Detroit Is A Victim of Big Government Policies, Not Market Forces

After several attempts from city unions to get Detroit’s bankruptcy filing thrown out, Judge Steven Rhodes has now given Detroit the green light to move ahead with its bankruptcy procedures.

Despite the ruling on Tuesday, one union, American Federation of State, County and Municipal Employees, stated they plan to appeal. It’s been almost five months now since Detroit officially filed for bankruptcy.

Of the solutions on the table for the future of the motor city, one in particular has outraged unions and city employees. Kevyn Orr, the appointed emergency manager, has proposed pension and benefit cuts to workers, arguing that cuts are essential to balancing Detroit’s budget.

Due to the nature of the union vs “the system” narrative painted by the media, many have touted the notion that Detroit is just the latest victim of the capitalist system. Is Detroit really, as some pundits have called it, a conservative utopia?

Economist, and New York Times columnist, Paul Krugman stated back in the summer:

For the most part the city was just an innocent victim of market forces.

MSNBC host Melisssa Harris-Perry spoke on the matter as well, saying:

This lack of tax base is also exactly the thing that many Republicans would impose on us even when our cities have sufficient populations, even when our communities have sufficient populations, this is what it looks like when government is small enough to drown in your bathtub

Adding fuel to the fire another MSNBC host, Ed Schultz told his viewers:

thanks to a lot of Republican policies, the city is now filing for bankruptcy.

Needless to say, the narrative going around is that small government and free enterprise are to blame for Detroit’s woes.

However, such claims can easily be dismantled with a little more research.

Detroit’s “Small Government”

Of the “Republican policies” that have forced Detroit into the red (no pun intended), one has to travel 50 years back in time to find the last Republican mayor of Detroit. Since then, five decades of excessive spending and mismanagement has been under democratic leadership.

In terms of “small government,” Detroit actually has the second highest number of city employees of similarly-sized cities.

According to The Detroit News, MoTown has 12,900 city employees. Detroit has more city employees than Austin, Indianapolis, Columbus, Jacksonville, and Memphis, just to name a few.

To help put things in perspective, Detroit has a population of 713,777 with 12,900 city employees and a 55:1 residents per city employee ratio. Conversely, Charlotte, NC, has a population of 731,424 and just 6,703 city employees — a 109:1 ratio.

Clearly, despite the politicizing and partisanship amongst certain news outlets, the problem for Detroit is not that their government is too small. The problem is inefficiency, corruption, and mismanagement.

Getting back to Ms. Harris-Perry’s comments about Detroit not having a tax base, the city actually has the highest local tax rates in the state of Michigan. The Great Lakes State by itself has a 9.7 percent income tax rate, but individual cities also levy their own income taxes.

Most cities have a 1 percent tax on residents and a 0.5 percent tax on non-residents, but four cities (Detroit, Grand Rapids, Highland Park, and Saginaw) have different rates. Of those, Detroit has a 2.5 percent individual income tax for residents, and a 1.25 percent tax on non-residents. Perhaps higher taxes aren’t good for business after all.

Unions

In the debate over Detroit, most seem quick to defend the unions. However, a closer look at the unions in Detroit suggests that their hands aren’t so clean.

In his piece for Forbes.com, Detroit Gave Unions Keys To The City, And Now Nothing Is Left, Kyle Smith dives into the corruption of unions and how they have dragged down Detroit:

The DWSD has more than twice as many employees per gallon of water pumped as that other paragon of Midwestern governance, Chicago. An independent report said four out of five employees in the bloated department were redundant and discovered a thicket of union regulations driving up costs.

Smith continues:

The Detroit Service Employees’ International Union did even better, soaking individuals for its own purposes. It arranged to corral thousands of people receiving Medicaid payments to care for sick friends or relatives into its union, for the purpose of charging these people dues […] From 2008 to 2011, health insurance costs for Detroit employees and retirees have jumped 62% to $186 million a year, the Detroit Free Press reported.

Of course, many will argue that unions have played a leading role in raising worker wages and making life for workers better, and point out that as union membership has declined over the years, wages have gone down or remained stagnant. While half true, this claim is rather misleading.

Overall, worker compensation (wages + benefits [like healthcare]) has been driving steadily uphill for the last several decades, while union membership continues to fall.

Unions-Wages-600x383

To add insult to injury, along with the runaway corruption of unions, Detroit’s government has spent itself into oblivion. More specifically, one of its biggest issues was a large, vastly unfunded pension program.

According to a report by senior fellow at the Cato Institute, Michael Tanner:

The most obvious candidate is the city’s vast unfunded pension programs, which have been running deficits for years. Fully 99.6 percent of the city’s retiree health-care liabilities are unfunded, and the program generally pays 80 percent to 100 percent of retirees’ medical costs. From 2007 to 2012, the city’s two biggest pension programs paid out $3.3 billion more in benefits than they took in through contributions or investment income. Unfunded obligations account for $9.2 billion of Detroit’s $18 billion debt: $3.5 billion comes from the pension part and $5.7 billion comes from the retiree health-care liability.

It would appear that the Motor City’s woes come not from low taxes and small government, of which it does not have, but from expensive, unfunded big government programs. Paying for 80-100 percent of retirees medical costs, which has drowned them in debt, seems far more like a progressive policy than a free-market one.

Mr. Tanner also points out that while the public workforce has downsized in recent years, nearly one in fifteen residents still work for the city, giving Detroit it’s big and overstaffed government.

Again, it would appear Detroit’s government is not too small, but too big. So much so that it can barely afford to pay itself, let alone the pension program. Big spending that has drowned the city in debt, high taxes that have driven away business, and runaway Unions have caused Detroit’s plight.