Bloomberg News

Congress Tells Detroit to Forget Financial Bailout

July 24, 2013

Congress to Detroit: Forget Bailout as Debt Ceiling Battle Looms

Detroit emergency manager Kevin Orr and Michigan Gov. Rick Snyder, left, address Detroit's bankruptcy filing at a news conference on July 19, 2013 in Detroit, Michigan. Photographer: Bill Pugliano/Getty Images

Lawmakers in Congress are dismissing the possibility of a federal bailout for Detroit, the largest U.S. city to declare bankruptcy.

Even U.S. Senator Carl Levin, a Michigan Democrat and former Detroit councilman, says the city should instead search “every single federal program available” for help.

“Not new bailouts, but existing programs,” Levin said in an interview at the Capitol yesterday.

Republican Senator Lindsey Graham of South Carolina introduced a budget amendment today banning municipal bailouts, signaling how little appetite there is for fresh spending as lawmakers anticipate another showdown over raising the U.S. debt limit this year. They don’t see much political benefit in propping up a city that has lost half its population since 1970.

During last year’s campaign, President Barack Obama touted the $82 billion bailout of the auto industry, saying he “bet on the American workers” while Republicans would have let the companies fail. A year later, his administration appears less interested in direct aid to Detroit, the center of the region that remains home to General Motors Co. (GM:US), Ford Motor Co. (F:US) and Chrysler Group LLC.

“This administration will, you know, work with Detroit and talk about policy ideas,” White House press secretary Jay Carney told reporters yesterday. “When it comes to the matter of the city’s insolvency, that has to be resolved by local leaders and creditors.”

Bankruptcy Filings

Detroit joined Jefferson County, Alabama, and the California cities of San Bernardino and Stockton as municipalities that have filed for bankruptcy protection since November 2011. Detroit’s filing on July 18 was two months after a warning from Kevyn Orr, the city’s emergency manager, that Detroit might run out of cash.

His proposal to restructure more than $17 billion in debt and long-term obligations includes cutting pension payments for public employees, ending cost-of-living increases, removing some workers from the system and making the rest pay more.

Senator Susan Collins, a Maine Republican seeking re-election for a fourth term next year, said the city should have acted more quickly to implement Orr’s suggestions. She said taxpayers aren’t interested in helping.

“For the federal taxpayers to be asked to bail out a city that has made its own bad choices to me is absurd,” said Collins, a Senate Appropriations Committee member.

Senator Harkin

In interviews with 10 U.S. lawmakers yesterday, one of the few to support a bailout for Detroit was Senator Tom Harkin, an Iowa Democrat on the Appropriations Committee.

“There might be something we can do to help,” Harkin said. “Helping with infrastructure development, rebuilding the inner cities, helping them modernize their city, making it a livable place once again, that creates jobs.”

Representative Keith Ellison, a Minnesota Democrat on the House Financial Services Committee, also expressed support for providing some type of federal aid to Detroit.

Representative Dave Camp, a Michigan Republican and chairman of the House Ways and Means Committee, said the federal government should hold off on providing help, even from existing programs.

“It’s premature to think about any federal aid at this point,” Camp said. “We first have to get through the preliminaries of the bankruptcy process.”

Alabama Senator Richard Shelby, the top Republican on the Appropriations Committee, said he has no interest in bailouts for Detroit or any other city.

“What’s happening to Detroit is going to happen to a lot of our cities,” Shelby said. “They’re losing their tax base, have eroding schools. It’s a tough situation.”

To contact the reporter on this story: Michael C. Bender in Washington at mbender10@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net


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