Op-Ed Contributor: Come See Detroit, America’s Future

I know another woman who called me about a corpse lying outside her window for six and a half hours. This was because of cutbacks at the morgue. No dignity in death here. They do it better in Baghdad.

The latest trend? When a person is murdered, he is thrown into an abandoned house, and it is set on fire. There are tens of thousands to choose from.

I know of an 11-year-old boy who was shot, the bullet going clean through his arm. The cops stuffed him in the back of a squad car and rushed him to the hospital. That’s how we do it. There was no ambulance available. About two-thirds of the city’s fleet is broken on an average day.

I know a cop who drives around in a squad car with holes in the floorboards. There is no computer, no air-conditioning, the odometer reading 147,000 miles. His bulletproof vest has expired. His pay has been cut 10 percent.

I knew a firefighter who died in a fire, but not from the fire. He died when the roof of an abandoned house collapsed on him and his brethren could not find him because his homing alarm was broken and did not sound. He suffocated.

In our town, the 911 dispatch system recently went down for 15 hours, and no one seemed to give a damn. When the system is running, the average wait is 58 minutes. Firefighters can’t use hydraulic ladders on fire trucks to do their jobs unless there is an “immediate threat to life.” In a fire — imagine that. The ladders haven’t been inspected in years.

If this were New York, these stories would have ricocheted around the world. But this is Detroit and, of course, nobody gives a damn. Even here people have been conditioned to accept these things as normal, a nuisance, the buzz of a fly.

This numbness, in a peculiar way, is a sign of strength. People here manage to get along somehow.

So we went broke, bust, bankrupt. We’ve known that in Detroit for years. Only now it is official with a Chapter 9 filing last week. The biggest municipal default in United States history — at least $18 billion. Suddenly, America gives a rip.

How did it get this way, I’m asked? After all, it was just 99 years ago that Henry Ford offered the workingman $5 a day and profit-sharing. How, in less than a century, did it come to this?

The short answers: municipal mismanagement, race riots, white flight, black flight, dead flight (people routinely disinter their deceased and relocate them to the suburbs). There were the overreaching unions and management that couldn’t balance a ball. Proof? The multibillion-dollar bailout of the auto industry. Thank you, American taxpayers!

Then there is our spectacular civic corruption: A former mayor, Kwame M. Kilpatrick, waits for a bed in federal prison, convicted of extortion, racketeering and bribery. He looted the city of millions of dollars and stole the future of thousands of children. They can send him to hell for all I care. I don’t want to pay for his upkeep. But thank you, taxpayers! You will pay for it. And the ex-mayor’s team of super lawyers will also be paid with the public dime.

So Detroit files for bankruptcy. What does this mean? Pay close attention because it may be coming to you soon, Los Angeles, Baltimore, Chicago, Philadelphia. In 2011, Moody’s calculated the unfunded liabilities for Illinois’s three largest state-run pension plans to be $133 billion. (It is expected to be even larger this year.) That’s the size of six Detroit bankruptcies — give or take a few hundred million.

Of Detroit’s debt of at least $18 billion, about $7 billion is secured by collateral like casino revenues and utility taxes. That means creditors — read: big banks — will get paid. Of the remaining $11 billion dollars or so in unsecured debt, about $9 billion is owed to retirees and current municipal workers, people like firefighters and police officers. These debts come in the form of promised pension checks and health care benefits, all backed by a false, unsecured promise. These are the people who are likely to lose out.

In simple math, do we sacrifice 30,000 former and current workers to save a city of 700,000 people and their progeny? Most Detroiters will tell you yes. Don’t judge. We feel bad about it. But we’re simply Americans. We are a gaunt dog. We are desperate. And you are watching and studying us.

Pension checks will be much smaller than planned and health care benefits will get foisted off on Medicaid and Obamacare. Thanks again, taxpayers!

There is hope up here on the Great Lakes. We have fresh water, profitable auto companies, more than $130 billion a year in trade with Canada crossing through our city, a world-class research university and, eventually, a clean balance sheet. Hey, it helps to be first. What do you have, Atlanta?

So come visit Detroit, my fellow Americans. Come take a look at your future. Come give the tires a kick. And if you want your money back, come strip copper pipes and wiring from the abandoned buildings — if you can find any copper. Chances are, someone beat you to it. 

Billions in Debt, Detroit Tumbles Into Insolvency

The decision, confirmed by officials after it trickled out in late afternoon news reports, also amounts to the largest municipal bankruptcy filing in American history in terms of debt.

 
“This is a difficult step, but the only viable option to address a problem that has been six decades in the making,” said Gov. Rick Snyder, who authorized the move after a recommendation from the emergency financial manager he had appointed to resolve Detroit’s dire financial situation.

 
Not everyone agrees how much Detroit owes, but Kevyn D. Orr, the emergency manager, has said the debt is likely to be $18 billion and perhaps as much as $20 billion.
For Detroit, the filing came as a painful reminder of a city’s rise and fall.

 
“It’s sad, but you could see the writing on the wall,” said Terence Tyson, a city worker who learned of the bankruptcy as he left his job at Detroit’s municipal building on Thursday evening. Like many there, he seemed to react with muted resignation and uncertainty about what lies ahead, but not surprise. “This has been coming for ages.”

 
Detroit expanded at a stunning rate in the first half of the 20th century with the arrival of the automobile industry, and then shrank away in recent decades at a similarly remarkable pace. A city of 1.8 million in 1950, it is now home to 700,000 people, as well as to tens of thousands of abandoned buildings, vacant lots and unlit streets.

 
From here, there is no road map for Detroit’s recovery, not least of all because municipal bankruptcies are rare. State officials said ordinary city business would carry on as before, even as city leaders take their case to a judge, first to prove that the city is so financially troubled as to be eligible for bankruptcy, and later to argue that Detroit’s creditors and representatives of city workers and municipal retirees ought to settle for less than they once expected.

 
Some bankruptcy experts and city leaders bemoaned the likely fallout from the filing, including the stigma. They anticipate further benefit cuts for city workers and retirees, more reductions in services for residents, and a detrimental effect on borrowing.

 
“For a struggling family I can see bankruptcy, but for a big city like this, can it really work?” said Diane Robinson, an office assistant who has worked for the city for 20 years. “What will happen to city retirees on fixed incomes?”

 
But others, including some Detroit business leaders who have seen a rise in private investment downtown despite the city’s larger struggles, said bankruptcy seemed the only choice left — and one that might finally lead to a desperately needed overhaul of city services and to a plan to pay off some reduced version of the overwhelming debts. In short, a new start.

 
“The worst thing we can do is ignore a problem,” said Sandy K. Baruah, president of the Detroit Regional Chamber. “We’re finally executing a fix.”

 
The decision to go to court signaled a breakdown after weeks of tense negotiations, in which Mr. Orr had been trying to persuade creditors to accept pennies on the dollar and unions to accept cuts in benefits.
All along, the state’s involvement — including Mr. Snyder’s decision to send in an emergency manager — has carried racial implications, setting off a wave of concerns for some in Detroit that the mostly white Republican-led state government was trying to seize control of Detroit, a Democratic city where more than 80 percent of residents are black.

 
The nature of Detroit’s situation ensures that it will be watched intensely by the municipal bond market, by public sector unions, and by leaders of other financially challenged cities around the country. Just over 60 cities, towns, villages and counties have filed under Chapter 9, the court proceeding used by municipalities, since the mid-1950s.

 
Leaders in Washington and in Lansing, the state capital, issued statements of concern late Thursday. A White House spokeswoman said President Obama and his senior team were closely monitoring the situation.
Monica Davey reported from Detroit, and Mary Williams Walsh from New York.

As Detroit Wobbles, So Does Microsoft

Elaine Thompson/Associated Press Ford’s chief executive, Alan Mulally, left, with Steve Ballmer, Microsoft’s chief executive and a Detroit native, in 2009.

  A day of reckoning arrived on Thursday for a once vibrant icon of industry. Separately, Detroit filed for bankruptcy.

It seems almost appropriate that Microsoft delivered one of its worst financial performances in memory on the same day that Detroit became the largest American city to file for bankruptcy protection. For years, people have noted parallels between the decline of the auto industry and the maturing of the PC business, comparisons that have become more credible as evidence accumulates of a shift to a post-PC era.

The parallels aren’t diminished by the fact that Steve Ballmer, Microsoft’s chief executive, is a Detroit native, whose father was a longtime Ford manager, and that Mr. Ballmer has sought the counsel of Alan Mulally, Ford’s chief executive, on Microsoft management issues.

The gloom had gotten so heavy that investors, who have not been kind to Microsoft for the past decade or so, had even started to cut the company some slack. Since the beginning of the year, they seemed to see encouraging signs that Microsoft, the software company more closely identified with the PC business than any other, was figuring out how to adapt to mobile, cloud computing and other megatrends disrupting the tech business. Its shares were up more than 30 percent for the year when the week began.

Now Wall Street is back to doubting Microsoft. Investors punished its stock on Friday, driving it down more than 11 percent.

In a research note on Friday, Rick Sherlund, an analyst with Nomura Equity Research and a veteran Microsoft watcher, noted how Wall Street had warmed to Microsoft’s message lately. “Not so fast,” Mr. Sherlund wrote. “It was discouraging to read down the table and see that every division was below expectations.”

Mr. Sherlund added that the disappointing results could increase the prospects that an activist shareholder would agitate for change at the company, perhaps initially by seeking a seat on the board of directors.
One of the most troubling signs of Microsoft’s troubles is the nearly $1 billion charge it took to cover slow sales of Surface RT, a member of its new family of tablet computers.

The Surface devices were Microsoft’s first attempt to pull an Apple and make its own computer hardware. And the company decided that the Surface RT, the less expensive model, would run on chips made by ARM, instead of the more powerful (and expensive) chips made by Intel. Microsoft went through the hassle of making its Windows operating system work on ARM chips, because its tablet strategy would not seem credible otherwise. ARM chips power most of the world’s smartphones and tablets because they are well suited for battery-powered devices.

But Surface RT devices have sold poorly — so poorly that Microsoft was forced to cut the price of the device by $150, to $349. Another version of Surface that runs on Intel chips, which have the benefit of running traditional PC applications, has not sold well either, by all reports.

Microsoft will not give up. Unlike Detroit, Microsoft is not short on money. With more than $77 billion in cash and cash equivalents, the company has years to finance to find a successful new business formula. Last week, it announced a corporate reorganization that could sharpen its product making.

But the process will take time. In an interview on Thursday, Amy Hood, the company’s chief financial officer, made it clear that company is not expecting a sudden change in its fortunes in the mobile market.
“I expect this to be a journey where we continue to make incremental progress,” she said.

Detroit emergency manager steps up pace in city restructuring

Detroit's emergency manager issued a flurry of announcements on Thursday addressing union contracts, power distribution and an errant council president as he steps up the pace of efforts to tackle the city's massive $18.5 billion debt problem.

Kevyn Orr stripped City Council President Charles Pugh of his authority and pay, terminated two union contracts that were about to expire so as to allow room to renegotiate them and announced an agreement with power company DTE Energy Co. to take over power distribution to local institutions, including the public school system.

In a statement, Orr said the power distribution operations of Detroit's Public Lighting Department have run at an average annual loss of roughly $30 million for the past five years and that DTE would be better placed to take them over.

"The 100-year-old PLD system has not received any investment in nearly a decade," Orr said. "Exiting the electric business and letting a recognized expert such as DTE run it is a sensible course of action to take."

DTE spokesman Alejandro Bodipo-Memba said the agreement should result in "significant improvements" for the 115 institutions and businesses affected.

Orr was appointed by Michigan Republican Governor Rick Snyder to try to tackle Detroit's finances and create a sustainable model for a city whose population of 700,000 numbers not much over a third of its peak more than half a century ago.

On June 14 he made a proposal to creditors that would pay them pennies on the dollar and defaulted on a $39.7 million payment on certificates of participation. He has said a number of times that he would like to avoid bankruptcy for Detroit, but will file for Chapter 9 bankruptcy protection if need be.

Douglas Bernstein, a partner at law firm Plunkett Cooney in Detroit suburb Bloomfield Hills, said Orr's moves on the union contract and power distribution were common sense moves.

"Orr is just doing what he needs to do," he said. "He's checking off the things that need to get done and what he's doing makes sense."

"OLIVE BRANCH"

The emergency manager also announced Thursday that letters were sent on June 25 to provide notice that contracts with the American Federation of State, County and Municipal Employees (AFSCME) and the Detroit Police Lieutenants and Sergeants Association would be terminated on July 6.

Those contracts were about to expire and under U.S. labor law, if Orr had failed to terminate them they would have rolled over for year and he would have been unable to negotiate new terms until next year.

Edward McNeil, assistant to Albert Garrett, who heads AFSCME in Michigan, said "this is just standard practice."

"If either side wants to change the terms, this is what you do," he said.

McNeil said the AFSCME contract in question only affected 911 operators, which account for 100 of the 2,000 employees the union represents in Detroit.

In his statement Thursday, Orr said it is possible "new terms could be issued in the future as part of the city's restructuring efforts."

John Beck, a professor of labor relations at Michigan State University, said that signaled a willingness to negotiate.

"That is kind of an olive branch and it shows he would like to talk before he dictates terms," Beck said. "These people are important to the fabric of the city and you want them on your side for years to come if you want to succeed."

PUGH'S POWERS, PAY REMOVED

The only move by Orr on Thursday that unrelated to his task of trying to restructure Detroit's finances was the decision to strip Charles Pugh of his salary and powers.

Pugh missed the last two council meetings and on Tuesday said was taking medical leave for up to four weeks.

Orr had ordered Pugh to return to his $77,000-a-year job by the end of the business day Wednesday or resign.

Calls to Pugh's office were not returned. He disabled his social media accounts last week.

Pugh will be paid through July 7. He will keep his health care benefits until he leaves office on December 31 at the end of his term.

Two members of the City Council have also announced plans to leave after the end of this week. Their departures and Pugh's loss of authority will bring the council down to six acting members.

Mayor Dave Bing has announced he will not seek re-election this year. While Orr's powers as emergency manager mean that he is the ultimate authority in the city, Bing and the City Council still run the city day to day. The loss of several members will make it difficult for the council to conduct business.

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