Detroit did not just go bankrupt. It was driven to bankruptcy by the banks and corporations that are profiteering off the city’s crisis. While essential services are cut and the Emergency Manager tries to sell off our assets, banks are extracting millions of dollars from our city through toxic swap deals and large developers are taking millions in corporate giveaways, starving our city of much needed tax revenue.
Toxic Swap Deals
Detroit entered into a series of swap deals with banks that were supposed to save the city money, but these deals backfired when the banks crashed the economy and the Federal Reserve slashed interest rates to bail them out.
Banks like JPMorgan Chase, Bank of America, Goldman Sachs, and UBS were able to profiteer off of the bailout interest rates, costing the city $50 million/year since the crash.
Last year, the city paid $547 million in penalties to cancel a portion of its swaps. The city had to take out more debt to pay the penalty, and banks got to charge Detroiters additional fees to finance the payment.
Now, Bank of America and UBS are demanding that the city pay another $250-$350 million in fees to cancel the rest of its swaps. Under a deal they signed with Emergency Orr, the banks would get paid outside of the bankruptcy proceedings, before retirees and other creditors who are being asked to take 80-90 percent haircuts.
Detroit’s bankruptcy was not caused by a spending crisis, but a revenue crisis. Both the city and state give away millions in tax breaks every year to major corporations and developers. In fact, according to a recent study by Good Jobs First, Michigan leads the country in corporate subsidies. The major beneficiaries of these tax giveaways are the large corporations and developers who make up Michigan’s business elite. Meanwhile, the state is cutting revenue sharing with cities like Detroit.
The “Renaissance Zone” program has created areas within the city where businesses and residents do not have to pay any city or state income taxes or utilities taxes, and they are also exempt from most city, county, and state property taxes.
Dan Gilbert has received $281 million in government aid for relocating Quicken Loans from the suburbs into Detroit and to support his real estate acquisitions in the city. Roughly half of these tax breaks came from the city budget.
The same week that Governor Snyder authorized Detroit to declare bankruptcy rather than offer state aid to the struggling city, he also approved a plan to give Mike Ilitch’s Olympia Entertainment $283 million in tax breaks to build a new stadium for the Red Wings.