Sixteen months after the city filed for bankruptcy (the largest case in the U.S), Detroit "can now meet the basic needs of its citizens" (BBC) and exit its state of bankruptcy. Detroit's debt had been worth 18 billion dollars, but its new exit plan states a 4.5% cut to retirees' pension plans and the funding of the demolition of abandoned properties to shave $7 billion off its debt (BBC). The plan, proposed by emergency manager Kevyn Orr, was recently approved by US judge Steven Rhodes.
Detroit's situation had been worsened by "bad deals, corrupt mismanagement... and unreasonable promises to pensioners," but now, the city's creditors are playing a large part in its reconstruction. Detroit has had to accept their deals, including the pension cuts and transfer of the Joe Louis Arena. However, creditors want more--the artwork from the Detroit Institute of Art's collection. It was only saved by donations from philanthropists, organizations, and the state of Illinois.
I think that the best part of the city's plan is its investment in getting rid of abandoned buildings, which make up approximately 30% of the total amount (New York Times). With the deteriorated properties gone, private developers will ideally invest in the land and welcome new residents, improving the city's economy. The crime that takes place in those abandoned houses would also be reduced.
Questions:
Could Detroit reduce its debt without cutting pensions? Will the 4.5% pension cuts affect the city's economy in the future, and how?
Will this current proposal be enough to lift Detroit out of bankruptcy, or will it need to further work with creditors?
In what other ways could the city relieve its debt?
Subscribe to:
Post Comments (Atom)
7 comments:
I definitely think that the pension cuts should be avoided, if at all possible. It does not seem fair, however necessary it is, to cut the income of retirees, as they retired with the knowledge that their pension would be there. Even if the cut is not substantial, people need their pension, not only Social Security, to provide for themselves after retirement. Even if the promises of pensions were unreasonable, other ways should be found to prevent these cuts. I think the idea of revamping the abandoned buildings situation is a much better way to help lessen the debt. If abandoned buildings make up such a large percent of buildings, I believe this alternative will help more than cutting pensions, as the improved buildings will help the economy and help the image of Detroit altogether.
I honestly don't see anything short of a miracle salvaging Detroit's economy. While I do have reservations about denying retirees their benefits, I think that something like this is unavoidable; the pension plans were not reasonable. However, this won't even be close to enough. Even if investors come in for the cheap property, I believe that the majority of them would just be speculators, which would undoubtbly create another housing bubble there and drive Detroit in a deeper hole. I suppose if manufacturing was reintroduced to the area, that would help salvage the situation, but that isn't very likely due to the cheaper overseas alternatives and the decline in the US automotive manufacturing.
Although the pension cuts should be avoided, I see no plausible way around them. Seeing as the promises to the pensioners was "unreasonable", cutting them looks to be the only solution. I do see the knocking down of abandoned buildings as a mixed blessing. On the good side, there would be open land that could be sold, and there would be a cut in crime in the areas because of it. However, there is also no guarantee that any developers will want to build on this land, as Detroit has always been seen as taboo by outsiders because of its tumultuous economic history. It will cost a lot to pay crews to destroy these buildings, with no guarantee of the investment paying off.
Of course we would love to see the pension cuts disappear, but in all reality, it may be necessary to help Detroit get out of their bankruptcy. Perhaps once the economy gets rolling once more, the pension cut will be lessened, or even extinguished completely. I do like the idea of demolishing older, abandoned buildings as a way to allow for private developers to come and invest in the land. As stated in previous comments, this may not be a foolproof alternative, due to wary speculators and the possibility for an even deeper decline in Detroit's economy.
About 32,000 pensioners are going to get their pensions cut due to this exit plan. While I feel that the pension cuts are a bit unfair, I think it's necessary considering the circumstances Detroit is in. Besides, I read that included in this plan is that about $816 million is funded by the state, foundations, philanthropists and The Detroit Institute of Arts. The plan details that the money will patch holes in Detroit's pension funds, prevent even deeper cuts to retirees and avert the sale of city-owned art at the world-class museum. With this being said, the long term effects would be more renovating as well as incorporating the investment in getting rid of abandoned buildings. I think that once private developers start to invest in the new land, it'll take some time for the economy to really show improvement. It might be a gradual process, but would definitely help Detroit in the long run.
I think cutting pensions might be the safest and least detrimental area to cut. In most cases education is the first to loose funding but they decided to go a different route which is good. As long as they only cut from that area at a steady basis I think it could definitely help the economy of the city. I think at first they might need further creditors since a plan like this will require a lot of time to pull off and this very much meant to be a long term plan. Another option could be introducing another income tax at a smaller rate since the amount of employed people should be bigger than those who are retired.
Post a Comment