Saturday, July 27, 2013

The Real Reason the Once Great City of Detroit Came to Ruin

The politics of Mayor Coleman Young drove out the white and black middle class.
On an August evening in 1976, several hundred gang members descended on a concert in Detroit's Cobo Hall and rampaged through the crowd. The Detroit Police Department, whose ranks had been cut by 20% or nearly 1,000 officers by Mayor Coleman Young, took more than an hour to respond to the mini-riot while teens snatched purses and attacked concertgoers. The melee made headlines and provided stark evidence that in the nine years since the city's 1967 riots, which lasted five days and claimed 43 lives, Detroit's decline had continued.
Today, Detroit sits in bankruptcy court as the largest municipal Chapter 9 case in American history. Much of the commentary about the city's decline has focused on global economic forces that displaced auto manufacturing jobs and public unions whose demands emptied the till as Detroit foundered.
The truth is that Detroit was a failed city long before it became insolvent, thanks to a virtual collapse of its municipal government during Young's 1974-1994 reign as mayor. A radical trade unionist who ran as an antiestablishment candidate reaching out to disenfranchised black voters, Young lacked a plan except to go to war with the city's major institutions and demand that the federal government save it with subsidies. Critics called it "tin-cup urbanism."
As the city's government became increasingly less effective, whites and then middle-class blacks fled. "He left the city a fiscal and social wreck," the eminent political scientist James Q. Wilson wrote in a 1998 article in The New Republic, "The Closing of the American City."
Young was right that Detroit needed reform to deal with problems sparked by the migration of poor Southern blacks into the city in the 1950s. He and others, white and black, criticized the political power structure in Detroit, and especially its police department, as racially insensitive. The 1967 riots, sparked by a police raid on an after-hours club in a black neighborhood, generated legitimate calls for change.
Elected ostensibly as a reform mayor in 1973, however, Young made things worse. He divided the police department along racial lines, creating separate layoff lists of white and black officers. He and his handpicked police chief, William Hart, made clear that policing that resulted in too many arrests or citations in the black community would not be tolerated. "I wouldn't write tickets for black kids," one black officer told journalist Tamar Jacoby in her 1998 book "Someone Else's House: America's Unfinished Struggle for Integration."
When residents complained about a lack of law enforcement, Chief Hart called the protests "racism and sour grapes." Mayor Young declared that "law and order was code for 'Keep the n-----s in their place.'" Detroit became one of America's most violent cities.
Young's divisive brand of governing extended to economic policy, such as it was. When General Motors agreed to build a new plant in the 1980s to help the city's revival, Young and GM targeted the still vibrant, largely white ethnic neighborhood of Poletown to locate the facility. In one of the nation's most infamous cases of eminent domain, the city sued in 1981 to raze some 1,500 homes and 144 businesses and displace 3,500 people.
As some Poletown residents hung on, hoping that court challenges would overturn the takings, Young withdrew services. Residents lived among demolition crews by day and looters by night. Documentary filmmaker George Corsetti described the chaotic last days of Poletown in a 2004 article in CounterPunch: "The night air was always smoke-filled and people slept with guns nearby."
Young benefitted politically from his very ineffectiveness. As the economists Edward Glaeser and Andrei Shleifer write in their study of urban ethnic politics, "The Curley Effect" (named after Boston's early 20th-century mayor James Michael Curley), as whites fled Detroit, Young's margin of electoral victory grew because his electoral base of poor blacks became a larger share of the city's population.
Meanwhile, the increasingly distressed city became a fiscal ward of the state and federal governments. As Ms. Jacoby wrote, by the late 1970s federal grants paid the salaries of up to one-third of Detroit's workforce.
Young's legacy haunted Detroit long after he retired (he died in 1997). He opposed the election of his successor, well-regarded black State Supreme Court Justice Dennis Archer, who won in 1993 without a majority of the black vote. Young allies blocked Mr. Archer's agenda, including efforts to reduce patronage in city government, and they even tried to recall him.
Mr. Archer was followed by Kwame Kilpatrick, dubbed by admirers the "hip-hop mayor," a supposedly authentic black voice in the mold of Young. Elected in 2001, Kilpatrick served until he was indicted for obstruction of justice and resigned under pressure in 2008. This year he was convicted on 24 federal counts committed during his mayoralty, including mail fraud and racketeering.
When former NBA star David Bing succeeded Kilpatrick in 2009, he called the city "near bankrupt financially, ethically, and operationally." While Young was not directly responsible for the public-pension obligations that led to the city's bankruptcy, his poor governance and hostility toward the middle class drove the tax base away.
Today, Detroit is an estimated $18 billion in debt including a $3.5 billion pension shortfall. Its population has shrunk to under 700,000 from 1.84 million in 1950. Unemployment is at 16.3 %, and the number of jobs in Detroit has declined by more than half since Young became mayor in 1974. The city's auto manufacturing base has shrunk despite the bailouts of GM and Chrysler, as those jobs moved to the likes of Kentucky and Alabama.
Today, too, Young's brand of urban revival, which viewed cities as victims that require federal aid, is no longer in favor. Few expect new urban spending from a financially troubled federal government. Texas Sen. John Cornyn recently introduced legislation that would bar the feds from bailing out Detroit or any other municipality.
In the early 1990s a new brand of reform mayor—Milwaukee's John Norquist chief among them—emerged and argued that cities were the center of American dynamism and innovation. New York's Rudy Giuliani argued that effective municipal government was essential to urban revival, and he took to quoting the ancient Athenian Oath of Fealty, in which citizens and leaders pledged to "Transmit this city not only not less, but far greater and more beautiful than it was transmitted to us."
That's not something Coleman Young could ever claim to have accomplished.
Mr. Malanga is a senior fellow at the Manhattan Institute.

Saving Detroit From Itself
A federal bailout would only reinforce the city's corrupt political culture.
The AFL-CIO and its friends are mourning Detroit as a victim of capitalism, claiming the government has a moral obligation to rescue the bankrupt city. This is a nice political fable, but the hard truth is that Motown is a victim of its own political vices and a bailout would merely forestall the necessary rehab.
One myth is that Detroit is a victim of the U.S. auto industry. But the city's breakdown preceded the decline of GM, GM -1.11% Ford and Chrysler and has continued despite their resurgence. American car makers have been doing better for three years, but Detroit is getting little benefit because the industry long ago left the city. Michigan's jobless rate has fallen to 8.7% from 14.2% in August 2009, and the rate is now 6.2% in suburban Dearborn (Ford headquarters), but still 16.3% in Detroit.
Detroit's decline really began with the middle-class migration to the suburbs in the 1950s, which accelerated after the 1967 race riot and election of labor organizer Coleman Young as mayor in 1973. During his 20-year reign, Mr. Coleman ignored crime, inflamed racial tensions and built a patronage machine. (See Steve Malanga's history nearby.)
Local politicians bought union support with generous labor agreements. Pensions were sweetened retroactively. In good investment years, retirement funds issued bonus checks. Until two years ago public-safety officers didn't have to pay a penny to their pensions and could retire at 55 with roughly 85% of their salary, a 2.25% annual cost-of-living increase and nearly free health benefits.
While the average pension is $30,000 for public safety and $19,000 for other municipal workers, these figures are skewed by workers who retire early with reduced benefits or on disability. A quarter of retired officers receive disability pensions, which pay two-thirds of salary. Fifty-four retirees are under the age of 20 and earn pensions that average $23,300, according to a 2011 actuarial report.
The actuaries mention as a footnote that the retirement tables "may include records with defective birth dates." Detroit's pension funds, like most of its municipal agencies, keep sloppy records. About 70% of the city's financial journal entries are booked manually.
Misrule has resulted in the nation's highest violent crime rate, worst schools, blight and corruption. A former mayor, city treasurer and several pension-fund trustees were recently indicted for corruption. The general counsel for the pension funds this year was charged with securing kickbacks for trustees, including a $5,000 check presented as a birthday gift at a soiree, in return for a nice raise.
While local politicians and union chiefs got richer, the city became poorer. Businesses and middle-class families have fled, sapping the city of revenues and economic vitality. About a third of residents live below the poverty line.
To make up for lower property and income-tax collections, the state has increased its revenue-sharing with Detroit and allowed it to raise tax rates higher than any other city in Michigan. Detroit collects 50% more tax revenue per capita than Dearborn and receives four times as much money from the state.
In one sense, Detroit has already received a rolling bailout that it squandered. Last year the city received $228 million in federal grants and $137 million from the state. It has also borrowed $1.6 billion to finance pensions over the last decade. Under emergency manager Kevyn Orr's restructuring plan, the capital market creditors who bailed out the unions would be repaid pennies on the dollar. That should teach investors a lesson about enabling deadbeat cities.
Mr. Orr has also proposed slashing unfunded retirement liabilities by 90% and dropping retirees onto Medicare and the ObamaCare exchanges—thus kicking $5.7 billion in liabilities to national taxpayers. He also wants to shift workers to defined-contribution plans, which is what state workers receive.
Unions protest that it's unfair to put pensions under the knife in bankruptcy since pay and other benefits have already been nipped at the bargaining table. But these concessions were cosmetic: a 10% wage cut, reduction in vacation accruals, a pension cost-of-living freeze and elimination of retiree dental care and future sick pay.
In any event, retirees aren't about to be thrown out on the crime-ridden streets. The city's pension funds are between 60% to 85% funded depending on the actuarial assumptions, and Mr. Orr's proposed haircut would affect only the unfunded portion, meaning most accrued benefits will be protected.
For decades the city has turned to taxpayers and capital markets to finance worker pensions, but both are tapped out. So finally workers and retirees will have to pay. There's no such thing as a free pension.
Unions say it's not fair for the city to break promises to workers, though it long ago abrogated its social contract with local taxpayers to protect their safety and provide basic public services. What would really be unfair is to make taxpayers in cities like San Jose, California, and Providence, Rhode Island, which have scaled back current worker pensions to avert bankruptcy, pay for Detroit's recklessness.
As history shows, sending more cash to Detroit won't fix its breakdown in self-government. Another bailout would merely support its toxic political culture of neglect and corruption.