One of the biggest stories of this year is Detroit’s $18.5 billion bankruptcy filing last week. It is important both on its face and for what it portends about looming fiscal failures at all levels of U.S. government.
Detroit’s problems are manifold (here, let’s clarify that we’re talking about the city itself, since “Detroit” is also used commonly as shorthand for America’s troubled Big Three automakers). But the breaking point came over the city’s pension obligations to former public workers.
Detroit’s dilemma, to honor those obligations to its past or serve the needs of current citizens, is shaping up as a choice the entire country faces. Our promises to retirees will increasingly compete for tax dollars with present needs such as infrastructure, education, defense, etc.
There are small changes we can still make now, such as adjusting the inflation formula for Social Security benefits and reducing pension and health benefits for wealthier retirees, to stave off harsher choices later. But these are considered anathema by anti-reformers who say all we have to do is raise taxes.
Detroit didn’t hesitate to raise taxes, but to no avail. According to the Detroit Free Press a couple of years ago, putting the city’s various taxes in terms of a single millage rate on property tax would mean a rate of a whopping 97 mills (which means $97 paid on each $1,000 of taxable property value). That’s more than double the actual millage rate in Atlanta, and it didn’t even include Detroit’s sales tax.
As the Free Press noted, Detroit’s high tax rates yielded a declining amount of revenue because people voted with their feet and moved away. Overall, Detroit ranked toward the bottom of a list of economic freedom in U.S. metro areas. No wonder its population has shrunk by more than 60 percent since its peak in the 1950s.
Of course, people didn’t only move completely away from Detroit. They also sought refuge from their hub city’s high taxes in its suburbs, allowing metro Detroit to maintain modest growth even as the city hollowed out. The city’s share of the metro area’s population fell by 28 percentage points between 1960 and 2010.
Alarmingly for Atlanta, that shift mirrors what has happened here. Atlanta’s share of the metro Atlanta population dropped by 30 points during that same half-century.
Granted, the nature of the change here has been quite different: Atlanta’s city population held steady while the suburbs exploded, whereas metro Detroit held steady as the core city imploded. Nor have Atlanta’s great companies experienced anything like the fall from grace suffered by Chrysler, Ford and GM.
But we should take seriously some troubling developments here, if we want to avoid Detroit’s fate. Consider two stories just from this week.
The first was a New York Times story, which ran on the front page of Tuesday’s AJC, about a study that found Atlanta ranked last among major U.S. metro areas for income mobility from one generation to the next. The study has its limitations, but it does indicate people from low-income families who grew up in metro Atlanta in the 1980s and ’90s have had trouble moving up the income ladder as adults.
The city that was next-to-last on one of the study’s key metrics? Detroit.
The other story was a Washington Examiner review of municipal employment in large U.S. cities (not metro areas, as in the previous example, but core cities). That newspaper found Atlanta has one of America’s worst ratios of city employees to city residents: one worker for every 51 residents.
That ratio was worse than cities such as Seattle, Boston, Los Angeles, Chicago, Dallas, Houston, Miami, Phoenix and Charlotte. Oh, and Detroit.
Take this as neither a pot-shot at Atlanta nor an elegy for it. This city, the one where my family and many of our friends and relatives live, has opportunities to seize and a future to build. But those opportunities and that future require us to face some uncomfortable facts and to change some long-settled ways.