How Detroit orchestrated an illegal bankruptcy

The Socialist Equality Party organized a Workers Inquiry in response to worsening economic conditions in Detroit. Held on Feb. 15 at Wayne State University, the inquiry exposed the political and social interests at the heart of the bankruptcy and examined the illegality, context, effects and significance of the bankruptcy proceedings. Detroit’s bankruptcy is undoubtedly monumental: It is the largest municipal bankruptcy in American history and will directly affect hundreds of thousands of pensioners and city workers while becoming a model for other municipalities suffering from accumulated debt.

As revealed at the inquiry by Tom Carter, World Socialist Web Site legal expert, the bankruptcy is illegal on many counts.

As Michigan’s Constitution in Article IX Section 24 declares, “Each [public] pension plan and retirement system … shall be a contractual obligation thereof which shall not be diminished or impaired thereby.” Any legal proceedings reducing pensions, therefore, are unconstitutional as per the Michigan Constitution.

According to Demos, an American public policy organization, when the state of Michigan cut $67 million per year, it dramatically weakened Detroit’s financial strength.

Moreover, the city subsidized corporate projects – allegedly to create jobs – for years, spending tens of millions of dollars per year, money that should have been going to provide social services or paying off the debt. For example, Olympia Development of Michigan, owned by billionaire Mike Illitch, is set to receive $285 million in subsidies to build a new stadium.

Finally, Wall Street is directly responsible for much of Detroit’s financial crisis. The Great Recession in 2008 spawned a massive drop in wages, and therefore lowered taxes paid to the city.

Detroit’s biggest legacy expenses, however, come from financial deals in 2005 and 2006 that have resulted in $1.6 billion in debt. These deals, known as certificates of participation, were unethical and probably illegal, given Detroit’s likelihood of being unable to pay them back.

Now that the bankers have been attributed to causing this crisis, they are demanding that workers and retirees pay. Pensioners will receive at most a mere 16 percent of their dues, meaning that $20,000 per year becomes $3,200. Meanwhile, city workers are having their wages slashed and jobs cut.

Regarding how he would reply to criticisms that he is violating pensioners’ rights, Emergency Manager Kevyn Orr responded, “[Their] rights are in bankruptcy now.”

Perhaps the most frightening development is the threat of privatization, especially for the Detroit Institute of Arts. The DIA is a publicly owned museum that features world-renowned art such as Diego Rivera’s “Detroit Industry” murals, which celebrate the productivity of the working class. Christie’s auction house appraised DIA’s artwork as being worth up to $867 million.

The elite want this priceless art. As WSWS Art Editor David Walsh explained, “Art, from the point of view of the elite, is dangerous.”

Even as access to art is threatened and pensions slashed, law firm Jones Day has been paid millions of dollars in fees. Orr, who has urged the bankruptcy along at every point, was a Jones Day employee until right before he became emergency manager.

The bankers, lawyers, politicians and journalists – from Detroit to Washington, D.C. – that have enabled this bankruptcy are violating the Michigan constitution and workers’ rights and are setting a dangerous precedent.

In any country that still had rule of law, as Carter put, they all would be “impeached, indicted, arrested and prosecuted.”