Detroit: A Microcosm of Municipal Finance, Bankruptcy, and Recovery

  • John A. Dove


The 2019 keynote address offers an important opportunity for economic historians and policy makers to better understand the nuances associated with Detroit’s recent financial problems, ultimate bankruptcy, and its broader implications for state and local governments in general. This episode is not unprecedented in US economic history, nor is it in all likelihood the last instance of large-scale municipal bankruptcy that will occur. However, the Detroit story offers both a cautionary tale and a tale of hope centered on a path toward rebounding after financial hardship. This same story can be said of the history of US municipal bankruptcy. A major episode in particular came in the wake of the Panic of 1873 and culminated in default or repudiation of nearly 20 percent of all municipal debt (Albert Hillhouse 1936). While the problems that emerged through the nineteenth century were marked by overinvestment in public works, and especially railroad construction (Hillhouse 1936), today’s issues stem much more from unfunded liabilities that have accrued to state and local public pension systems. These unfunded liabilities have been estimated to range between $1 and $4 trillion depending on the underlying assumptions employed (Urban Institute 2018).