When and how did bankrupt Detroit go off the rails?
The Detroit Free Press has gone underground — into the basement archives, not incognito — to unpack and piece together the story behind Detroit's fiscal collapse. It lays the blame at the feet of successive administrations that taxed, borrowed and spent when they should have been cutting back in the face of declining revenue and shrinking population.
Among the startling revelations: for decades the city distributed bonus checks to retirees (so-called 13th checks) rather than reinvesting the funds as a hedge against economic reversals. By 2008, the total of these bonuses, including lost interest, was $1.9 billion in 2013 dollars.
The city also dove into pension obligation bonds, a popular but risky gambit for cities and states that hope to reduce pension expenses by riding a wave of high returns in boom times.
The city now owes $2.8 billion for principal, interest and bond insurance over the next 22 years, the Detroit Free Press reported.
The debt cycle in Detroit is in many ways a larger version of Stockton, Calif., as outlined by the Deseret News, including the role of pension obligation bonds.