How Detroit was Reborn: The Inside Story of Detroit’s Historic Bankruptcy Case

Source: Detroit Free Press

This is the backstory of how Detroit cleared mountains of debt accumulated over 50 years and emerged with a shot at restoring basic services for 685,000 city residents who deserve better… And, ultimately, it’s the story of how, one by one, like soldiers switching sides in the midst of battle, the major players and creditors at war with the city dropped their objections and joined a “grand bargain” to save Detroit.

Note: This is a LONG case study, comprising of 14 chapters. Recommended for use in higher-level undergraduate classes and graduate classes; Access the full story here

Leah Omilion-Hodges (Western Michigan University)

Leah Omilion-Hodges (Western Michigan University) suggests some key “Takeaways” on the story:

Detroit made history in July of 2013 when it became the largest U.S. city to declare bankruptcy.  This left countless stakeholders ranging from pensioners and citizens, to the Detroit Institutes of Arts (DIA) and local municipalities, and myriad creditors in a state of uncertainty and unrest. Retirees wondered how declaring bankruptcy would affect their constitutional protections, the DIA worried that selling even one painting would result in deleterious outcomes from losing donors to cancelled tax support, and creditors wanted simply what was rightfully owed them.  However, over a historic 16 month journey, a “grand bargain” was struck in which many collaborated to restructure Detroit’s massive debt ($18 billion in liabilities, 78,000 blighted buildings, 4 out of every 10 dollars devoted to debt, pensions, and retiree health care).  Considering the incredible breadth of the city’s debt and the sheer amount of individuals and organizations touched, the unfolding saga is one that twists and turns to uncover the power of collaboration, the influence of targeted messages, and the importance of creative thinking to ultimately reveal a tale of hope and renewal.

  1. Collaboration for a Common Goal – The authors of this article describe the journey of the grand bargain as one where through an unprecedented series of concessions, “like soldiers switching sides in the midst of battle” that objectors and creditors alike joined forces. The article continues to detail how once unthinkable reductions were later agreed to and accepted. This is reminiscent of Sherif’s (1954) assertion that intergroup conflict occurs when two or more groups are in competition of limited resources. However, by working together in a series of important unifying meetings and decisions, Detroit stakeholders, like the Rattlers and Eagles, were able to collaborate for a common goal.
  2. Targeted Persuasive Messages – Closely linked to collaboration for a common goal, the article shows the power of targeted persuasive messages. As noted, a plethora of stakeholders ultimately needed to give their consent to the grand bargain in order for Detroit to address its debt and begin to rebuild. For example, through a series of formal and informal meetings, a compilation of foundations (e.g., the Ford, Kresge, W.K. Kellogg, and Knight Foundations among others) offered $250 million in a matter of days to assist the city of Detroit. This vast sum of money was earned through emotional pleas, appealing to boards of trustees, where Darren Walker of the Ford Foundation suggested, “Detroit is a metaphor for America, for America’s challenges and opportunities.” In compelling other foundations to act, he reminded us that “If you don’t have great cities, you won’t have great nations,” and that not to contribute would be an act of “philanthropic malfeasance.” Similarly, a retiree committee was formed to cut civilian and fire and police pensions. Ultimately, through a number of meetings with fellow pensioners, a deal was struck where all of the city’s unions and retiree groups also agreed to support the grand bargain. Though it was a large concession on the side of the retirees, members of the committee reminded pensioners that “you can’t eat principles and uncertainty doesn’t pay the bills.”
  3. Importance of Creativity and Innovation in Problem Solving – Another interesting theme that emerged throughout Detroit’s bankruptcy saga was the importance of creativity and innovation in problem solving. In addition to working with private foundations and forging a compromise with retirees, additional problems were solved through innovation and creativity. For example, as a means to deal with Detroit’s aging water system, a deal was struck to transfer governance of Detroit’s Water and Sewage Department to a regional board. With long-term financial assistance from local counties, the Great Leaks Water Authority was created and resolved a regional debate that had lasted decades. Similarly, though the city was not able to reimburse all creditors with a cash payback, other debts were settled through the exchange of real estate. Thus, without creative thinking and innovations to traditional ways of doing business, the grand bargain may not have come to be.

Read more “Takeaways” from Leah and other scholars here.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s