Detroit: From American dream to American nightmare

A Detroit paint factory is in a state of disrepair amidst the city's economic collapse A Detroit paint factory lies in a state of ruin typical to the city's collapsed industrial base

Related Stories

Three months ago, Detroit became the largest city to file for bankruptcy in US history. The trial to determine whether a city of Detroit's size can stop paying its bills will have huge potential repercussions for cities and states across the country.

Perhaps no-one is awaiting the trial's outcome as much as Erma and Gordon MacDonald, who have been married for 63 years.

"I'm smarter than her," jokes Mr MacDonald, 87. "Only a stupid person would agree to marry me."

A jester at heart, Mr MacDonald says people always ask him why he laughs so much.

Mrs MacDonald, 82, has an easy answer: "It's so we don't cry."

In their tiny one-bedroom flat decorated with photos of their children and grandchildren, the MacDonalds grow silent.

Erma and Gordon MacDonald: "If they take my pension away, then we'll be in bad shape"

They contemplate a future in which the pension that Mr MacDonald earned over 39 years with the Detroit Police disappears - a potential casualty of Detroit's bankruptcy filing.

"I don't know what else to say - we're up in the air," Mr MacDonald says. He worries more about his wife, who is in poor health, than about himself.

"I take 15 prescriptions," says Mrs MacDonald, "and I kind of jokingly said if they take [my healthcare] away, which pills do I stop without dying?"

'American nightmare'

While it might seem unfathomable that the MacDonalds could face such a choice, the reality is that if Detroit's bankruptcy filing is allowed to proceed, the city will face extremely difficult decisions.

Kevyn Orr, the emergency manager brought in to run the city by the state of Michigan, argues there is no way forward for Detroit other than through the fresh financial start that bankruptcy brings.

The city is anywhere from $18bn (£11bn) to $20bn in debt - with $9bn a result of ballooning pension and healthcare costs.

A car is towed in Detroit, Michigan City authorities tackle the problem of abandoned cars on Detroit's streets
James Canty talks to car owner James Canty (left), manager of Detroit's parking department, deals with car owners who often only appear once their car is about to be towed
Michigan Central Station Michigan Central Station, built in 1913, has been closed since 1988. Once the tallest railway station in the world, it now stands decayed and abandoned
Road with graffiti The work of graffiti artists can be seen around much of the city
Diego Rivera's murals at the Detroit Institute of Arts As a way of paying off the city's debts, Detroit's emergency manager has proposed selling prized artwork from the Detroit Institute of Arts

It has already cut basic services to the bone, pushing more residents to flee. The city's population now stands at 700,000, down from two million at Detroit's peak.

Wait times for emergency calls now top one hour, and less than a third of the streetlights function.

Start Quote

If Detroit is able to file for bankruptcy, then every other big city is going to be watching this”

End Quote Prof John Pottow University of Michigan law professor

More than 80,000 properties have been abandoned. Nature, it seems, moves faster than federal court.

Despite all the hardship, those representing the city's pension schemes say a bankruptcy filing would allow the city to renege on promises made long ago.

They dispute Mr Orr's calculations, and say it's unfair that the 23,500 retirees who spent their lives working to keep Detroit safe and clean could be left with nothing.

"They're taking away the American dream and turning it into the American nightmare," says Donald Hall, who spent 29 years as a detention centre officer and now depends on the $850 he receives from the city every month.

All eyes on Detroit

There's no question that Detroit is unique among US cities, to fly so high and fall so far, to build landmarks like the majestic Michigan Central Station that less than a hundred years later have the aura of Roman ruins.

So then what impact, if any, could a successful bankruptcy filing have on other cities?

"On the one hand, Detroit is in an unusual position because it has had massive depopulation coupled with a collapse of the industrial sector," says University of Michigan law professor John Pottow, an expert in bankruptcy law.

'The jewel in the crown'

Graham Beal

Emergency manager Kevin Orr has proposed selling prized artwork from the Detroit Institute of Arts (DIA) to pay off the city's debts.

Founded in 1885, the DIA was the first US organisation to buy works by impressionists like Henri Matisse and Vincent van Gogh.

"It's [the] jewel in the crown" of Detroit's cultural attractions, says director Graham Beal (pictured above).

Assessors from Christie's auction house have spent weeks in the museum's galleries, trying to figure out how much the 3,500 works owned by the city are worth. It's estimated to be somewhere in the tens of millions of dollars.

Standing in the sky-lit courtyard of the museum, surrounding by Diego Rivera's epic murals of factory workers on the Ford production line, Mr Beal says it's abhorrent that the works of art lovingly collected could be sold.

"No one talked about selling art in the Great Depression," he says.

"On the other hand, Detroit was not alone in making legal commitments to people which it had no funding for."

According to a study by economists at Northwestern University, cities and counties across the US have a total of $574bn in unfunded pension obligations.

Already, cities such as Providence, Rhode Island, and San Diego, California, have shown signs they are crumbling under the weight of the financial promises made to retirees.

"If Detroit is able to file for bankruptcy, then every other big city is going to be watching this," says Prof Pottow.

Can it be fixed?

James Canty is a lifelong Detroit resident and manager of the city's parking department. I followed him on his daily rounds as he tried to rid the city of some of the thousands of abandoned cars that line its streets.

The job was once done by the police. Now, Mr Canty's team has taken on the role of enforcer in an attempt to free up overworked officers.

In neighbourhoods where it's hard to tell which, if any, of the houses are occupied, Mr Canty points to a white Chevrolet sedan with shattered windows here, a pick-up truck missing a wheel there.

Frequently, as soon as a tow truck arrives to remove the offending vehicle, the vehicle's owner suddenly appears, as if by magic.

The excuses are often similar - what looks like a derelict car is in fact in the process of being mended.

It's not hard to see Detroit's financial position in the same way as these dented and decrepit cars - they may or may not be broken, depending on who is looking at them.

Is it better to clear the way for something new - or to be forced to fix what only appears beyond repair?

More on This Story

Related Stories

More Business stories

RSS

Business Live

  1.  
    SSE cuts gas prices Via Email James Padmore head of energy, comparethemarket.com

    If customers of British Gas and Scottish Power thought that delaying price cuts until February was unfair, I suspect those households with SSE will be pretty unimpressed by this announcement. In general, many Big Six customers have not reacted as well to the price cuts announcements as those companies might have hoped. In the last week, we have seen switches to the Big Six remain broadly flat.

     
  2.  
    Aer Lingus bid Via Email Mark Irvine-Fortescue Jefferies International
    Michael O'Leary

    Hurdles remain to Aer Lingus accepting IAG's revised €2.55/share bid but on balance we think a deal will get done. The deal would be positive for IAG, adding further growth avenues to the already exciting outlook, and for Ryanair shareholders, who could rightly expect a cash windfall.

     
  3.  
    SSE cuts gas prices Via Email Adrian Smith, business live reader

    After 18 months of falling gas and oil prices, 50% on oil and 35% on gas, they offer a reduction of 4% but you have to wait three more months. Disgusting. It is time these companies were brought to book. I will vote for any party that does that and so will million of others.

     
  4.  
    10:19: Greek election

    It is early days, but so far there are few positive signals for calls for a renegotiation of Greece's debt agreements. Norbert Barthle, spokesman on budgetary affairs for the conservative CDU party in the lower house of the German parliament told Reuters "with us there will be no further debt reduction for Greece".

     
  5.  
    10:06: Flybe shares plummet
    plane

    Budget airline Flybe has seen its share price dive 22% this morning after it had said passenger revenue per seat fell 3.8% in the third quarter and forecast lower passenger revenue in the next three months. It said it would break even on pre-tax profit for 2015 but that falling oil prices would not help in either 2015 or 2016 as a result of its hedging. Competitive pressures on new routes - out of London City Airport for example - "will extend the period of time" they take to add to revenues, the airline added.

     
  6.  
    09:50: Greek election

    Reuters is reporting that Greece's leftwing Syriza party may form a coalition government with the right-wing, anti-bailout Independent Greeks party. The leader of the smaller party, Panos Kammenos, is quoted as saying: "I want to announce that from this moment there is a government in the country. The Independent Greeks give a vote of confidence in Prime Minister Alexis Tsipras. There is an agreement in principle."

     
  7.  
    09:39: Greek elections
    ase index

    Athens's main share index has opened down 4%. Banks and financials are the hardest hit.

     
  8.  
    09:35: Reverse ferret
    FTSE 100

    The FTSE 100 has risen back into positive territory after opening down more than half a percent. The DAX is now up 0.5% and the CAC is up 0.25%. It's going to be a volatile day.

     
  9.  
    Aer Lingus bid Kamal Ahmed BBC Business editor

    After rejecting the first two bids as "fundamentally undervaluing" the business, Aer Lingus is a lot more positive this morning about a possible takeover by International Airlines Group (IAG), the owners of British Airways run by the combative Willie Walsh. The Irish carrier said it is now "considering" IAG's third offer of €2.55 a share. The betting must now be on a recommended deal being put to the two major Aer Lingus investors (Ryanair and the Irish government) at some point this week.

     
  10.  
    09:07: Market update

    As predicted, Europe's share markets have opened down. London's benchmark FTSE 100 index of top companies fell 0.57% to 6,794 points, Frankfurt's DAX 30 shed 0.53% to 10,592.97 and the CAC 40 in Paris lost 0.45% to 4,620 points.

     
  11.  
    08:57: Greek election BBC Radio 4

    Mr Varoufakis tells Today he wants to tell German voters the problem isn't that they haven't paid Greece enough to save its economy but that they have paid far too much - €240bn - in the last five years. The problem, he says, is that only 10% of that money has gone to the Greek government; the rest has gone "into a black hole of debt."

     
  12.  
    08:43: Greek election BBC Radio 4

    Mr Varoufakis quotes Dylan Thomas (which doesn't happen every day on the live page). The glimmer of light he says came on Sunday when the Greek electorate chose "to stop going gently into the night and to rage against the dying of the light." Now Greece can have a rational conversaation with its European partners about what to do next, he says.

     
  13.  
    08:37: Paper review
    papers

    Unsurprisingly, this morning's papers are united in leading on the Greek election result. The Times reports Greece "sent shockwaves across Europe," while the FT calls it a "momentous poll victory" for Syriza. The Wall St Journal says an "astonishing upset of Europe's political order" is on the cards, while the Telegraph puts Greece on a "collision course" with the rest of Europe.

     
  14.  
    08:24: Greek elections BBC Radio 4

    Yanis Varoufakis, who has just been elected to parliament in this weekend's Greek poll and has been talked of as a possible finance minister talks to Today. He says Europe, in its infinite wisdom, responded to Greece going bankrupt by "unloading the largest loan in human history on the weakest of shoulders.... on condition that the bankrupted nation was going to have to shrink its income by a quarter". He adds: "An eight or nine-year-old can understand this will not end well. What we have had since... is a kind of fiscal water boarding policies that have turned Greece into a debt colony."

     
  15.  
    08:16: Greek elections BBC Radio 4

    There are "some pretty hardcore" anti-capitalist, anti-austerity, anti NATO, anti-negotiation, anti-Europe members of Syriza, Constantine Buhayer, Greek country analyst at Jane's Intelligence tells Today. Alexis Tsipras is at the head of a political coalition that includes Maoists and Communists, he says, so keeping all of those moving parts together while trying to renegotiate the Greece's bailout terms will not be easy.

     
  16.  
    08:01: Greek election BBC Radio 4

    "The obligation on the eurozone is to come forward with an economic policy that delivers jobs and growth," Mr Osborne tells Today. It's not just about the public finances. Alongside fiscal responsibility, you have to active monetary policy and create environments in which businesses want to invest, Mr Osborne adds.

     
  17.  
    07:46: Rolls-Royce engines
    mtu

    Rolls-Royce's MTU business, which makes large diesel engines, has won a €100m order for freight locomotive engines for South African trains. The 20-cylinder engines, pictured, kick out 3,300 kilowatts of power.

     
  18.  
    07:35: Greek election BBC Radio 4

    Speaking about the huge support for Syriza, Chancellor George Osborne tells the Today programme that with the Greek economy suffering: "I can understand why you are looking for other answers". But he adds, the party's election promises will be "very difficult" to implement. He urged Syriza and eurozone policymakers to "act responsibly" over any forthcoming renegotiation of Greece's bailout.

     
  19.  
    07:27: Aer Lingus bid
    Aer Lingus jets parked in an airport

    Aer Lingus has confirmed that it has received a revised offer from British Airways owner IAG, which values the Irish flag carrier at €2.55 per share and therefore a little above €1.3bn. It says it is releasing the information "without the prior agreement or approval of IAG". Aer Ligus advises shareholders to do nothing at this stage adding it is "considering" the proposal.

     
  20.  
    07:14: Cleaning up in windows

    Safestyle UK - they of the shouty window man adverts - reported 2014 revenue increased 9% to £136m. It expects pre-tax profit will meet market expectations of £16.7m, it said.

     
  21.  
    SSE lowers gas prices by 4.1% Breaking News
    Gas rings on a cooker.

    SSE is the latest energy supplier to lower its gas prices. It says it will cut its main gas tariff by 4.1% on 30 April and extend its household gas and electricity price guarantee - meaning prices won't go up - to at least July 2016.

     
  22.  
    06:59: Greek elections BBC Breakfast
    bbc

    "The question is how Syriza is going to deliver," says Lena Komileva of G+ Economics on Breakfast. Promising to rehire workers and its other campaign pledges "without running Greece into an economic catastrophe" will be difficult to do, she says. Negotiating some leeway with the European Central Bank, European Union and International Monetary Fund - the institutions to which it owes money - will be the likely plan, she adds.

     
  23.  
    06:46: Greek elections BBC Radio 4

    So now Syriza has won this weekend's Greek election, what happens next? There are going to have to be some renegotiations. That might lead to something being put to the European Commission that can bring about a deal, Greek economist, Vicky Pryce tells Today. She says "of course, they're [the EU] not going to like it ..... and will say at first no way are we going to do a deal with you". But eventually the EU will have to negotiate, she says.

     
  24.  
    06:32: Tax collection Radio 5 live

    More on tax. Wake Up to Money presenter Adam Parsons asks, if you pay your tax, surely there's no problem? "People will always do things which are sometimes debateable if tax is payable or not," says Mr Bullock. Richard Murphy of Tax Research UK says £137m is a "paltry effort compared to the amount of tax not being paid."

     
  25.  
    06:21: Tax collection Radio 5 live

    James Bullock, a partner at Pinsent Mason specialising in tax is on Wake Up to Money. A crackdown on tax avoidance and evasion by people who HM Revenue & Customs call "mass affluent" netted 60% more money in 2014, his firm's report says. It raised £137.2m in tax, up from £85.7m in 2013. Mr Bullock warned on not damaging the economy, as "an HMRC investigation can be a very time intensive procedure" and can leave people unsure what they owe.

     
  26.  
    06:10: Greek election Radio 5 live

    More from Kerry Craig from JPMorgan on Wake Up to Money. "We are likely to see an extension of 6 months to the bailout agreement" to Greece, he says. "I don't think you'll see the Greek 10 year bonds test the highs we saw.... more and more you aren't seeing the markets price in contagion..." as Italian and Spanish bond yields are also lower than before, indicating less concern among investors, he says.

     
  27.  
    06:01: Greek election Radio 5 live
    Alexis Tsipras, leader of the Syriza party and Greece's new Prime Minister

    There'll be a great deal of interest in the Greek election from the markets and Kerry Craig from JPMorgan Asset Management is on Wake Up to Money to talk about them. "The market reaction will be fairly muted" immediately after the election since anti-austerity party Syriza was tipped to win by polls, he says.

     
  28.  
    06:00: Howard Mustoe Business reporter

    Good morning. Get in touch via email bizlivepage@bbc.co.uk or twitter @BBCBusiness

     
  29.  
    06:00: Matthew West Business Reporter

    Morning everyone. BHS owner Sir Philip Green says he is considering selling the department store chain, the euro has dived after the anti austerity Syriza party won this weekend's snap election in Greece and Aer Lingus is believed to be ready to accept a takeover bid from British Airways owner IAG. We'll bring you reaction to the Greek election result, plus anything else we unearth, as it happens.

     

Features

Copyright © 2015 BBC. The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.