What Houston Can Learn From Detroit's Bankruptcy

Detroit's decision last Thursday to file for Chapter 9 protection made it the largest city in U.S. history to file for bankruptcy. Does Detroit's collapse offers any lessons for Houston?

At the height of its success, more than fifty years ago, Detroit was the fourth-largest city in America. University of Houston economics professor Steven Craig says Detroit’s fall is an extreme case. But he says it does provide a warning for Houston.

“The city of Detroit followed, I’m going to call it, unsustainable fiscal policies.”

Craig says the city’s debt ballooned as it borrowed to pay for municipal services, even while factories shut and residents fled. He says Houston has run up a similar tab with its pensions.

“Pensions are basically wages, and they’re current expenses.  The fact that we’re unsustainable on the pension deal, that’s a really terrible thing, ’cause it’s, you’re borrowing money on your credit card to pay your groceries, essentially.”

Mayor Annise Parker’s administration is using tax revenues to pay pension costs rather than borrowing — in contrast, Craig says, to that of former Mayor Bill White. But he notes the city is contributing less to its pensions than needed to pay existing benefits, so liabilities are continuing to grow.

Bio photo of Andrew Schneider

Andrew Schneider

Business Reporter

Andrew Schneider joined KUHF in January 2011, after more than a decade as a print reporter for The Kiplinger Letter...