How did Detroit go broke? Why did property values decline in Detroit? What about Chicago?
I live in Chicago and there's been a lot of discussion recently on whether Chicago could follow Detroit down the path of municipal bankruptcy. Many folks believe that because Chicago is much more diverse in its industries, economy and has better job creation strengths, that Chicago will be immune from Detroit's death spiral of (a) borrowing and pension debt, (b) failure to control the costs of government, (c) loss of state revenues, (d) bad public schools and (e) ever increasing tax burden for working, middle class families.
My interest in this question stems primarily from the dramatic price declines in Detroit real estate prices before its municipal bankruptcy. Detroit's pensions were almost fully funded when it declared bankruptcy. Bankruptcy was necessary because there wasn't a whole lot of value left in the city to tax. Chicago has taken a different policy. The City has skipped making pension payments and pushed the costs of governing off. Real estate prices continue to rise, apparently not taking into account governmental debt. The Chicago Public Schools, Cook County and the State of Illinois have all used the same pension payments skipping strategy as well - n Illinois its's known as a "pension holiday." Because of several Illinois Supreme Court decisions prohibiting pension and retiree healthcare "reform" (cuts), the day of reckoning on the massive pension debt is about to hit Chicago, Cook County, Illinois and many more units of local government.
What's your take on Detroit and Chicago? Did the demise of the auto industry cause its downfall or were there multiple factors involved that caused Detroit to go broke? Do you see any parallels yet between Chicago and Detroit? If so, what should Chicago do to pay off its massive pension debt AND preserve its real estate values over the next 20 years?
Here's a good post on what happened in Detroit: