 15, 2013 [7 favorites]

This was really interesting, thanks for posting.

I have one issue with the analysis - the chart showing Detroit's total debt doesn't appear to include pension liabilities. This is an important point because we see the debt load jump thanks to Kilpatrick's deal to eliminate the pension liability, but we don't know the size of the liability that the deal eliminated. It would be useful to have an apples-to-apples comparison. (I'm not questioning the fact that this deal was a disaster for Detroit. Merely stating that the true debt load, when pension liabilities are included, probably didn't spike so much as steadily balloon.)
posted by Guernsey Halleck at 6:30 PM on September 15, 2013 [3 favorites]

I'm also slightly puzzled why the biggest part of the debt - the $6 billion dollars in sewer and water bonds only warrants an offhand sentence or two?
posted by Zalzidrax at 6:35 PM on September 15, 2013

Counter-intuitive does not have to mean dishonest propaganda, but this is pretty close. The radically right-wing Michigan State Government is not going to let Detroit get out of this alive.
posted by oneswellfoop at 6:38 PM on September 15, 2013 [1 favorite]

“Detroit got into a trap of doing a lot of borrowing for cash flow purposes and then trying to figure out how to push costs (out) as much as possible,” said Bettie Buss, a former city budget staffer who spent years analyzing city finances for the nonpartisan Citizens Research Council of Michigan. “That was the whole culture — how do we get what we want and not pay for it until tomorrow and tomorrow and tomorrow?”

That seems to say it all. Unfortunately, stereotypes of irresponsible government spending on powerful interest groups, inefficiency, corruption, and anti-business solutions that drive out the tax base -- are sometimes just exactly right.
posted by shivohum at 6:54 PM on September 15, 2013 [5 favorites]

The radically right-wing Michigan State Government is not going to let Detroit get out of this alive.

Literally.

GOP Appointed Officials Black Out Detroit During Heatwave To “Send Them A Strong Message” (VIDEO)
posted by Drinky Die at 7:01 PM on September 15, 2013 [13 favorites]

Holy shit, they knocked out the power on purpose, without warning? Unbelievable.
posted by zardoz at 7:15 PM on September 15, 2013 [6 favorites]

I envy zardoz's (just now lost) innocence.

Business is out to get a monopoly on " powerful interest groups, inefficiency and corruption" and they're almost there.
posted by oneswellfoop at 7:33 PM on September 15, 2013

Holy shit, they knocked out the power on purpose, without warning? Unbelievable.

I believe Detroit will be a template.
posted by srboisvert at 7:39 PM on September 15, 2013 [1 favorite]

To their credit, when discussing the failed pension liability bond deal where they locked in a 6% rate on the repayments, the paper does mention their own editorial at the time pushing for the dud deal to go ahead.
posted by bystander at 7:45 PM on September 15, 2013 [1 favorite]

Please read an actual news report on the power outages before jumping to conclusions about a quote taken out of context. The previously linked article is massively sensationalizing a planned outage used to relieve stress from an aging infrastructure and maintain critical services.
posted by bbuda at 8:12 PM on September 15, 2013 [5 favorites]

Thanks for pointing it out. I'm going to have to question my policy of taking every link I find on Fark.com at face value as high quality journalism. :)
posted by Drinky Die at 8:18 PM on September 15, 2013

Maybe we need The Geek Political Party. Its goal will be to open-source the nation. If everyone could look at all the public expenses and all the public employee productive output, and all the decision-making in running the public service, wouldn't that mean pretty much everything is costing what it should? And give good examples to private industry about what constitutes a living wage?

Universal roads, rail, education, preventative healthcare, universal insurance plans, universal basic multicast comms: these are the building blocks for the next age. How we start getting on with getting on in a dangerous universe.
posted by five fresh fish at 8:23 PM on September 15, 2013

The article was mainly about Kilpatrick's gamble on wall street swaps that built up the debt but I was hoping it would be a better understanding on the deindustrialization and suburbanization that really got the city on the decline in the first place. They're only mentioned near the end.
posted by destro at 8:29 PM on September 15, 2013 [1 favorite]

"How the fuck else do you pay for services? I mean that's what government is. We all pay in money, and we all get back the things we collectively said we want. It doesn't always go according to plan, but I don't think anyone is dumb enough to think that you get to have government services without also paying taxes to fund them."

Not taxes, tax increases.

And this is actually a pretty fair article. As for counter-intuitive, Young is frequently portrayed as profligate, and he certainly was corrupt, but according to the numbers, he was actually able to balance the budget.
posted by klangklangston at 9:16 PM on September 15, 2013 [1 favorite]

"Please read an actual news report on the power outages before jumping to conclusions about a quote taken out of context. The previously linked article is massively sensationalizing a planned outage used to relieve stress from an aging infrastructure and maintain critical services."

No, there are two things that keep it from being just a "Oh, Detroit sensationalism!" story.

First is that he did it without notifying everyone. People were in elevators; the courthouse lost power too.

Second is the "Send a message" bullshit. Brown fucked up, then doubled-down on his fuckup. That's fucking incompetent and anyone in any city would be rightfully pissed.
posted by klangklangston at 9:18 PM on September 15, 2013 [2 favorites]

bbuda: "The previously linked article is massively sensationalizing a planned outage used to relieve stress from an aging infrastructure and maintain critical services."

Typically courthouses and jails are considered critical services. My house, not so much.
posted by wierdo at 10:12 PM on September 15, 2013

After watching a long 2011 Dan Rather look (105-minutes) into the Detroit schools recently, it was more than clear that "corruption, mismanagement and failure" was certainly rampant at that level. By extension, however you diagnosis the disease Detroit suffered from, there's no way to imagine it having any other outcome.
posted by Twang at 1:00 AM on September 16, 2013

Also retiree health care in 1960 was 0% of the budget. In 2013 it was 12%.

That greatest generation has got it's hands around the baby boomer throats. Millenniums had better take note. The boomers might, just might, just have the numbers to pay for granny's health care, but when this weight falls on the thin shoulders of the generation to follow the result is gonna look like Wylie Coyote after the rock falls on him. Yikes!
posted by three blind mice at 1:06 AM on September 16, 2013 [2 favorites]

Detroit had enormous physical infrastructure. Talking about "taxes per capita" without talking about white racism... is a form of racism.

I agree. One thought experiment I may have posted in a prior thread tries to demonstrate how a hypothetical city block would downsize garbage services. With ten houses, at one minute between houses and one minute to stop and pick up the cans (mechanical or manual, it doesn't matter here), and you can see that it takes twenty minutes to cover that one block. Imagine half the houses are vacant or razed. You can eliminate the one minute stop per house, but you can't eliminate the travel time, so with a 50% reduction in population you're still stuck with 75% of the service costs. One can easily see how reducing staff equivalent to population decline leaves you with a services deficit, or maintaining services (some backstopped to the very end such as public safety) means fewer staff reductions and higher per capita tax burdens. It's a vicious circle.
posted by dhartung at 2:56 AM on September 16, 2013 [2 favorites]

The article was mainly about Kilpatrick's gamble on wall street swaps


the gamble wasn't on swaps, but on the market. the swaps were merely the means to refi a floating rate obligation into a fixed rate one. the real gamble was betting that the market would return more than 6% every year.
posted by jpe at 4:28 AM on September 16, 2013

Cheers for posting this, klangklangston. As always, narratives of decline and failure, when examined with the care the Free Press to it's eternal credit have done here, are far more tragic and surprising. A remarkable achievement.
posted by The Salaryman at 4:38 AM on September 16, 2013 [1 favorite]

Surprising and often counter-intuitive the article is not. If anything, it reads like a tea party's wet dream version.

Yes, I'm shocked at klangklangston, long known for his right-wing politics, posting something that so clearly is only propaganda for his own beliefs.

In seriousness, though, I am impressed by the article, though of course, as it is based broadly on a lot of "ifs", we can't actually know if any of these things would have helped. City fathers, for example, were no doubt reluctant to make the large layoffs the article would suggest the city needed, in part because it would put people out of work. The city might, indeed, have stayed solvent - or the increase in unemployed individuals might have increased crime and that flight to the suburbs even sooner.

The increase in debt service payments is also eye-opening - 18% of total spending.

Talking about "taxes per capita" without talking about white racism... is a form of racism.

The article does talk about racism further down - about redlining and real estate agents encouraging white flight.

With residents leaving the city, and no longer paying property taxes there, it would increase taxes on everyone else if services stayed the same. But with so many residents leaving, you would think that services would not have needed to stay the same, but could be reduced in proportion to the population. Perhaps it was in fact the denial of what was happening to Detroit that helped shore that up.
posted by corb at 5:07 AM on September 16, 2013 [2 favorites]

But there's another question here - not asked in the article, but able to be gleaned from it. Is Detroit's bankruptcy actually good for America? If financial firms picked Detroit clean because they were confident they were going to be bailed out, perhaps refusing to fund that - allowing them to go bankrupt - is actually the best thing to do.

In 2009, Harris — who became chief financial officer for Mayor Kenneth Cockrel Jr. during his single year in office 2008-09 — met with Wall Street firms and rating agencies to help the water department issue revenue bonds. At one stop with a credit agency, he discussed the city’s tenuous financial circumstances with an analyst.

“She says, ‘Well, what happens if Detroit goes bankrupt?’” Harris recalled in a Free Press interview. “I said, ‘We don’t. The state will step in and ensure that they right the ship and that the bonds are paid.’”

posted by corb at 5:20 AM on September 16, 2013

financial firms don't own Detroit bonds; retirees do. most of the effects of a detroit bankruptcy will be felt by employees and retirees, residents, and bondholders (which are, in large part, retirees and other individuals in MI).
posted by jpe at 5:37 AM on September 16, 2013

Sorry, I was a little unclear in who I was referring to. I meant that allowing Detroit to go bankrupt might make it less likely that other cities will be in the same situation, though certainly very hard on those in the city of Detroit.
posted by corb at 5:45 AM on September 16, 2013

jpe--I am not sure that is correct. The pensions are unsecured and that is why they are so vulnerable. Firms and individual own most of the bonds (which are secured and guaranteed through voter approved taxes). I may need to be corrected but the big liabilities, pension and health, are unsecured and promised only via contracts which can/will be nullified through bankruptcy. If the bonds had not been secured I doubt if they ever would have been purchased unless offered at extremely high interest rates. The latter would have been intenable for a municipality.
posted by rmhsinc at 7:06 AM on September 16, 2013

Perhaps it was in fact the denial of what was happening to Detroit that helped shore that up.

I think this is generally right. I was talking with my wife about this article yesterday. (We both went to school in Michigan and her parents lived in that state for about a decade. We have fond feelings for the state and for the giant concrete heartbreak that is Detroit.)

She had been talking to an urban planning student about the plans to "bring Detroit back" that are even now in the works, and how much they still seem to be in denial because they are all about what will happen when Detroit is again a city of a million-and-a-half people and not 600,000 or so.

You can have a perfectly nice city of 600,000 if you accept the reality that that's the size of your city. It might be the case that Detroit never again tops a million people. I don't know what the answer is.

It seems simplistic to me to say, as a lot of people do, that the Detroit bankruptcy was the fault of a bunch of Democrats and Unions and taxes and pensions. Detroit rode a lot of tides upward (demographics, rural-to-urban migration, industrial manufacturing, the automobile, the war, &c &c) and those same tides might just all have gone back out by now. Maybe Detroit should have been more nimble, should have tried different things as the fundamentals changed, I don't know. But it seems like the city did try a lot of things over the years.
posted by gauche at 7:16 AM on September 16, 2013 [1 favorite]

Not taxes, tax increases.

Why do people have an allergy to regular tax increases anyway? Even the most vanilla, mainstream economics is pretty clear on the point that inflation/cost-of-living increases are inevitable. It's an accepted, non-controversial axiom of macro economics that a dollar will always lose some portion of its purchasing power over time. That means, in order to collect the same proportional tax revenue in constant dollars, we will always need to increase taxes steadily and consistently unless we want to see services diminished.

Endless tax increases aren't any indication of runaway problems with government spending; regular tax increases will always be necessary if only to keep pace with ordinary currency devaluation/cost-of-living and population growth. Why don't adults in the US seem to understand and accept that? Well, maybe because there's been so little wage growth the last couple of decades as American industries have worked tirelessly to keep wages down.
posted by saulgoodman at 7:19 AM on September 16, 2013

That means, in order to collect the same proportional tax revenue in constant dollars, we will always need to increase taxes steadily and consistently unless we want to see services diminished.

Taxes are already in percentage terms. Percentage rates automatically collect more dollars as the currency inflates. So you don't need to increase taxes to maintain revenue in constant terms.
posted by shivohum at 7:25 AM on September 16, 2013 [1 favorite]

Why do people have an allergy to regular tax increases anyway? Even the most vanilla, mainstream economics is pretty clear on the point that inflation/cost-of-living increases are inevitable. It's an accepted, non-controversial axiom of macro economics that a dollar will always lose some portion of its purchasing power over time. That means, in order to collect the same proportional tax revenue in constant dollars, we will always need to increase taxes steadily and consistently unless we want to see services diminished.

I'm not sure this is the case when taxes are expressed as a percentage rate rather than a dollar amount.
posted by gauche at 7:26 AM on September 16, 2013 [1 favorite]

Detroit has a smaller set of unsecured obligations (general obligation bonds, "secured" by the good faith and credit of the issuer), and a larger set of revenue bonds, which are secured by various revenue streams.

they'll all get haircut, and my point was just that the people getting those haircuts are overwhelmingly individuals. firms and companies are a very small part of the muni market. most buyers are individuals, so Detroit's bankruptcy won't impact wall street so much as retirees and individual investors.
posted by jpe at 7:35 AM on September 16, 2013 [1 favorite]

note also that accrued pension liabilities can't be repudiated in bankruptcy like any other contracts. they're akin to property interests and are treated as creditors of the bankruptcy estate.
posted by jpe at 7:36 AM on September 16, 2013 [1 favorite]

I don't know what the answer is.

Well, if I were God-Emperor of America and wanted to fix situations like this for the longer term, the first thing I'd do is let cities forcibly annex their suburbs, and/or let cities over some certain size forcibly annex their counties. Detroit's situation would be very different with, say, a unified city/county government like Miami/Dade instead of the patchwork of cities and towns created so that people could enjoy the benefits of being in metro Detroit while pretending not to be part of it.
posted by ROU_Xenophobe at 7:39 AM on September 16, 2013 [6 favorites]

regular tax increases will always be necessary if only to keep pace with ordinary currency devaluation/cost-of-living and population growth

Population growth is only a problem in two situations:

- where you are taxing certain people more than other people, and your population growth is not growing the high-tax popuation

- where the population growth consumes more resources than they bring in.
posted by corb at 7:41 AM on September 16, 2013

Some of those "financial instruments" are so complex they make your head hurt just trying to understand them. It's almost as if they're designed that way, but surely that can't be, right?
posted by tommasz at 7:47 AM on September 16, 2013

Well, if I were God-Emperor of America and wanted to fix situations like this for the longer term, the first thing I'd do is let cities forcibly annex their suburbs, and/or let cities over some certain size forcibly annex their counties. Detroit's situation would be very different with, say, a unified city/county government like Miami/Dade instead of the patchwork of cities and towns created so that people could enjoy the benefits of being in metro Detroit while pretending not to be part of it.

That would solve a lot of problems that my current city is facing as well -- from an income-and-wealth perspective the region is shaped like a doughnut; the very wealthy suburbs get to come into the city to work, and to see some art or a play or whatever, all the while clutching their pearls about how dangerous it is. They'd raise holy hell if they had to share a school system with the city -- but they are not racist, oh no, it's a meritocracy, you see, and they just want what's best for their kids, is that so wrong?
posted by gauche at 7:54 AM on September 16, 2013

Actually, you're right... My thinking cap must have been on the fritz for a second there. (I blame still needing more coffee.) Assuming population growth is always accompanied by continuing wage growth, it should all come out in the wash. But if wages aren't growing fast enough to keep pace, tax revenues won't either, so for capital to be both pushing for tax cuts and working to keep wages low is really not a good idea.
posted by saulgoodman at 8:01 AM on September 16, 2013

Some of those "financial instruments" are so complex

It's really not that complicated. You have a mortgage with interest at Prime + 1 (currently 4.25%), and you want to refinance into a fixed rate 4.25%. So you go to your corner derivatives dealer and say, "hey, I'll pay you 4.25% and you pay the creditor Prime + 1."

Voila, an interest rate swap (more or less). Not terribly complicated.
posted by jpe at 8:23 AM on September 16, 2013

She had been talking to an urban planning student about the plans to "bring Detroit back" that are even now in the works, and how much they still seem to be in denial because they are all about what will happen when Detroit is again a city of a million-and-a-half people and not 600,000 or so.

This is false. Noone in Detroit is planning for 1.5 million people again, all of the planning documents are pretty specific on this point. It hasn't quite filtered through to the political arena (i.e. Duggan's slogan is "Every Neighborhood Has a Future" and Napoleon's is "One Square Mile at a Time"), but most people around here are hoping to just stem the losses.
posted by wikipedia brown boy detective at 8:25 AM on September 16, 2013

Noone in Detroit is planning for 1.5 million people again, all of the planning documents are pretty specific on this point. It hasn't quite filtered through to the political arena ... but most people around here are hoping to just stem the losses.

That's good to hear. I think that has a lot better chance of being successful.
posted by gauche at 8:56 AM on September 16, 2013

One more minor point related to my previous mistake: I'd still expect to see tax rates increasing steadily in order to maintain a consistent level of service in real-world conditions, though my original reasoning was flawed for all but certain kinds of sales tax. If population and wages in a local tax district remained completely stable for several years, then you'd need to see some form of tax increase to maintain the same quality of service, because other costs that increase over time like capital maintenance would start taking a bite. Without wage growth or population growth, if tax rates just remain constant, then even though there may be no change in absolute terms, the tax base effectively shrinks in real terms, for reasons not that different from those typically offered to explain why the markets always expect rates of profit to increase as an indication of a company's health.

Of course, capital maintenance costs still apply even in situations where the population and wages are growing, and in cases of population boom, it may be necessary to bring expensive new capital improvement projects online just to maintain existing service levels, etc.

At any rate, I still stand by this: Tax increases are not necessarily evidence of "out of control government spending" or waste as these things are usually framed. There are sound economic reasons why even just delivering the same level of service can and generally will become more and more expensive over time, as any business owner knows and accounts for in their business planning. But we constantly demand that our governments provide more and higher levels of service for us, too, as market innovations sometimes create expensive new social problems but don't necessarily concern themselves with solving any of the old ones.
posted by saulgoodman at 9:38 AM on September 16, 2013

There are sound economic reasons why even just delivering the same level of service can and generally will become more and more expensive over time, as any business owner knows and accounts for in their business planning.

I'm not trying to be confrontational but this seems to me not to be the case and I'm hoping you can explain it a little further. It seems to me that a basic economic assumption is that the marginal cost of each additional unit produced / delivered should go down because the business is amortizing fixed costs, realizing efficiencies at scale, and streamlining its systems.

Do I have this wrong? Do you mean something else by it? Is there a reason it doesn't apply to delivery of services (as opposed to goods) or to public services in particular?
posted by gauche at 10:26 AM on September 16, 2013 [1 favorite]

I should perhaps add, a lot of my early exposure to economics was at the knees of folks I now realize were pretty radically pro-free-market, and I'm always interested to learn where my basic economic assumptions were in fact dubious fringe theories intended to shore up the fictions of capitalism.

I would not have thought that the above were one of those theories, though, which is why I'd be interested in the point.
posted by gauche at 10:50 AM on September 16, 2013

jpe-note also that accrued pension liabilities can't be repudiated in bankruptcy like any other contracts. they're akin to property interests and are treated as creditors of the bankruptcy estate I thought the unfunded portion of pension liabilities ( which is huge in Detroit's case--$650 million to $3 billion) were treated as any other unsecured debt.
posted by rmhsinc at 10:56 AM on September 16, 2013

it is. sounds like we're talking past each other. pension liabilities are treated like unsecured debt (many bonds), and not like contracts.
posted by jpe at 2:47 PM on September 16, 2013 [1 favorite]

gauche: "I'm not trying to be confrontational but this seems to me not to be the case and I'm hoping you can explain it a little further. It seems to me that a basic economic assumption is that the marginal cost of each additional unit produced / delivered should go down because the business is amortizing fixed costs, realizing efficiencies at scale, and streamlining its systems. "

Governments, especially local governments, mainly spend money on two things, employees and construction materials. Given that the public sector is one of the few places where unions are still strong, local governments have been less able than the private sector to push (historically, less so in the last couple of years) health care costs that are increasing rapidly in excess of inflation onto employees. Also, wages are even more sticky than prices, so given the large part of the budget spent on employees, literal cost reductions are harder than they are in many private enterprises.

Cities also spend a lot of money building things. More specifically, they borrow a lot of money to build things. Most of the time, these things are built when the economy is strong because that's when cities have the most revenue and the highest borrowing capacity, and that is precisely when construction costs are most expensive, which leads to debt overhang when the economy inevitably contracts at a later date.

Basically, cities have their expenses concentrated in the sectors of the economy that are most likely to increase faster than inflation and are often legally unable to spend countercyclically on any large scale unlike the federal government and some states, so they can't take advantage of better pricing during downturns.
posted by wierdo at 3:25 PM on September 16, 2013 [1 favorite]

But with so many residents leaving, you would think that services would not have needed to stay the same, but could be reduced in proportion to the population.

corb, please refer to my thought exercise. As in the saulgoodman/gauche exchange, there are ways in which overall costs can be amortized when population is growing, but when it's shrinking you're stuck with sunk costs and infrastructure to maintain that is now supporting fewer taxpayers at the same cost (think: miles of streets). One of the challenges Detroit has faced, as with other shrinking cities such as Flint and Youngstown, is which parts of the system and which services to slough off, as there are basic minimums that need to be kept up.

You can stop maintaining a street after everyone moves off it, obviously, but what about through traffic? What about when you have one or two holdouts? Do they get to drive on chunky, potholed concrete as you abandon that block to spend your money more wisely elsewhere? What about sewers and water mains? And so forth. That's the tragedy -- the city can't reduce costs proportional to population, and in fact it's bound to be more expensive to maintain the city, per capita, as more people leave. If I were a public servant in Detroit, this would be my nightmare.
posted by dhartung at 4:49 PM on September 16, 2013 [2 favorites]

That's actually a much bigger problem for Detroit than even you seem to be letting on, Dhartung. The infrastructure built to support Detroit wasn't just there to support residents — it was built to support heavy industry and manufacturing. The water system was built to provide the volume that the Rouge plant needed to operate. Likewise, the power grid was built for auto plants too. Without state or federal help, there's just absolutely no way to redevelop that infrastructure into something that fits today, or tomorrow's, Detroit.
posted by klangklangston at 5:38 PM on September 16, 2013

(Not meant as a dig, just that it's easy to wildly underestimate the legacy costs of the infrastructure.)
posted by klangklangston at 5:38 PM on September 16, 2013

I'm not trying to be confrontational but this seems to me not to be the case and I'm hoping you can explain it a little further. It seems to me that a basic economic assumption is that the marginal cost of each additional unit produced / delivered should go down because the business is amortizing fixed costs, realizing efficiencies at scale, and streamlining its systems.

Sure, in the relatively short-term, if you make widgets. But governments provide services and public utilities on a long-term basis. And they are not industrial manufacturers, so the idea that you can generally assume economies of scale benefits that apply to manufacturing seems dubious. Governments have less flexibility on setting the sticker-price (tax rates) for the services they offer than businesses do. And they generally don't make profit from providing those services and aren't intended to, so they don't necessarily see increased revenues from improved efficiency (if budgeted program money doesn't get spent on that program, the money likely goes back in the general revenue pool and may not be made available to the program again in the next budget, so it often doesn't benefit a program to cut corners and run surpluses; there are plenty of other sharks in the water with their eyes on any money left on the table at the end of the day).

Basically, I don't think cities have the kind of revenue generating/pricing flexibility they need to cover their long-term asset and infrastructure maintenance costs while still providing the same level of service over time. Let's take the unrelated example of, say, a trucking service. If you're managing your trucking service properly, you don't just consider every dime over your daily operating costs to be profit and pocket it, you reinvest some of what might otherwise be profit into the enterprise for maintaining and if necessary expanding your fleet and facilities. Well, the costs for maintaining facilities and equipment increase overtime, as a fleet of 20-year-old trucks is a lot more expensive to maintain operationally on a day-to-day basis than a fleet of brand new trucks. Cities just don't have the same kind of flexibility to plan and prepare for changing economic circumstances.

Businesses can cost everything into their sticker prices--including, if they're properly run, costs related to ongoing and future facilities maintenance, replacing worn out equipment, expanding for growth, etc. I think that model breaks down for governmental services in so many ways you can't really generalize private sector economic assumptions to it.
posted by saulgoodman at 8:28 AM on September 17, 2013 [2 favorites]