Motor City is Broken Down

Before you read this article, consider yourself lucky. Why is that you ask? Because for most of us living here in Canada, we have it pretty good. We are situated in a land of opportunity that consistently shows signs of positive growth for the future. This is not necessarily true for every industry but overall were looking good. This seems to be the opposite case for one of America's former thriving cities now on the verge of bankruptcy, Detroit City.

Detroit City Skyline
(image credit: http://www.fotopedia.com/items/flickr-1863925779)

Detroit City, otherwise known as "Motor City" is struggling to make ends meet with the effects of the recession still apparent. According to the article "Out of money, Detroit cuts back, fights back" written by Barry Wood for The Wall Street Journal, the mayor "agreed to transfer final say on the city's devastated finances to a financial officer and advisory board" The city has faced many challenges over the past decade due to the recent recession and the consequent decline to the city's manufacturing sector. The drop in economic activity means the city is simply not generating enough revenue to cover costs.

The decision to hand over financial decision making was inevitable as the city is currently burdened with a $10 billion debt. According to the article, Detroit was once America's 4th largest city but currently only ranks 18th. Since 1950, the population has shrunk by nearly two thirds! A quarter million people have left in the past decade alone.

How does this happen to a city?

It is a mixed problem of economics and neglect by financial planners. When the demand for manufacturing shrunk, employers laid off employees. These people leave the city as there is no opportunity for them and seek employment elsewhere. With a declining population, there are less tax revenues generated and therefore less money to pay for public services. It is tough to just adjust services for the smaller population because some infrastructure cannot be reversed. Some examples include underground pipes and lines for sewers, water, electricity, and natural gas. 

Instead of trying to solve the issue, the city resorted to borrowing money to cover the deficit. This works for the time being but like all good things, it has to end eventually. It will be interesting to see how the city handles the current situation and how they plan to restructure or reorganize in order to make ends meet again.