Failed Fiscal Policy that betrays the public trust is a Ponzi Scheme.
Brian Dickerson: Detroit has gone from being the Motor City to being the Casino City
December 20, 2013
By Brian Dickerson
Detroit Free Press Columnist
Scarcely 17 years have passed since Michigan voters authorized casino gambling in Detroit. This week, emergency manager Kevyn Orr told the judge overseeing the city’s bankruptcy that Detroit can no longer function without the licensing fees and tax revenue generated by its three casinos.
“Casino revenue is the single most stable source of revenue available to the city,” Orr testified Wednesday in a hearing before U.S. bankruptcy Judge Steven Rhodes.
“Without it,” he added, “the city couldn’t operate.”
Orr’s candid admission was occasioned by Rhodes’ curiosity about the generosity of a settlement that Orr negotiated with two banks that financed a disastrous credit swaps deal with the city during Kwame Kilpatrick’s first mayoral term.
Why, the judge wondered, had a bankrupt city with so few assets to satisfy its myriad creditors been in such a hurry to pay just two of those creditors, UBS and Bank of America Merrill Lynch, 75 cents on the dollar?
The answer, Orr and his attorneys explained, is that the banks’ loans to the city are secured by casino tax revenues on which Detroit depends for its day-to-day operations, the way a newborn depends on its mother’s milk for survival.
Ken Buckfire, an investment banker who has been acting as a consultant to Orr’s team, testified Tuesday that if the city challenged the legality of the swaps and lost, the banks could divert virtually all the city’s casino tax revenue for for three to four years.
Whether the original credit swaps deserve to be honored, and whether the deal Orr negotiated to discharge them is the best way to protect the city’s last, best source of operating revenue are questions we’re going to hear debated at length over the next few days.
But those who voted to authorize casino gambling in 1996 should also reflect on how that decision set the stage for what came after. How did a community of 700,000 souls become so utterly dependent on a revenue stream that didn’t even exist until 1999?
The short answer is that casino gambling did nothing to stop the hemorrhage of human talent that was well under way in the 1990s, and may even have accelerated it. I was hardly the only member of my generation who abandoned my last fantasy of urban homesteading when it became apparent that the city was mortgaging is future to a roulette wheel.
Even so, Detroit’s devolution (in the span of less than a single generation) from the Motor City to the Casino City is startling. It’s a transformation that Detroiters should keep in mind as they debate alternate visions of their community’s rebirth.