A historical decision was delivered in the United States Bankruptcy Court with regards to the insolvency of the City of Detroit. To date, Detroit is the largest metropolitan city to file for bankruptcy protection under Chapter 9.
So, how did Detroit go from Motor City, USA to destitution?
The last time Detroit was under the management of a Republican Mayor was in 1961, Louis Miriani. This was the last period in time that Detroit would have been considered a prospering city. Since then, Detroit has been under the management of countless Democratic Mayors who continued to drive Detroit backwards.
Under Democratic Mayors, Detroit substantially increased income and property taxes levied against its’ citizens, no wonder Detroit’s population declined from 1.8 million to a mere 700,000. Detroit’s Democratic managers also levied additional taxes on its’ citizens for casinos and utilities, not before implemented by a Republican Mayor. With its’ exponential increase in income due to increased taxes levied on its’ citizens, Detroit’s Democrats took it upon themselves to regularly increase the health care benefits of employees, the incomes of employees, the pension benefits for employees; however, this spending was never reduced. Historically, the majority of Detroit’s income was derived from property taxes levied against citizens. Simple economic principles can demonstrate that a city, which spends more than its’ income, will fail. The abandonment of Detroit is no mystery.
In January of 2009, President Obama bailed out the auto industry by creating the Automotive Industry Finance Program funded through TARP, but Chrysler and General Motors still went bankrupt, and to no surprise President Obama bailed them out. Let’s not forget, President Obama was one of the biggest critics of President Bush’s bailout of the banking industry. In President Obama’s October 13, 2012 weekly address, he stated, “we refuse to throw in the towel and do nothing. We refuse to let Detroit go bankrupt.” Further, on October 17, 2012, President Obama tweeted, “[w]hen Gov. Romney said we should just let Detroit go bankrupt, we said thanks but no thanks.” Governor Romney was right, Detroit needed a fresh start.
A little over a year after President Obama “refused” to let Detroit go bankrupt, it happened, and bankruptcy is just what Detroit needs. Under the Honorable Steven W. Rhodes, Detroit may once-again gain control of its’ finances, with hopes of stabilizing Detroit’s spending to income ratio. Detroit is permitted to cut healthcare benefits, incomes, pensions, and unsecured creditors. Detroit is also permitted to sell assets, including sewer and water.
Ironically, the largest opponents in the proceedings for Detroit’s bankruptcy protection included retirees and union representatives, who, of course, personally benefitted and thrived under the over-extended Democratic Mayoral control of Detroit for the past 51 years. Maybe this will be a wake-up call for the Mayor-elect, Mike Duggan; however, he advocated for pensioners and retirees as well.
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