Is Detroit contagious?

Is Detroit contagious?

That is the provocative question explored by a team of George Mason University researchers who examined the finances of six American cities in a paper released Friday.

Their verdict?

Probably not.

The bankruptcy filing this summer by Detroit, once the symbolic capital of blue-collar American prosperity, raised questions about whether the city was a tragic anomaly or the proverbial canary in the coal mine.

The researchers, led by public and international affairs professor Frank Shafroth, tried to address the question by doing a deep dive into the finances of Detroit; San Bernardino, a California city that filed for bankruptcy after being hit by a fiscal crisis born of the housing crash; and four cities struggling with the broader transition from the manufacturing age to the information age: Providence, R.I, Pittsburgh, Baltimore and Chicago.

The report said Detroit was a economic basket case that would not have survived on its current fiscal path. Bankruptcy, it seems, was its only option. Its effects remain to be seen.

Similarly, San Bernadino was smacked by the “perfect storm” of the fiscal crisis.” But even though it has filed for bankruptcy, it is burdened by a difficult challenge because “little has changed since bankruptcy proceedings began,” researchers said.

Beyond Detroit and San Bernadino, the report found the other cities to be holding up relatively well in the face of significant fiscal stress. Not only are they dealing with generations of job losses and suburbanization, but they also must deal with significant costs to update aging infrastructure and from public employee pensions. All of those problems were intensified by the Great Recession.

The report also noted that some small communities, including those outside Pittsburgh, have big fiscal challenges and have few resources with which to address them. That raises questions about their viability, the report said.

Shafroth, who presented the paper Friday at a meeting of the Michigan Municipal League, said that despite economic problems, he believes municipal bankruptcies will remain a rarity.

Since 2010, there have been 31 municipal bankruptcies, most of them for special-purpose municipal entities established to build subdivisions or other specific projects. By contrast, there have been 134,ooo bankruptcy filings by businesses, the report said.

“Bankruptcy is exceptionally expensive in time, energy and resources,” Shafroth said. “It is a process, not a solution.”

Michael A. Fletcher is a national economics correspondent, writing about unemployment, state and municipal debt, the evolving job market and the auto industry.

business

economy

Success! Check your inbox for details. You might also like:

Please enter a valid email address

See all newsletters

Comments
Show Comments
Most Read Business

business

economy

Success! Check your inbox for details.

See all newsletters