Following yesterday's declaration of bankruptcy by Detroit, the jingoistic groups like the Tea Party have put their propaganda machine into high gear. Naturally they blame liberals, unions, Democrats, blacks, public employees, even Muslims, for the bankruptcy. As you would expect, the reality is quite different.
Detroit's bankruptcy, just like the bankruptcy of several other U.S. cities, was brought to you buy the economic meltdown, the sub-prime mortgage crisis, and job losses. In other words, the bankruptcy was brought to you, lock, stock, and barrel, by Republicans.
Two major events drove Detroit into bankruptcy, just as they drove other U.S. cities into bankruptcy.
The financial collapse, caused by Republicans, resulted in very low interest rates on variable rate municipal bonds, but after cities, including Detroit, swapped their variable interest rate bonds for fixed rate bonds. Hence Detroit ended up paying very high rates on their municipal bonds, and owes billions of dollars in interest.
The housing collapse, caused by Republicans, resulted in a great many empty properties. Normally a bank forecloses on the property and sells it, and property tax payments resume after the foreclosure. But what banks have done in Detroit is to simply walk away and not foreclose. The evicted owners are still responsible for property taxes but of course they are not able to pay. Detroit is losing hundreds of millions of dollars per year in uncollected property taxes.
It's true that other events aggravated the situation. U.S. automakers continue to move manufacturing to both Mexico and lower wage southern states where there are no unions to contend with. Of course this has affected other cities besides those in Michigan. Toyota and GM closed their factory in Fremont California with Toyota moving Corolla production to Canada where their health care costs are much lower thanks to Canada's national health care.
It's also true that if these cities had spent nothing on infrastructure during the good times, and had provided bare bones city services, even when they were collecting property taxes on occupied properties, they could have survived without a bankruptcy.
Pension contributions that seemed reasonable during economic good times suddenly became unsustainable as revenue dried up due to the economic crisis and job losses. When private employment and salaries were high, and employers were matching 401K contributions, no one begrudged the fact that relatively low paid public employees received a pension. Now, that's all changed and the public employee salaries appear high, the jobs are secure, and they come with what was once common, but now is rare, in the private sector, pensions.
The question now is what to do next? Just getting out of pension obligations is not going to be enough to save the city. The federal government is going to have to provide some sort of assistance. The Obama administration is going to have to help clean up another mess caused by Republicans. The Tea Party will go crazy, as usual.