Bankrupting democracy

Michigan’s political elite is pushing the city of Detroit—wellspring of industrial unionism, home of soul music—into bankruptcy.  In the words of Marvin Gaye, “What’s going on?”

Shea Howell
18 November 2013

The city of Detroit - home of the US auto industry, militant unionism, and African American political power and culture -  is now facing the largest municipal bankruptcy in US history. Since 1950 it has been losing population and tax revenue due to a combination of de-industrialization, outsourcing, and the flight of middle and working class people to the suburbs.  Now the state’s Republican rulers are trying to use a financial crisis they helped create in order to gain control of Detroit’s remaining treasures (including its water, land, and art museum) and completely destroy the labor movement and progressive African American political power in the process.  Their strategy is to subvert democracy and majority rule by imposing a city manager with dictatorial powers to oversee the selling off of city assets, cutting services and gutting pensions and benefits to satisfy banks and corporate creditors.

In March, 2013, Governor of Michigan, Rick Snyder, a right wing Republican, and his appointed Emergency Manager of the city, Kevyn Orr, filed a Chapter 9 bankruptcy petition. This push to bankruptcy has been has been contested by unions, retirees, pension funds, civic groups, and concerned citizens all arguing that Orr’s authority is unconstitutional and that he did not fulfill his obligation to enter into good faith negotiations to reach a settlement outside of court. U.S. Circuit Court Judge Steven Rhodes concluded 9 days of contentious testimony on November 8 and is expected to rule on the petition within a few weeks. This is the largest municipal bankruptcy filing in the history of the U.S., claiming liabilities of $18.5 billion, a combination of debts owed to various banks and long-term pension obligations. The bankruptcy attempt is setting precedents that are being closely watched by other cities.

Already, proposals have surfaced to address Detroit’s financial woes that include a plan to sell Belle Isle, the city park; to auction the art collection of the Detroit Institute of Art; and to reduce pensions for retired public workers to 10 cents on the dollar while repaying bank loans at the rate of 82 cents.  Other ideas include slashing health care for retired and current employees; laying off city workers; selling the municipal water works; privatizing city services; and selling city assets, especially land. Many of these proposals are already taking shape under the authority of the Emergency Manager.

Right wing forces have made similar proposals time and again in pursuit of an agenda that involves crushing union power, privatizing public functions, selling off public assets for private profit, and diminishing African American and progressive political power, especially in urban centers. Over the last four decades, the elected leadership of Detroit has rejected one version or other of all of these schemes. Now the measures are being imposed by a newly created state authority that is using the guise of a financial crisis to destroy democracy and render elected official powerless.

There is a financial tale of woe behind this bankruptcy. Corporate interests abandoned the city beginning in the 1950’s as the twin forces of automation and capital mobility combined to drastically reduce manufacturing jobs. Long before the foreclosure crisis, Detroit had lost almost 1/3 of its housing stock as middle class whites, encouraged by federal policies, left the city for the suburbs. African American workers and middle class professionals, seeking better schools and public services, followed as suburban segregated housing policies were challenged.  By 1980, Detroit’s downtown was a hollowed out core, marked by boarded up office buildings. Violence, fueled by despair, accelerated and Motor City was routinely called Murder City.

This long, slow loss of population turned into a tidal wave from 2000 to 2010, as 25 percent of Detroiters left the city. The loss of home owners and tax base resulted in a downward spiral of cutbacks in services and deteriorating public life. The official unemployment rate is 45% and more than 1/3 of the city lives below the poverty line. This loss of revenue was combined with drastic cuts in state revenue sharing, forcing the city to turn to the bond market to finance operations. This municipal debt was based on what are now widely questioned Wall Street practices, called  “interest-rate swaps,” and exorbitant fees linked to termination of debt. Today the city pays nearly 47% of its annual budget to banks.

But there is a more important story here. Detroit is the national battleground for the future of democracy. As has happened many places in the world, a financial crisis, in part created by intentional governmental acts, is being used as a cover to consolidate power and privilege into the hands of an ever smaller corporate elite. This consolidation of power requires the destruction of social forces that have stood for a more human, cooperative, and shared sense of responsibility for a sustainable future. In other words, they are using the financial crisis to destroy democracy.

For more than two decades, Michigan has had legislation enabling the state to assume control of municipal finances. This legislation was frequently challenged as citizens saw the state wrestle away local control of school boards and cities. Efforts by local groups to limit the authority of Emergency Financial Mangers, primarily through court challenges, met their downfall after the election of 2010, when right wing forces took control of the State legislature and passed Public Act 4. This law expanded emergency powers and gave the governor the authority to set aside all locally elected officials, all union contracts, all previous conventions of governing and to appoint a single individual, an Emergency Manager, as the sole and complete authority in a municipality.

Over the next few years, Emergency Mangers were appointed to administer the major African American cities and school boards across the state, including Flint, Pontiac, Highland Park and Benton Harbor. With the appointment of an EM in Detroit in March of 2013, 55% of the African Americans in Michigan lost the power to elect their own local officials or to have a voice in local government.

Public Act 4, which authorized Emergency managers, was overturned through a referendum in November of 2012, when 2.3 million people across the state voted against the legislation. In Detroit, which had suffered from nearly two decades under the Emergency Management of schools and the imposition of a Consent Agreement severely limiting the power of elected officials, 92% voted against emergency management legislation.

Michigan’s elite was not deterred by the statewide vote.  Circumventing democracy via a lame duck session, the right wing State Legislature passed a new law, PA 436, which was essentially the same as the law voters had just rejected, but had a minor appropriation measure attached to preclude any further attempts to defeat it through another popular referendum.

Joann Watson, a member of the Detroit City Council, recently wrote an article making it clear that no elected official in the city has filed for bankruptcy and that other ways exist to deal with the city’s financial problems. She explained that neither the Governor nor his overseer, Kevyn Orr, have taken a serious look at the money owed the city by the state, the possibility of restructuring outrageous debt deals, or the willingness of unions to provide alternatives to drastic cuts.  As commentators did during the recent Washington shutdown, she framed the assault on democracy in terms of the Civil War: “Predominantly Black communities across Michigan are being forced into a socio-economic political structure that is reminiscent of the pre-Civil War era, while the governor and his cronies accelerate their anti-Black, anti-woman, anti-labor, anti-public schools, anti-poor, anti-retiree schemes at a fever pace.”

Today, as the city awaits the decision of the bankruptcy court, testimony is emerging painting a picture of closed deals, high paid consultants, cronyism and corruption. All those who care about creating a living democracy should join with the people of Detroit as we stand against this assault on our most basic rights.



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