The Banks Are Strangling the Cities

Dec 10, 2012

Every day we hear intricate details about corruption in the city of Detroit under the administration of former mayor Kwame Kilpatrick. Probably there was corruption.

But ex-mayor Kilpatrick certainly did not invent government corruption. Corruption in government has gone on for a long time, and don’t anyone believe that it happens only in Detroit. It goes on in every major city.

But the corruption that makes the news is nothing compared to the real corruption going on, the plundering of every big city by big corporations and the banks. Detroiters might ask, for example, why Compuware chief Peter Karmanos, Quicken Loans head Dan Gilbert, racing magnate Roger Penske, and chemical company executive Jim Nicholson handed Kilpatrick $150,000 to go away to Dallas. It’s because they were some of the biggest beneficiaries of the corruption that is destroying the city. Karmanos and Compuware got the land its new headquarters sits on from the city for $1 plus 70 million dollars in tax breaks from the city. Dan Gilbert and Quicken Loans got a 1.25-million-dollar subsidy from the city for a parking structure and 47.2 million dollars from the State in tax credits (MEGA). Penske got to tear up some of the nicest areas of Belle Isle for his Grand Prix racecourse. Nicholson’s company PVS Chemicals got a 13-million-dollar contract in 2011 from the city water department.

The Big Thieves

Let’s talk about some of the even bigger recipients of tax breaks and subsidies from the city of Detroit. General Motors, for example, got 250 million dollars from the city in 1980 to acquire land and provide infrastructure for its Poletown plant, plus a 50% tax abatement for 12 years. GM promised 6,000 jobs there. As of two years ago, it employed 1,200.

In 1996, GM was stuck in an old dilapidated building on West Grand Boulevard. GM wanted to move into new headquarters, but it didn’t want to pay what it would have cost. At the same time, Ford was stuck in the Renaissance Center, for which it had been given huge tax breaks in 1977. But the tax breaks had run out, the building wasn’t nearly occupied, and it was draining money from Ford. Ford wanted out.

The state and the city combined to rescue both of them. They gave GM a new modern headquarters in the RenCen, for which it paid next to nothing. They paid Ford for getting out of the RenCen, letting Ford go back to its Dearborn headquarters, which also had a lot of empty space.

And who took GM’s old headquarters? The state did! And it paid GM directly and indirectly to do it. The city chimed in with tax breaks all around, including for the realty company that actually bought up GM’s old building. What a great deal for everyone—except for the people of Detroit, who have to cover the cost.

GM received an additional 15 to 20 million dollars in 2010 for supposedly "keeping" 2,000 jobs in the Renaissance Center.

The city gave Chrysler 380 acres of land for its Jefferson North Plant, after the city pushed out residents from the area. How many millions of dollars are 380 acres worth? And before handing the land over, the city paid to get rid of the pollution from sites like Budd Wheel, which was an enormous undertaking.

Billionaires Max Fisher and Al Taubman received a 100% tax break totaling more than four million dollars for real estate development along the riverfront. Peter Cummings, Fisher’s son-in-law, got paid for selling the development when it was about to go under—to another developer who got more tax breaks.

Cummings also got land the city had cleared of poor people who lived there. Cummings had been putting together a big portfolio of land, based on inside information concerning the city’s future plans for development—in the Woodward corridor running from the Fisher freeway up to Warren Avenue. He got the land cheap as the city pushed people out. Then land values went up in those areas when the Detroit Symphony Orchestra built a big new office building, a high school for the performing arts and other structures nearby. To do it, the symphony went deep in debt, from which it has never recovered. But the expansion that its debt funded was a magnet to attract new residents to the area, raising the value of Cummings’ own real estate holdings, including a high rise apartment building. And guess who helped the symphony structure all its debts in a very creative way—debts that soon backfired: none other than Cummings himself.

Part of that land is where Whole Foods is going in. Cummings is getting another four million dollar tax break for that.

The city also paid 50 million dollars to acquire land for the casinos while Dennis Archer was mayor. In addition, it paid 189 million dollars to provide Mike Ilitch with the land where Comerica Park sits, and another 215 million dollars for the land for the Ford family’s football stadium.

American Axle received five million dollars in tax breaks from the city more than 10 years to build its headquarters. It has since closed its plant in Hamtramck and moved production to its plant in Three Rivers, Michigan where it imposed three-tier wages—and, to Mexico.

The city actually paid Blue Cross, which already is tax-exempt, 35 million dollars for moving into and "refurbishing" two towers of the RenCen. In the end, that’s also more money going to GM, which owns the towers Blue Cross is leasing.

Someone else who made a lot of bucks off of the city were real estate speculators, who have bought land cheaply, often from tax auctions for a portion of the taxes owed—people like Matty Moroun, who are given advance info on new projects the city is preparing. Their land holdings then become valuable because of the tax breaks the city gives people and businesses.

A 30-Year “Perfect Storm”

The federal and state governments have cut revenue sharing to cities like Detroit, in order to free up more money for the corporations. The city of Detroit lost much more than 220 million dollars in revenue sharing. Then, with the economic crisis, the city’s income tax revenues went down. Finally, given what the city has done in clearing out whole areas and making other areas uninhabitable, it has pushed people to move out of the city, causing property tax revenues to go down. And the property tax breaks it has given in the areas being gentrified mean revenues go down even more.

The Financial Vultures Swoop Down

It’s under these circumstances that the banks see the city as the perfect victim, and show themselves to be the vultures and predators that they really are. They step in at this point with all kinds of “creative financing measures.” Such was the case in 2005, when UBS, formerly known as the United Bank of Switzerland, proposed that the Kilpatrick administration borrow money from UBS against the city’s pension fund. They proposed the city borrow money at a 4% variable interest rate, and led the city to assume they would earn an 8% rate of return on their investments, so the city could make more than it paid out. It was a gamble, and it turned out to be a stupid one. The city lost money on the deal. Because of conditions written into the deal, what the city had to pay to UBS went up from 1.2 billion dollars to 2 billion, when the deal went sour.

As part of this deal, another bank, US Bancorp, was made the trustee for handling Detroit’s debt payment to UBS. For its “services,” it gets a hefty fee, and is responsible for seeing that all state revenue-sharing money to Detroit and all of Detroit’s casino taxes go to pay UBS—for the next 20 years.

The city’s water department entered into another complicated loan deal, technically referred to as an “interest rate swap.” The banks pretended the deal would save the department money. It didn’t, so in June, the department paid the banks more than 500 million dollars to get out of the deal before it lost even more money—on top of what it still owed.

To pay these outrageous debts to the banks, the city had to borrow more money. Another bank, JPMorgan Chase, was happy to help out. It made 7.8 million dollars in fees for helping the water department issue new bonds to raise money.

There is one final actor in this disaster: bond ratings agencies, Moody’s, Standard & Poor’s, and Fitch. These agencies, which are themselves owned by or controlled by big corporations, a few billionaire investors, and the big banks, kept lowering the city’s bond rating.

Every time the ratings agencies lowered the rating, it meant the city had to pay out even more money. And then, having helped drain the city of money, when the city tried to resist one of these torturous loan deals, the ratings agencies sent representatives to appear before the city council to threaten the city with lowering the city’s ratings even further! That happened in 2005. Even though the city accepted the deal, that hasn’t stopped this gang of thieves from lowering the city’s ratings anyway.

Together these thieves have driven the city further and further into debt. The city’s total long-term obligations have more than doubled from just under five billion dollars in 2002 to more than ten billion in 2011. In the words of Woody Guthrie, “some will rob you with a six-gun, and some with a fountain pen.”

Making the Population Pay

In this situation, in order to keep bailing out big business, the city has been progressively cutting services like public lighting, buses, police and fire protection, EMS, and health centers and clinics. They’ve made the city uninhabitable for the population in large sections of the city. It’s not only in Detroit. In September, a 10-year-old boy in Southfield died from an asthma attack. It took EMS 40 minutes to get to the boy’s house and by that time it was too late. The Southfield fire department said it did not have manpower available because firefighters were busy responding to a fire at the time.

City politicians, along with state politicians, have already imposed 10% wage cuts on city workers and begun layoffs. The city proposed to close its rec centers, but when the public protested, the city found a way to supposedly "keep them open," but with their staffs drastically cut back. Those who remain on the job are trying to do the work of several people, all the while trying to maintain the centers and keep them secure.

These are just the most recent cuts. They come after decades of similar cuts.

The politicians and the media blame the city’s budget crisis on the population leaving the city, thereby reducing income and property tax revenues. In effect, they’re blaming the population. In reality, the city is driving people out with cuts.

The politicians are also using the deteriorating condition of services as an excuse to privatize them. They’re proposing to privatize both the health department and the public lighting system. The water department is using its financial situation as a pretext to threaten its workers with a cut in the workforce of 80 per cent and outsource much of the work.

If anyone thinks this is only happening to Detroit, they’re living in a dream world. Cities like New Orleans and Pittsburgh have gone through some of the same mess in the early post-2000 years. More recently Jefferson County, Alabama, which is home to Birmingham, was forced to declare bankruptcy, as did Harrisburg, PA, and three cities in California—Stockton, San Bernardino, and Mammoth Lakes.

Do they say there’s no money to pay workers a decent wage and allow them to have a pension and health care when they retire? Not true! Look at all the money that’s been drained from the cities by the blood-sucking banks and corporations.

Not one tax break to big business! It’s not small businesses, like the Mom and Pop stores, that benefit from the tax breaks. Mom and Pop are paying the taxes so that the stadiums, GM, Compuware, American Axle, and Blue Cross can get out of their obligations.

Yes, there is money, but it has to be taken back from the people who stole it. Of course, none of the politicians are going to take back that money. It has to be the goal of people when they fight. That could happen if workers strike and their example gets picked up by other workers. A section of workers from the water department, members of AFSCME local 207, recently stood up to the attempts of the department to outsource their jobs and went out on strike. The city threatened them with firings, but the strikers managed to force the city to take them back and do what it said it didn’t have to do—negotiate those issues.

It’s only one strike, and we don’t know if other workers will take up the fight the water department workers started, and those workers alone can’t do much, but it’s important. It’s happened often enough that a strike like this has provided the spark that started a larger movement.

Wouldn’t it be a shame if such a movement did erupt and workers settled for simply improving their own wages and benefits, but left the same setup in place? The fights in the future need to force the issue. Workers need to insist to the politicians: “The banks and the corporations are responsible for the city’s debts. Get the money from them! And if they won’t pay it, expropriate it!”