Demonstration in front of Bank of America in downtown Detroit demanding a moratorium on debt service payments by the city government. Detroit taxpayers turn over $597 million annually to the banks. (Photo: Abayomi Azikiwe), a photo by Pan-African News Wire File Photos on Flickr.
May 16, 2012
Commentary: Follow the money in Detroit consent agreement
By KARLA SWIFT
Follow the money. It's good advice in politics. In the case of Detroit's fiscal crisis the money all flows in the same direction — from the 99 percent to the 1 percent.
The consent agreement engineered by the state as a "remedy" to Detroit's crisis achieves, without an emergency manager, the goal for which EMs were invented: Protecting banks and bondholders from loss.
Take a look at Section 18 of the Emergency Manager Law. It requires that the fix for a local government's finances include "payment in full of the scheduled debt service requirements on all bonds, notes, and municipal securities of the local government."
That means the Wall Street bankers lose nothing — while Detroit's workers and residents pay more every day.
We are told that the massive burden driving Detroit under is pension obligations. Yet the Detroit Financial Review Team's report says pension payments in 2011 were $110 million, while the city pays $600 million a year in debt service. Debt service is interest, not principal. Not one nickel goes to reducing the city's debt.
Under the consent agreement, the city's staggering debt gets paid, while its staggering poverty, crime and decay get worse. In a fiscal crisis, we are told, promises made in a prosperous era cannot be kept — not if they're promises to workers about their retirement. But promises made to investors are sacrosanct.
The financial team's report says at least $1.1 billion of Detroit's long-term debt is due to credit "swaps" and "hedging derivatives" — financial instruments that would have benefited the city if interest rates kept going up. Wall Street embraced these tools.
Even when the system crashed, they got bonuses. But Detroit's taxpayers are punished for believing the bankers' promises.
Neither Detroit's heyday nor its current crisis occurred in isolation. Detroit was once the engine of innovation and prosperity for Michigan and the nation, and its troubles today result from vast economic and social forces. The world economy globalized, tax law encouraged overseas investment over domestic manufacturing, and speculation became the prime profit center in the U.S. economy.
Decades of federal policy supported suburban development at the cost of urban infrastructure. The legacy of racial divisions accelerated white suburbanization.
We are connected. One example is the rescue of General Motors and Chrysler — a bold collaboration between government, union members and management that paid off for taxpayers, workers and consumers alike.
It's time for bondholders to accept later or lower payments than they had sought. It's time for suburbs and the state to share responsibility for Detroit. Not to take it over and bleed what's left. Not to privatize public treasures like Belle Isle.
Not to pay outside investors before improving quality of life for residents and suburbanites alike.
A fair solution to Detroit's problems will recognize that everyone benefits when the city works, and we all — investors, workers, the state and the city — must pay when the perfect storm of bad policy and bad markets hits.
Yes, we must address the fiscal crisis. But let's find solutions that also address the causes: Disinvestment, racial and economic inequality, and a tax structure that favors the wealthy.
This case requires not just following the money, but rerouting it. Bold, creative thinking can revive the Detroit we love and the entire region.
Karla Swift is president of the Michigan AFL-CIO. Email comments to firstname.lastname@example.org.
Labor Voices columns are written on a rotating basis by United Auto Workers President Bob King, Teamsters President James Hoffa, Michigan AFL-CIO President Karla Swift and Michigan Education Association President Steven Cook.