A laurel for the Detroit Free Press

Deeply reported coverage explodes simplistic myths about how the Motor City went bankrupt

How Detroit Went Broke,” published Sunday in the Detroit Free Press, is a superbly reported, written, and illustrated investigative project that shows how simplistic narratives about the Motor City bankruptcy miss the real story.

Every reporter covering government finance will benefit from studying this package.

Free Press business reporters Nathan Bomey and John Gallagher pored over more than a half-century of city financial records, building their own database from more than 10,000 pages of documents.

But then they did what matters most—the hard work of turning a jumble of complex and subtle facts, financial jargon, and economic concepts like the time-value-of-money into a smooth-reading narrative with solid organization, telling details and just enough numbers to make their points.

Here is their lead, rich with facts and yet easily digestible:

Detroit is broke, but it didn’t have to be. An in-depth Free Press analysis of the city’s financial history back to the 1950s shows that its elected officials and others charged with managing its finances repeatedly failed—or refused—to make the tough economic and political decisions that might have saved the city from financial ruin.

Instead, amid a huge exodus of residents, plummeting tax revenues and skyrocketing home abandonment, Detroit’s leaders engaged in a billion-dollar borrowing binge, created new taxes and failed to cut expenses when they needed to. Simultaneously, they gifted workers and retirees with generous bonuses. And under pressure from unions and, sometimes, arbitrators, they failed to cut health care benefits—saddling the city with staggering costs that today threaten the safety and quality of life of people who live here.

The subhead of their project was just as intriguing and certain to draw readers who know, or think they know, Detroit’s history. It read, “The answers may surprise you—and don’t blame Coleman Young.”

Young, Detroit’s first black mayor, was a hero to many black Detroiters, but also widely blamed by whites for putting the city on the path to financial collapse.

Bomey and Gallagher explode the myth of Young as fiscal fool. Instead they marshal facts to make a powerful argument that among the nine men who have served as mayor since 1950, Young did the best job of managing city finances.

Revenues exceeded debt during half of Young’s two decades as mayor (1974-94). The city’s debt, adjusted for inflation, stood at $3.3 billion in 1959. Under Young it fell to its lowest point since then, just $1.4 billion in the mid-1970s, before returning to the 1959 level by the time Young, one of the Tuskegee airmen, left office.

A drop in property tax revenues—the inevitable result of the city’s shrinking population base and a 77 percent drop in the value of property—combined with cuts in federal and state aide, a swollen city payroll, gifts to Chrysler and other industries, and some very bad deals with Wall Street were among the factors that lead to the city’s bankruptcy filing this year.

Enhancing the text are smart graphics that come to life online, with blue lines for revenue and red ones for debt drawing themselves across the screen. Balloons with tightly edited text fill in crucial facts. (It would be nice if the animated graphics would pause a little longer, though, to let the reader ponder that text.)

Contrast this serious journalism with glib captions to a photo gallery Forbes offered in “Ten Things to Know About Detroit,” or the flawed facts in a Wall Street Journal column by Steve Malanga of the Manhattan Institute that laid heavy blame on Mayor Young for financial mismanagement.

Bomey and Gallagher continue a Free Press tradition of mixing shoe leather, document analysts and computer-assisted reporting that dates to 1967.

In what is to the best of my knowledge the first computer-assisted report, Philip Meyer, with help from two University of Michigan researchers, exploded the then-current myth that the 1967 Detroit rioters were “the uneducated.” Meyer’s reporting, back in the days when data was fed into computers using cardboard punch cards, established that black Detroiters who had attended college were just as likely to have been rioters as high school dropouts—in each case 18% participated in the riots, and 82% did not. Meyer would later write Precision Journalism, about how to apply social science research techniques in the newsroom—one of the most valuable books ever for journalists. (Update: Over email, Meyer points to an even earlier instance of CAR. He writes, “In my mind, the first computer-assisted reporter was Louis Harris when he helped Newsweek with a report on ‘The Negro in America’ in 1963.”)

In that vein of serious research, Bomey and Gallagher trace the bankruptcy back to the 1950s, when Detroit was America’s fifth largest city and the auto industry was booming, but also starting to slip away from the city boundaries. They write:

One running theme in the Free Press’ review is that city leaders failed, again and again, to come to grips with the looming crisis. Young downsized the bureaucracy, but not as much as he should have in view of the city’s declining population and revenue.

And in 1994, when the Clinton-era financial boom took hold and the city’s finances appeared to be stabilizing, the city started hiring again.
With public worker pension plans an issue in many states and cities, the Free Press examination is especially telling, but also one area where what was reported here calls for more reporting.

The Detroit city worker pension plans turn out to have used better-than-expected investment income in some years not to strengthen the nest egg against bad years, but instead to pay a so-called “13th check” to retirees. Those pension bonuses totaled $951 million since 1985. Had that money been reinvested, the pension plans today would have far more than what one measure shows their current assets to be worth: $5.4 billion.

Not so deeply examined are the political influence on investment decisions, which Ellen Grzech, then a Free Press reporter, wrote about almost four decades ago. (Disclosure: Grzech was my assistant in the Free Press Lansing bureau in 1973. I covered Young as a state senator while a reporter there.)

Bomey and Gallagher also look at the role of Wall Street in helping the city sell ever more debt as its bond ratings headed steadily downward from the time Kwame Kilpatrick took office in 2002 until he went to prison.

As with the pension investments, further digging about the prices paid to Wall Street, the audits that missed the problems, and other ways in which the finance industry enabled and profited from the city’s financial woes will only add to the value of the Sunday exposé.

Complementing Bomey’s and Gallagher’s superb reporting was a column by Stephen Henderson, Free Press editorial page editor, about the reasons it matters.

“Simple tag lines and slogans don’t explain Detroit’s financial difficulties,” Henderson wrote, “so clinging to them now assures failure in the effort to rebuild the city once its back on its financial feet. Detroit needs deep analysis of what went wrong, and everyone who played a part, to come up with the strategy that will make it again rise from the ashes.”

Henderson, who is black and a Detroit native, wrote that he gets heapings of email vitriol from readers who blame Young and other black political leaders, and from others who blame everything on financiers. He called for an end to such simplistic ideas, and “to impulsive canards and wild untruths”:

…every week my phone rings and my e-mail inbox overflows with told and retold absurdities about what happened to Detroit. Bigots tell me that the emergence of the city’s black political leadership in the 1970s was the catalyst for the downslide, conveniently ignoring the three decades of poor decision-making that preceded it.

I hear constantly about the role state government played in the city’s financial deterioration, how if not for cuts to revenue sharing and other municipal support, Detroit would be just fine. But that glosses over the consistent, catastrophic stream of poor choices and fantasy-inspired budgeting our recent leadership has indulged.

Smart insights. We can only hope the Free Press’s Sunday report is just the first to mine the public record for facts, insights, and data that will identify who made what choices and hold them accountable.

Has America ever needed a media watchdog more than now? Help us by joining CJR today.

David Cay Johnston covers fiscal and budget matters for CJR’s United States Project. He is a reporter with 46 years of experience, including 13 at The New York Times; a columnist for Tax Analysts; teaches tax and regulatory law at Syracuse University Law School; and is president of Investigative Reporters & Editors (IRE). Follow him on Twitter @DavidCayJ. Tags: , , , , , ,