Tuesday, September 17, 2013

Detroit's Debt-to-Revenue Went Vertical in the 2000s (Chart)

In a detailed article on September 15, the Detroit Free Press analyzed Detroit's historical financial trends and explained why it went broke and how it could have been prevented. They put up some scary charts that every municipality should see. Basically the city made a wrong way bet on its tax base in the 1990s and 2000s and ended up paying the price. They miscalculated their future pension and healthcare costs, mismanaged their pension funds (13th checks?), took on way too much debt, and ultimately failed to boost tax revenue via economic growth.

Detroit's days were numbered in the 2000s under Mayor Kwame Kilpatrick when its debt load went vertical against its tax revenue, and its tax base got destroyed by the housing bust, Great Recession and its declining population. Below is a video of the animated debt/revenue chart from the article. On other charts in the article, they noted that Detroit's income tax revenue plunged 55% from 2000 to 2010 and "wagering tax revenues from city casinos surpassed property taxes for the first time" in 2008. It just shows how unforeseen economic events, a spike in debt, a spike in health care/pension liabilities and costs, and a declining population (tax base flight) can send a large muni to bankruptcy court in 20 years. That's why I think Chicago and Illinois will be interesting to watch in the next 10 years (read: Moody's Downgraded Chicago, Cook County and Illinois Because of Unfunded Pension Liabilities and Rising Costs; Illinois Lost $20.4 Billion of Annual Personal Income Between 2000 and 2010). Chicago is definitely not the next Detroit, but a similar situation could occur in the future if its fiscal problems aren't resolved.



Source: Detroit Free Press (Detroit bankruptcy: Debt explodes in 2000sHow Detroit went broke: The answers may surprise you - and don't blame Coleman Young)

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