Judge says Detroit bankruptcy filing was unconstitutional, must be withdrawn

[happyslug]

58. Bankruptcy is mostly who gets paid first.

And that is the argument in front of the local judge. She says State Law MANDATES the pensions be honored. Thus the Pension has priority over any other debt. Remember Detroit not only has these pensions but other creditors. These other creditors are mostly the banks. Thus the fight is over who gets paid first, the banks of the pension holders.

Detroit may be in bad shape, but it has assets and income to pay its present debts, but over time as opposes to all at once. It needs time.

As to New York City in the 1970s, New York had the revenue stream, but ran into a revenue pinch, Normally such a pinch is handled by issuing bonds but the banks refused to buy them for this was the mid 1970s and the banks had other priorities. Thus the crisis of New York City and the "Federal Bailout" which was nothing but a loan till the tax revenue rolled in.

http://www.nytimes.com/2002/12/05/nyregion/recalling-new-york-at-the-brink-of-bankruptcy.html
http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=2598&context=dlj

One aspect of New York was its dependence on Sales and Income Taxes as its source of revenue. Real Estate taxes tend to be less volatile, but New York City had low Real Estate Taxes, but high sales and income taxes. Thus when the mid 1970 recession hit, it hit New York City hard, costs went up due to the recession but revenue was down due to the recession. The problem was more of a lack of money TODAY as opposed to a lack of money. All New York City needed was a loan to carry it over till its tax revenue came in, and that is all the Federal Government provided.

Detroit has a stable financial base, it is much lower then it was in the past, but it is stable. The problem with Detroit is that no one expects it to have hit rock bottom yet, and everyone is waiting for that to happen. Thus Detroit has a problem of a deteriorating tax base, stable but declining, and an inability to stop the decline.

The biggest problem is the Schools. With the decline in Detroit, revenue has declined, but the number of low income people, who can not afford to move out, has increased.

The problem with low income people is their children are the most costly to educate, for they need help most students get from their parents but given their family status that is impossible, i.e your parents can not help you with your homework, if they themselves can not read and write.

On the other hand, most state aid to schools assume that every school district has a balance of students, the same balance as the state as a whole. Thus State funding is even throughout the State, but at the cost the low income dominated areas get much less help then they need. Thus the shortfall has to be made up locally and that is the problem with Detroit and its schools.

In simple terms the biggest problem is state funding for education and the GOP Governor does NOT want to have to till the GOP controlled legislature that Detroit is the fault of the State's educational funding formula.