By Michael Tamayo
“It will arise from the ashes.” It seems fitting that Detroit’s city motto involves rebirth from ruin. Detroit’s long-chronicled decline finally culminated in July 2013, when it became the largest American city in history to file for bankruptcy. Notorious for chronic financial difficulty, corruption and crime, Detroit has declared itself bankrupt as the final step in a path of misfortune and urban decay. Municipal bankruptcy is a tricky endeavor, often misunderstood by outside observers.
Since bankruptcy is often the last resort for a city, it’s tempting to believe that city leaders will cooperate despite their differences, with no room for petty politics when the city coffers are empty. But the reality is that bankrupt cities are actually more politically charged, more filled with distrust.
The simple solution, cooperation, is often unattainable. I grew up as a citizen of “The City of Opportunity,” Vallejo, California. In 2008, during my sophomore year of high school, Vallejo declared bankruptcy, and I observed local politics bring out the worst in the city. The atmosphere was anything but cooperative. At stake when a city declares bankruptcy is something that runs deeper than a city’s finances. It penetrates the city’s business climate, bolsters crime, seeps into the city’s morale and the psychology of its residents and cuts into the heart of the city itself. For that alone, Vallejo can teach us a lot. It can contextualize life in a bankrupt city and explain the role that politics and policy played in moving Detroit, or any city, toward insolvency. Maybe it can even suggest a way to move forward.
Vallejo is a city of about 118,000, situated in the northeastern corner of the San Francisco Bay Area. A Six Flags amusement park sits nearby. Golf courses are strewn throughout and palm trees line the waterfront. Vallejo is a stone’s throw from wine country and a ferry ride from San Francisco. But Vallejo’s peaceful façade belies a darker reality that its residents have to cope with every day. “In essence,” said writer Ron French, “Vallejo is Detroit with palm trees.”
Since declaring bankruptcy, Vallejo’s high crime rate has risen due to cutbacks in the police force. One officer even estimated that Vallejo’s crime rate had surpassed that of nearby cities, such as Compton, by 2010. Crime is indeed rampant, with most crimes shrugged off by residents as “just another day in Vallejo,” no matter how bizarre they sound: a man attacking children in a public park with a machete in one hand and a gun in another; a fourteen-year-old boy abducting an elderly woman, sexually assaulting her, demanding ransom from her family, and leaving her beaten in a ditch; or a mob of 40 teenagers beating a city worker, fracturing his skull, jaw and collarbone and knocking out some of his teeth. There are also shootings for wearing the wrong color in the wrong neighborhood, armed robberies at Starbucks, stabbings at McDonald’s and shootings at Little League games.
A Detroit-Vallejo comparison has its problems, of course, particularly in a demographic sense. The suffering that has arisen in Vallejo would be magnified in a city like Detroit. Vallejo has not seen the population decline in the past decades that Detroit has: While Detroit’s population has declined from a peak of 2 million in 1950 to about 710,000 in 2010, Vallejo’s population has increased from 26,000 in 1950 to about 118,000 today. Detroit is an urban center, while Vallejo is a suburban one, and at the height of the recession, Detroit’s unemployment rate peaked at 27.8 percent, while Vallejo’s unemployment rate peaked only at 15.3 percent. But the two are comparable in other ways — they share the decay that inevitably creeps in after economic hardships, a reality that Vallejo’s citizens have had to suffer intimately.
Over time, I watched the city transform into something unrecognizable. When Vallejo declared bankruptcy, city services were effectively reduced to zero, catalyzing a host of problems for residents. Prostitutes began soliciting at night in alarming numbers and leaving used condoms on the sidewalks. Severe funding issues forced the city to close several public schools. Half of Vallejo’s storefronts became empty, and the other half began announcing to patrons that they accept food stamps. Foreclosures are now common. Properties are often auctioned off at the steps in front of City Hall. Former City Manager Phil Batchelor was once asked to describe the state of Vallejo’s road maintenance. “Do you know that some cities actually pave their streets? That’s not here,” Batchelor responded. The quality of life in the city only continues to plummet.
These conditions made Vallejo’s “City of Opportunity” motto seem like little more than jest. One city councilmember has even suggested taking down the signs around the city displaying the credo. The story is a reminder that bankruptcy is not just financial. It alters the psychology of its residents — affecting business, increasing crime and degrading the landscape of the city. Vallejo Vice Mayor Stephanie Gomes has correctly argued that bankruptcy “brings a brutal recognition of the new normal” to residents’ way of life. Empty coffers are intimately related to the rest of the city’s problems, sometimes causing them, sometimes making them impossible to solve.
At the time, Vallejo was the largest city in United States to have declared itself bankrupt. It destroyed the morale of its citizens. The city became a punching bag in the national media, crowned with dubious distinctions such as the sixth most miserable city in America (though on the same list, Detroit earned the top spot). The population lost faith in their city and its government. For anyone who lived there, Vallejo’s anguish was palpable, and so too will be Detroit’s as it suffers the consequences of its own bankruptcy.
How do a city’s finances become unwieldy enough to file for bankruptcy in the first place? And what would compel politicians to sign their hometowns up for bankruptcy when they should know how traumatic it is? In the cases of Vallejo and Detroit, a combination of structural factors played a major role in their bankruptcies, several of which emerged in both cities well before their officially filing.
What car manufacturing was to Detroit, shipbuilding was to Vallejo. Much has been made of Detroit’s struggle to redevelop its local economy while the auto industry has slowly left the city. Vallejo’s own struggles mirror these efforts. Vallejo was home to the Mare Island Naval Shipyard, the first U.S. Navy base on the West Coast and one of the busiest naval shipyards in the world. At its peak, Mare Island employed over 41,000 workers, and the base was vital to Vallejo’s local economy for most of the city’s history. But Mare Island was steadily downsized in the decades following World War II, until it finally closed in 1996. The closure drained millions of dollars from the local economy. This is startlingly comparable to the problems in Motor City, whose automobile industry bled for decades as more production moved out of the city, causing high unemployment and a lack of resources for both citizens and government. Detroit’s shrinking tax base due to an accompanying population decline made solvency even more difficult. Both cities, then, have lost the lifeblood of their local economies when their biggest industries declined.
Ongoing pension crises haven’t helped, causing resources to dwindle in both cities. In Vallejo, 80 percent of the city’s budget was wrapped up in police and firefighting salaries, pensions and overtime. Eventually, the city had only $6 million to satisfy $382 million in claims, but had no way to raise money quickly enough to keep up. In Detroit, a similar trend has unfolded over the course of many years. Without reform, almost two-thirds of the city’s budget will be devoted to pensions and benefits owed to city workers by 2017. In total, the city has accumulated a whopping $18 billion in debt that it has little hope of paying back.
In each city, these structural budgeting problems only culminated in bankruptcy at the occasion of a sudden downward turn. For Vallejo, it was the collapse of the housing bubble during the recession. Property values plummeted by an average of 67 percent, decimating what had been reliable property tax revenue that was pushing the city forward — albeit slowly — even after Mare Island closed. For Detroit, it was state intervention in the city’s finances that triggered the downfall. Several months after a state takeover of Detroit’s books, Michigan concluded that the city’s finances were beyond saving, after officials discovered that the city had only $7 million in revenue to pay for a $1 billion budget in 2013. The state of Michigan then prompted the city to file for bankruptcy, just shortly after the takeover.
Although bankruptcy was triggered by a single event in both cities, it was not a singular catastrophe but rather was a downward spiral years in the making, one that dragged numerous institutions — not just industry — down with it. For instance, in the midst of financial catastrophe, it’s tempting to think that cities as desperate as Vallejo or Detroit would have no room for petty politics — that political actors under pressure will cooperate with each other for the betterment of their cities. The unfortunate truth, however, is that political gridlock and entrenched agendas are what helped lead to bankruptcy in the first place. And the difficulties only worsened in the period leading up to bankruptcy; staunch ideology and agenda-seeking caused the dysfunction and stalemate that became entrenched political norms by the time cities were forced to seek protection from their creditors. Politics is anything but absent in a bankrupt city.
In the months leading up to Vallejo’s bankruptcy, city council meetings were little more than outlets for residents to rant at the city council. One resident brought a freshly butchered pig’s head wrapped in twine to a meeting, claiming that the city was “hogtied” by its police and fire unions. It’s true that the public safety workers unions held tremendous political muscle in Vallejo and exerted influence over the vast majority of its budget. Before bankruptcy, the average beat cop made $122,000 before overtime, and the average firefighter made $130,000. Salaries ballooned up to $231,000 for police captains — roughly the same as the salary of the Vice President of the United States. Moreover, both police and firefighters were able to retire at age 50 with a pension equal to 90 percent of their final pay, assuming 30 years on the job. Recognizing how unsustainable this arrangement was, the city administration attempted to negotiate with the police and fire unions to reform pay and benefits for their employees, but with no success. Both sides accused the other of not negotiating in good faith. One councilmember claimed the unions offered her an endorsement if she promised to “stay bought,” and in return, the unions attacked the city for threatening to void their fairly negotiated contracts. The political stalemate only compounded the financial difficulties that had plagued the city for years, and helped speed up the march toward bankruptcy in 2008
The same narrative is unfolding in the Motor City. The city’s unions, residents, legislators and creditors find themselves in a free-for-all, with each party demanding that its interests be represented fairly in the final agreement. Detroit’s pension plans are not equivalent to the overly generous deals that unions received in Vallejo, but with three retirees for every worker paying into the plan, and with costs projected to keep increasing, a pension crisis looms large over the city. The United Auto Workers, Detroit’s largest and most famous union, is taking a hardline stance and refusing to negotiate with the city at all over pension cuts. Unsurprisingly, political actors don’t simply surrender their interests when financial insolvency looms. Instead, they double down. They butt heads with each other. They stalemate. Meanwhile, the city is seeking protection from its creditors in federal court — much to the creditors’ chagrin — after being unable to convince them to accept pennies on the dollar for the debts it incurred over the years. Detroit residents are frustrated with everyone involved in the situation; municipal bankruptcy is an exercise in bitter disagreement between parties with seemingly irreconcilable differences. The dirty politics of bankruptcy sets the tone for the entire ordeal, reaffirming the idea that bankruptcy seems inescapable. In some ways, the sheer divisiveness of politics is more discouraging to residents than the financial situation itself.
In both Vallejo and Detroit, financial hardship contributed to more difficult politics, and more difficult politics contributed to more financial hardship. In Vallejo’s case, diminished revenues from the closure of Mare Island and declining property values meant more competitive budget fights, and a harder time providing city services to residents and fighting crime. The same trends apply in Detroit. When there is less money to go around, people and interest groups fight viciously over who has the best claim to it. Politics and policy don’t occur in a vacuum; they influence each other. In bankruptcy cases like Vallejo and Detroit, this positive feedback loop only made financial troubles worse.
Community involvement has been a key part of Vallejo’s recovery. The city needed to make sure its residents felt invested in their city and would be willing to fill the holes left behind by steep cuts in city services. When the city slashed its police force down to just over 80 officers, it encouraged residents to make do without police by forming neighborhood watch groups and other civic organizations. Before bankruptcy, there were only 10 such groups in the city. Today, there are over 350, which dedicate themselves not only to watch groups but to many different local work projects. Some patrol neighborhoods and report city code violations, others root out drug dealers, and still others deter prostitutes from soliciting in their neighborhoods (locally known as “ho patrols”).
These groups have found some success in reducing prostitution, drug dealing and vandalism in their neighborhoods. Other groups specialize in cleaning trash off the streets and keeping city parks clean. The city broadly encourages all of these activities — Vallejo even launched a private social networking platform for neighborhood watch groups to coordinate with each other. It also became the first U.S. city to adopt citywide participatory budgeting. In this process, city leaders struck a deal with residents to raise the local sales tax in exchange for allowing residents to vote on how they would like the revenue to be spent. This subjects a small part of the budget to the democratic process and brings citizens more actively into community planning. Vallejo’s example demonstrates how community empowerment is an important part of battling through municipal bankruptcy.
Detroit could similarly benefit from bottom-up solutions that would mobilize and spur its residents into communal action, instilling in them the idea that their city is worth fighting for. Community empowerment may sound corny, but it’s exactly what Vallejo did — by spurring citizens to take on responsibility for tasks that used to be government-run. If Detroit can find similar opportunities to mobilize its residents into action, such programs can be used to mitigate the effects of the austerity budgets that inevitably come with bankruptcy.
Of course, community empowerment is no cure for the kinds of challenges faced by bankrupt cities. Solutions also need to come from the top, and it’s the responsibility of the city government to figure out ways to stabilize its budget in the long run. This is a responsibility which residents have little say in, even in communities with active citizens. It also means the city might need to alienate political actors, such as unions, who would rather not accept cuts to their employees’ pay or benefits in order to create sustainable long-term solutions. The brutal truth is that cities cannot be shy about the measures they need to reach solvency again. They cannot afford to emerge from bankruptcy on such tenuous financial footing that they risk relapsing.
Vallejo serves as a cautionary tale about relapse: just two years after emerging from bankruptcy, it is once again facing unsustainable budgeting because it did not sufficiently reform its pension plans. A municipal bankruptcy attorney in San Francisco, Karol Denniston, summarized the problem: “Any municipal bankruptcy that doesn’t restructure pension obligations is going to be a failure because pension obligations are the largest debt a city has. Outgoing Councilmember Marti Brown penned an editorial in the Sacramento Bee claiming that Vallejo is “poised to make [the] same financial decisions that led to bankruptcy” in the first place.
This is a lesson for Detroit. Like Vallejo, the Detroit city government must leverage the political moment to stabilize its budget for the long haul — whether political actors in the city like it or not. If the Motor City decides it needs to restructure its pension plan, it must do so comprehensively or risk the same post-bankruptcy dilemma facing Vallejo today.
Bankruptcy has been a painful burden for Vallejo. I have seen my city leaders mount vicious smear campaigns against each other, watched the infrastructure of my hometown deteriorate from neglect and looked on as my hometown paid in bloodshed and broken windows for what it could not afford to pay in dollars. A city battling through bankruptcy is a city fighting to hold together the pieces of its own shattered soul. Detroit needs us now, and maybe it can learn from Vallejo’s mistakes as well as its triumphs. With a lot of effort and luck, perhaps someday we will say that Detroit found a way to rise again from the ashes.