Broken City: Detroit

How Detroit's epic bankruptcy could help the rest of the country

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Photograph by Dave Jordano. Background extended.

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To ward off any damage to the city's reputation, Chicago Mayor Rahm Emanuel, who has waged his own wars for pension reform, quickly went into marketing mode. He hosted a tour for investors just days after the downgrade to assure them of Chicago's growth prospects. Emanuel's handlers sent out lists of the major companies that have relocated to the city during his term--an impressive club that includes the likes of Motorola, Google, Nokia, ThyssenKrupp and other blue chips--and recited the mayor's many growth-spurring successes, from launching a new raft of six-year high school--community-college schools in conjunction with IBM to revamping energy policy to luring private investors to fund things like a $500 million port project that is expecting to create 1,000 jobs. Yet everything that the city has done to try to reboot growth and diversify its economy for a new era "will go out the window," as the mayor once put it, if Chicago can't fix its pension crisis. On the current trajectory, even with stronger growth, pension payments would represent 22% of the city's budget in four years--an amount equal to the entire salary of the police force, 10 new high schools or the resurfacing of 32,000 blocks. "Our taxpayers and residents should not be asked to choose between pension payments and public safety ... or pension payments and public health," said Emanuel in a speech last year.

Trade-Off City

But those are the choices that citizens all over the country are being asked to make and will continue to have to make before the municipal crisis is over. You can bet that some of the battles are going to get ugly. Two years on from its bankruptcy declaration, Stockton, Calif., is still fighting with creditors to get them to accept lower payments, creating a toxic political environment that makes it hard to focus on new growth ideas. Pension battles also rage on in San Jose, Calif., which is trying to avoid bankruptcy. Internationally, there are even-more-extreme case studies, like Argentina, which is fighting bondholders 12 years on from a sovereign-debt default that has saddled the country with permanently higher borrowing costs. And don't forget Europe, where Cypriots took to the streets to overturn debt restructurings that would have penalized taxpayers over banks and where Greeks continue to rage over German-imposed austerity measures that are a cost of their own debt forgiveness.

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