Illinois Policy event tackles question: Is Chicago another Detroit?

September 25, 2013

Wednesday, September 25, 2013

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By Nancy Thorner – 

After more than 40 years of liberal Democrat control, Detroit declared bankruptcy. Some define insanity as continuing the same behavior and expecting different results. Yet, that is exactly what Democrat politicians are advocating as a solution for Detroit, more bailouts! Capitulating to ridiculous union demands, generous welfare spending, high taxation, excessive government interference and political corruption brought Detroit to destruction. More of the same won’t save it.

A must read is this bleak account about Detroit in the aftermath of an August visit by Ted Dabrowski, Vice President of Policy at the Illinois Policy Institute, and his friend and colleague, Paul Kersey, a Detroit native and Director of Labor Policy at the Illinois Policy Institute. The story ends with these words: The city [Detroit] relied on state and federal subsidies to keep its broken program afloat  Detroit is now about reforms it could’ve andshould’ve passed. Illinois needs to avoid that ending [Detroit’s]. It has to avoid the temptation to pass fake and meaningless reforms that perpetuate its crisis. Instead, it needs to go for the big bold reforms that will keep our state great.

The fall of Detroit is a story that must be told to prevent Chicago from following the same course as Detroit.  On July 18th the city filed for the largest municipal bankruptcy in U.S. history after decades of out-migration, economic stagnation and urban decay.

The Illinois Policy Institute met this challenge on September 18, with an event held at the Union League Club in Chicago.  Three experts from Detroit and Chicago discussed the policies and economic factors that led to Detroit’s bankruptcy and what Chicago and other cities can learn from the Motor City.

Panelists included:

  • Henry Payne, an editorial cartoonist, editorial writer, and weekly columnist for The Detroit News
  • Jim Luorio, Managing Director, TJM Institutional Services and CNBC Analyst
  • Bill Johnson, former Director of Administration & Budget, Wayne County Commission
  • Moderator, John Tillman, CEO and President of the Illinois Policy Institute

Jonathan Greenberg, Vice President of External Relations at the Illinois Policy, introduced the three distinguished guests. Prefacing his introductions, Greenberg reiterated what has become a dictum of the Illinois Policy Institute: “Policy changes Lives – Just as good policy improves communities, bad policy destroys families and communities.”

While Detroit was once an industrial power house and home to millions, two-thirds of its inhabitants have left. Remaining is a city desperately poor and where for entire blocks there exists a waste land of nothingness.

Moderator John Tillman initiated the discussion with his account of having grown up in Detroit by first providing the following “food -for-thought-what- if” statement as a backdrop for what was to follow:  “Think of dialing 911 for a family member who has had a heart attack and waiting 60 minutes for an ambulance to show up.” Of course this would be unacceptable and perhaps fatal. Fundamental services must be provided for city dwellers or they will leave. Tillman spoke of going to Tiger Stadium in 1978.  It was pretty rough then, but when returning in 1979 he found that the hotel he had stayed in had become a Salvation Army facility.  The death spiral had begun.

It was then that Bill Johnson spoke about a sequence of four events which led to Detroit’s downfall.  According to Mr. Johnson, the downfall of Detroit was a long process. After World II Detroit was the destination for many blacks, as was the city of Chicago. While Detroit was once known as one of the wealthiest cities, it is now one of the poorest. The same applies in measuring Detroit’s record of safety.

  • The 1967 riots, which were about looting and burning and nothing else, scared the hell out of white people initiating a stampede to the suburbs.
  • The forced school busing of 1970 enacted to segregate both blacks and whites, which went on for a number of years, forced more whites out of Detroit.
  • The election of Mayor Coleman Young in 1974, mayor for twenty years until 1994, bought into office policies aimed at creating a level playing field. Once again white people were scared and more exited to the suburbs.
  • Coleman vs. the U.S. in 1980 gave Coleman the authority to impose a 3-1/2 % income tax in the city of Detroit. The accumulated tax burden to live in Detroit was more than many residents were able to pay, so they moved to greener pastures.

Being a black himself, Johnson made this observation: Voters kept electing individuals who are too ignorant or who have had little experience in running a city or anything. During Mayor Coleman’s time a business group did bring a plan for revitalization of Detroit, but Coleman wasn’t going to allow a group of white people living in the suburbs to tell him how to run his city.

Johnson noted how in 1960 Detroit had 200,000 school children. Today there are 50,000 or less students, and the schools are in shambles offering little hope or opportunity. There is not enough money in the state to fix Detroit’s schools.

Chicago and the entire state of Illinois, not unlike Detroit’s mismanagement, are papering over deficits year after year. African-Americans also have left Chicago, 200,000 strong.

Detroit stayed afloat instead of collapsing years earlier because of the anti-poverty programs enacted by the administration of President Lyndon Johnson, which included a whole host of programs.  Detroit could no longer afford to keep the programs going after the money dried up.  As to Johnson’s anti-poverty programs, they didn’t rid Detroit of poverty or even reduce it.  The poverty level remained the same as it was prior to Johnson’s Great Society programs.

With a question about Common Core, Johnson spoke about his involvement with the monopoly that is Common Core as the provider of educational programs and services. Teacher unions was described as the most radical union in this nation.  The only way to improve education is through competition. Johnson likes charter schools where money follows the child.  A bright spot in Detroit is that there is a lively charter school movement.  Young people are moving back, from which will develop young families who will feel comfortable to call Detroit their home.

Adding to the discussion, Henry Payne expressed his insights.  Mr. Payne moved to Detroit in 1999, so he qualifies as a relative new-comer.  His move was prompted by a natural fascination with the city as home to the auto industry.  Payne described Detroit as the most dysfunctional city in America.  “It is folly to think that cities are not immune from what happened in Detroit.”  There was expressed reservation by Payne in feeling optimistic about Detroit.

The tipping point came for Detroit when its middle class was lost.  With it went the inability to sustain Detroit financially.  Without a taxing body, money wasn’t  available to provide adequate fire or police protection for Detroit residents.  Detroit’s murder rate crept up to 52  per 100,000.  In 1980 New York City was likewise facing severe problems and on the verge of bankruptcy, with a murder rate of 24 murders per 100,000, but Mayor Rudy Giuliani’s policies saved the middle class from moving out of the city.  Now New York City’s murder rate is 6 per 100,000.

Although difficult to believe when Chicago is commonly referred to as the nation’s murder capital, Chicago’s per capital murder rate, although lower than in other cities with populations above 40,000, in 2011 — the last year records were tabulated comparing cities — the FBI ranked Chicago behind over three dozen other American cities with a per capita murder rate of 15.98 per 100,000 residents.

As safety is paramount to the middle class and for the wealthy, more of these individuals might be convinced to flee Chicago?  Also, as pension obligations continue to grow they will begin to squeeze out financial support needed to provide fundamental services.  The same is being experienced in most large cities.

Henry Payne suggested writing Letters to the Editor or showing up at meetings with Mayor Emmanuel and the City Council.  Indicated by Payne is that Chicago has had pretty good leadership over time.  Detroit is now being forced to do with pensions what it should have done years ago.  Regarding its valuable three billion art collection, the city refused to put its collection into a non-profit foundation.  Detroit’s art collection could now be on the chopping block.

Jim Luorio had far less to say than did the other two experts, Bill Johnson and Henry Payne, but his comments were just a pertinent, and maybe even more so, because they dealt with the subject of why fund markets matter.  Although a somewhat difficult subject to understand, the main thrust of Luorio’s comments were two fold:  1)  Anticipated revenue of pension fund investments many times fall below expectations, thereby creating a further shortfall of funds available for distribution.   2)  The downgrade of Chicago’s credit rating three times over has created a reluctance to loan Chicago money.  This has resulted in a higher borrowing rate for money, with an increased burden to pay off  bonds carrying the higher interest rate.  This is money that could be put to better use in Chicago.

In rounding out the discussion, John Tillman expressed optimism, as he is prone to do.  While admitting that Chicago’s financial crisis is worse than Detroit’s, he countered by saying that Chicago has not yet lost its middle class.

Three articles posted recently on Illinois Review, one by Yahoo Finance and two by Ted Dabrowski, has not given me the confidence expressed by John Tillman.

1.  Illinois has the most threatened state pension plan and is the most poorly funded state in the U.S., as Yahoo Finance reminded in a post on Monday, September 23.
2.  According to Ted Dabrowski, Vice President of Policy at the Illinois Policy Institute, Illinois is on the hook to pay out $620 billion in pension benefits over the next 32 years.

3.  A second article by Ted Dabrowski spoke of Illinois as having the nation’s 2nd highest unemployment for six straight months with a figure remaining above 600,000.  The U-6 rate, which includes not just unemployed, but also people working part time while seeking full-time work, as well as unemployed people who haven’t looked for work in the past four months but have sought employment in the past year, sets the figure at 16.1 percent.  More than 1 million Illinoisans are underemployed or underemployed.

You must now be the judge.  Can Chicago be saved?

Wednesday, September 25, 2013 at 05:51 PM | Permalink

 

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