NEWS BLOG (WSAU) Before Detroit filed for bankruptcy, there was Bridgeport. Connecticut’s
largest city (Bridgeport is bigger than Hartford) tried to file
for bankruptcy in 1991. The state fought against the bankruptcy, the mayor who
filed for Chapter 9 protection was voted out of office, the petition was
There are a few things I remember about the Bridgeport bankruptcy debate from 22 years
First, there’s a legitimate question about whether a municipality
that has taxing authority can ever be bankrupt. Bridgeport had a multi-million dollar
shortfall. But it could have raised property taxes to cover the difference. Of
course more businesses and families would leave the city – which already had
the highest taxes in the state. But bankruptcy is not supposed to be about
politically unpopular choices; it’s supposed to be about whether an entity is
solvent or not. Bridgeport,
indeed, did have cash on-hand. So does Detroit.
These are filings because the future is untenable, when bonds and pensions come
There is also the issue pensioners vs. bondholders. It’s the
second-most interesting issue in the Detroit
bankruptcy. Pensioners have worked all their lives for their retirements. But
they’ve been promised benefits the city can no longer afford. How much of a hit
should they take? Bondholders, on the other hand, are secured creditors. They’re
first-in-line to be paid. You can see the PR battle that looms. Investors are
supposed to be made whole, while sick and elderly retirees get cut. Yes – that’s
how it’s supposed to be under that pesky thing called The Law. The Obama
Administration interceded against the bondholders of Chrysler as part of the
auto industry bailout. It was a gift to union workers. All of Detroit’s retirees were also union workers.
The big question is whether there will be a federal bailout. Detroit was once America’s 4th largest
city. Now 40-percent of the city’s streetlights are out and entire
neighborhoods are abandoned. The White House has already helped – like with
cash for clunkers – to no avail. I expect the President to offer a lifeline.
They’d be acting with a purpose. It blazes a trail for future, bigger bailouts.
Is the State of California
next? It would send the disturbing message that state and local leaders can
make any promises they wish, spend all they can, and the federal government
(which simply prints money to cover its shortfalls) has their backs. There may
be other Detroits in our future.