The PJ Tatler

Will He or Won't He? Obama Ponders Detroit Bailout

It seems impossible, but the administration is actually considering the question of a bailout for the city of Detroit.

Senator Rand Paul, as befitting a possible GOP presidential contender in 2016, said such a bailout would occur “over my dead body”:

Sen. Rand Paul (R-KY) said he will use every resource he has at his disposal to stop President Barack Obama from bailing out newly-bankrupt Detroit because he believes the city can and must save itself and learn from its fiscal mistakes. “I basically say he [Obama] is bailing them out over my dead body because we don’t have any money in Washington.”

“There’s some good things that come out of bankruptcy,” Paul said in a phone interview from Iowa. “One is you get to start over. Bankruptcy lets you be forgiven of your debt. And you do so by getting new management, better management, and by getting rid of unwieldy contracts, contracts that give you where public employees are getting paid twice what private employees are and things come back more to normal. That’s the way cities and businesses can recover.

Vice President Joe Biden may want to test Senator Paul’s resolve: “Can we help Detroit? We don’t know,” he said. Meanwhile, Rep. John Conyers wants to hold hearings on the public employee pension issues raised by the bankruptcy filing. This was after a circuit court judge temporarily blocked the bankruptcy filing by the state of Michigan because doing so would dishonor the president:

“It’s cheating, sir, and it’s cheating good people who work,” the judge told assistant state Attorney General Brian Devlin. “It’s also not honoring the (United States) president, who took (Detroit’s auto companies) out of bankruptcy.”

Local politicians and Michigan congressmen are opposed to a bailout, as is the emergency manager of Detroit:

Local leaders aren’t pushing for a federal bailout after the city filed for Chapter 9 bankruptcy protection Thursday, and Republican Gov. Rick Snyder isn’t, either.

“People should not expect bailouts at either the federal or the state level,” Snyder said in an interview with The Associated Press. “We’ve been very diligent about this. We want to be a supportive partner at the state level. I believe the federal government does (too).”

Members of Michigan’s congressional delegation aren’t clamoring just yet for a federal bailout. “We just need to step back and think about it,” said Rep. Sander Levin, D-Mich.

The city’s emergency manager, Kevyn Orr, says that for now, Detroit will stay open, bills will be paid and city services provided.

But the bankruptcy case could take years to resolve. Ahead of the filing, the city’s two pension funds sued to block a bankruptcy. Bankruptcy could change pension and retiree benefits, which are guaranteed under state law. The impact on current city workers is unclear.

The problem is that there are more than twice the number of retirees than there are city workers paying into the pension fund:

Detroit officials have also made a habit of convincing unions to accept pension sweeteners — shorter terms of employment required, more generous multipliers, or a “13th check,” essentially an annual bonus — rather than pay increases. But that has raised pensions costs and had the unintended effect of shrinking the city’s work force to the point where employee contributions can’t keep pace with the needs of current pension recipients. The city has just 9,700 workers but 21,000 retirees drawing benefits.

And Washington should bail out these profligates? Steven Rattner, who managed the auto industry bailout for Obama, thinks we don’t have a choice:

But while Michigan Gov. Rick Snyder has capably overseen Detroit’s march to Chapter 9, neither the state nor the federal government has evinced any inclination to provide meaningful financial assistance.

That’s a mistake. No one likes bailouts or the prospect of rewarding Detroit’s historic fiscal mismanagement. But apart from voting in elections, the 700,000 remaining residents of the Motor City are no more responsible for Detroit’s problems than were the victims of Hurricane Sandy for theirs, and eventually Congress decided to help them.

America is just as much about aiding those less fortunate as it is about personal responsibility. Government does this in so many ways; why shouldn’t it help Detroit rebuild itself?

Many call for scaling back the city to fit realistic population projections. While logical, the potential for downsizing Detroit is limited because the city’s population didn’t flee from just one neighborhood; the departures were scattered, requiring Detroit to deliver services across a geographic area the size of Philadelphia, with less than half the population. Further cuts will surely come, but in some key areas, like public safety and blight removal, Detroit needs to spend more, not less.

That necessitates large-scale reductions in its liabilities, which total as much as $18 billion. By comparison, the country’s second largest municipal bankruptcy — that of Jefferson County, Ala., which is slightly smaller than Detroit in population — involves $4 billion of liabilities.

Um…no. There are 79,000 empty buildings in Detroit. That’s not “blight”; that’s catastrophe. Congress wouldn’t only be bailing out the pension funds. Detroit would need massive assistance to regain it’s financial footing so that the 40% of street lights that currently don’t work can be repaired; so that schools can operate well enough to educate some of Detroit’s youth; so that the police and fire departments can rehire some of their fired officers in order to reduce the response time that now averages 58 minutes.

William Saletan says Detroit “is no longer a viable municipality.” A few billion to fund the city’s public pensions would be a drop in the bucket. For that reason — and the notion that if Detroit gets a bailout the nearly 150 other municipalities in the country that are on the cusp of bankruptcy will want one too — the GOP should go to the mattresses to prevent it.