… and bang goes Detroit …

This brings me no joy. I went to grad school in Detroit. I like this city. It has character, it has guts, it has potential.

It also has no cash to continue operations. And that sucks.

Detroit filed for chapter 9 bankruptcy a few hours ago.

There are many reasons for this, but there are a number of specific ones, that are generalizable to businesses as well.

First, population decline has led to a tax revenue decline. Detroit is no longer a large US city. Population is hovering just over 700k people, and dropping rapidly. Fewer people means smaller tax base. One may argue about the collection efficiency (low) and other issues, but the point is that to collect a fixed/growing tax revenue amount from a smaller group of people means you raise their tax rates. Detroit has not been in a position to absorb tax rate increases in several decades.

Second, sweetheart deals for unions, pensions, etc. Back in the high population days, it was easier to ignore potential future tax revenue issues, and ink deals with unions that, today, would never stand scrutiny. There’s a story I tell of the time at Wayne State University, where I had the temerity to suggest that I help wire the Physics department for this newfangled ethernet (yeah, I am that old). The grief and hostility I got back from the union rep, whom I had up until this time, thought of as a friend … was astounding. That one experience completely soured me on the role of unions in the marketplace, and their net effect upon employers. Detroit was the birthplace of much of the union concept in the US, and they had a stranglehold on the city for many decades. Pensions, benefits, etc. Inability to fire incompetent workers. Inability to enable efficient operations by combining jobs and minimizing the number of workers required for a job. There is a cost to this. A huge cost. In the future. Until you start to have a smaller tax base.

Third, widespread corruption. There is simply no way to minimize this. Starting well prior to Coleman Young, and really hitting its maximum during the Fitzpatrick regime. The looting of this once great city went on for decades.

Fourth, taking out debt instruments to repay the previous debt instruments. This is death by debt, sort of like paying one credit card with another. Detroit is up to $13B or more in debt last I heard, though I have heard numbers as high as $25B.

Even though I grew up in the northern NYC metro area (upper Westchester county), I’ve always loved NYC. I found it deeply enjoyable every time I visit as an adult. Other cities that I love to visit include Chicago, London, San Diego, Austin (in winter), and Boston. There is so much going on there.

Detroit could be like that. All it requires is vision, cash, and some hard core competent management, not to mention some changes in the law that enable the city to act in its own best self interests, and not act as an ideological soul mate to those who want to bleed it dry, either legally, or illegally.

I find the old train station complex to be magnificant, and if I could find $20-30M in hard cash, I bet I could turn it into a tremendous data center. In fact, many buildings in the skyline are partitially or completely abandoned. We could turn any of them into a ginormous data center. Seriously, this could become a digital hub city.

All it takes is vision. Strong leadership. Capital.

We’ve got the right guy in the governors chair to do this. The question is whether or not Detroit can be fixed enough to be reborn from its ashes.

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