The same day that Illinois’ Legislature approved a $160 billion “restructuring” of public workers’ pensions, a federal judge ruled that pension protections in Michigan’s state constitution could be overridden as part of Detroit’s historic bankruptcy. Along with fury from unions, that double blow inspired a new round of “I-told-you-so’s” from pundits — like “Morning Joe’s” Joe Scarborough — who frame Detroit as a morality play about politicians who lack the backbone to force cuts on public employees.
To consider what really ails Detroit, Salon called up former Goldman Sachs investment banker Wallace Turbeville, whose recent report for the progressive think tank Demos suggests the pundits have got it all wrong. A condensed version of our conversation follows.
After this decision came out, Joe Scarborough said to his panel on MSNBC, “The problem came from, you know, unions that, you know, push politicians to overpromise benefits that they couldn’t pay for in exchange for votes and money.” What do you make of that kind of analysis?
Well, it’s just based on preconceived notions and not careful analysis of the circumstances. That isn’t what has transpired over the last five years. Because the data don’t reflect that.
And what do they show?
The data show that the current level of salaries paid out by the city, and benefits that are to be paid out are very moderate … The city over the last five years has tremendously cut its operating expenses, close to 40 percent – which is mostly salaries — and is now operating at levels of employee per capita that are imprudent. And the benefits, if you look into them carefully, are quite modest …
The time scales that we’re operating in now suggest strongly that this is largely an issue of a devastated tax base and a reduction in state revenue-sharing, exacerbated by some really potentially concerning cash requirements associated with derivatives deals and overly complex and imprudent financial transactions.
Who’s to blame for the devastated tax basis?
The same day that Illinois’ Legislature approved a $160 billion “restructuring” of public workers’ pensions, a federal judge ruled that pension protections in Michigan’s state constitution could be overridden as part of Detroit’s historic bankruptcy. Along with fury from unions, that double blow inspired a new round of “I-told-you-so’s” from pundits — like “Morning Joe’s” Joe Scarborough — who frame Detroit as a morality play about politicians who lack the backbone to force cuts on public employees.
To consider what really ails Detroit, Salon called up former Goldman Sachs investment banker Wallace Turbeville, whose recent report for the progressive think tank Demos suggests the pundits have got it all wrong. A condensed version of our conversation follows.
After this decision came out, Joe Scarborough said to his panel on MSNBC, “The problem came from, you know, unions that, you know, push politicians to overpromise benefits that they couldn’t pay for in exchange for votes and money.” What do you make of that kind of analysis?
Well, it’s just based on preconceived notions and not careful analysis of the circumstances. That isn’t what has transpired over the last five years. Because the data don’t reflect that.
And what do they show?
The data show that the current level of salaries paid out by the city, and benefits that are to be paid out are very moderate … The city over the last five years has tremendously cut its operating expenses, close to 40 percent – which is mostly salaries — and is now operating at levels of employee per capita that are imprudent. And the benefits, if you look into them carefully, are quite modest …
The time scales that we’re operating in now suggest strongly that this is largely an issue of a devastated tax base and a reduction in state revenue-sharing, exacerbated by some really potentially concerning cash requirements associated with derivatives deals and overly complex and imprudent financial transactions.
Who’s to blame for the devastated tax basis?
There’s a lot of things. One is the policies encouraged flight from the city … There are several other issues … 70 percent of the mortgages were subprime in the city of Detroit — so in one sense the banks caused it, right? So there’s lots of different causes that put them in a position where in 2007, 2008, they were absolutely keyed up to be devastated by the financial crisis and the Great Recession.
When you say “the policies encouraged flight from the city,” policies at which level?
State and city … everything from transportation to taxing to regulatory policies … that structural element has been around for a long, long time …
1990 I did a transaction that was designed to produce value so the city wouldn’t be downgraded below investment grade … So that whole issue has lingered and should have been cleaned up, should’ve been addressed aggressively. But it was not …
The way they got crushed is reflected in the tremendous drop in revenues – 20 percent drop in revenues since 2008. They couldn’t bring cash in fast enough.
Read the report: The Detroit Bankruptcy
