Detroit Recovery Plan Threatens Muni-Market Underpinnings
By Brian Chappatta & Martin Z. Braun
Jun 16, 2013 9:01 PM PT
Emergency Manager Kevyn Orr’s plan to suspend payments on $2 billion of Detroit’s debt threatens a basic tenet of the $3.7 trillion municipal market: that states and cities will raise taxes as high as needed to avoid default.
Orr, appointed by Republican Governor Rick Snyder to oversee Michigan’s largest city, proposed a deal last week that included skipping a $39.7 million payment on pension-obligation debt. The city is also set to default on unsecured unlimited-tax and limited-tax general-obligation bonds as it grapples with $17 billion in liabilities to avoid a record bankruptcy.
By calling into question the safety of any security backed by a government’s general obligation to pay what it owes, Orr, 55, imperils similar debt across Michigan, the eighth-most-populous state. As local governments strive to rebound from the longest recession since the 1930s, they may confront higher borrowing costs.
Bloomberg has this article in its “News” area, but it sure seems to be a fair amount of editorial-opinion cloaked as “news”. For example, how is the political party of the governor who appointed Orr important to the story? That said, there’s at least one interesting “admission” in the article: “states and cities will raise taxes as high as needed to avoid default”. IOW, the attitude of government is that they will spend, spend, spend, even if they have to confiscate (“tax”) everything that nearly helpless citizens (when the only “difference” between the major political parties is the shape and velocity of the handbasket - rather than its destination - citizens are nearly defenseless from politicians!) foolishly imagine they own. In particular, this is exactly how government employees operate: wages and bennies should rise up to the point where government enslaves its other citizens and confiscates all they imagine they own.
Guess what? A large portion of Detroit’s productive people - business owners and workers - shrugged! They shut down; they left town. And Detroit’s Day of Reckoning came; the can Detroit’s pols thought could be kicked down the road indefinitely hit an impassible wall. The remaining question is how much damage Detroit will do … to itself … to Michigan … to other municipalities and state governments … to the US economy.