JAISAL NOOR: Welcome to The Real News Network.
I’m Jaisal Noor in Baltimore. Detroit’s 2013 bankruptcy, the largest of
its kind in history, was not inevitable, and neither is Chicago’s, but the austerity haws
don’t want you to know that. That’s according to a new piece by Saqib Bhatti in In These
Times. He’s now joining us. He’s a fellow at the Roosevelt Institute and director of
the ReFund America project. Thanks so much for joining us. SAQIB BHATTI: Thank you. NOOR: So conventional wisdom dictates that
Detroit had to go bankrupt because of its bloated public pensions. You have a different
take on this, and the road that Detroit took to address its bankruptcy. And what the lessons
are for the rest of the country, including cities like Chicago. BHATTI: Right. No, there is this narrative
out there that Detroit went bankrupt, the bankruptcy was inevitable because of the city’s
pensions. And in fact, to emerge from bankruptcy the city did end up cutting pensions for its
retirees. But the thing that people don’t realize is
that Detroit didn’t cut pensions to get out of bankruptcy. Detroit filed bankruptcy so
they could cut pensions. The reality is that there was a broader political agenda, and
cutting pensions was really high on that list. And bankruptcy was the means that they used
to accomplish that goal. There was nothing about the Detroit bankruptcy that was inevitable.
It was a political decision made by state officials in conjunction with the emergency
manager of the city to really push the city into bankruptcy so they could get around constitutional,
state constitutional prohibitions against slashing pensions. NOOR: And in your story you mentioned how
many other cities have been compared to the, what could be the next Detroit, including
cities like Baltimore, but commentators say that state law would prevent that from happening.
But that was also the case in Detroit. Is that correct? BHATTI: Right. Detroit–I mean, Michigan state
law now permits municipalities to file bankruptcy. Currently there is 26 states that do not allow
it. So cities file bankruptcy under Chapter 9 of the U.S. bankruptcy code. But under Chapter
9 the filing actually has to be authorized by the state. And so currently there’s 26
states that do not authorize it. A thing that’s interesting, given people talk about the next
Detroit, they seem to completely disregard that fact. So one city that’s often mentioned as the
next Detroit is Chicago. Well, in Chicago–in Illinois, Illinois does not allow municipalities
to file bankruptcy. There is a bill before the legislature right now to try to change
that, but that bill is not passing. It’s not, it’s basically dead on arrival. The other thing that’s interesting is we’ve
also seen people talk about states going bankrupt. And that’s another thing that’s just not possible.
The bankruptcy code, federal law does not allow states to go bankrupt, period. And so what we’re seeing in a lot of places
is this talk of bankruptcy is basically part of a political agenda to really scare people
into accepting draconian cuts and austerity agenda. And the idea is that if you sort of
scare people enough and say, look what happened to Detroit. You don’t want that to happen
to your city, you can force them to accept painful cuts. You can really move a radically
regressive agenda just by scaring people, even though bankruptcy is typically not even
on the table. NOOR: And so talk about what the alternatives
to this could be, because you know, one of the things you propose is raising taxes, but
critics would say taxes are high enough, and if you raise taxes you’re just going to drive
away businesses and you’re only going to further hurt the economy. BHATTI: Right. And the issue is not raising
any taxes. It’s raising progressive taxes, right. So one of the key things that we have
right now in a lot of places is that cities rely on, for most of their funding, from property
taxes. And property taxes can be done in a progressive way, but typically they’re not.
And so it really is how do we actually figure out how to change that? So in Illinois for instance, Illinois has
the fifth most regressive tax system in the country. Two-thirds of corporations pay no
income taxes at all. So we should be figuring out how we’re actually, flipping that on its
head, and creating a fair tax system that allows us to properly fund services while
also sort of meeting our obligations to work with retirees and everyone else. Because of
course at the end of the day, funding workers who provide the services is part of funding
the services. And we saw this in Los Angeles, that after
the financial crash the city’s budget took a steep hit and they laid off 5,000 workers.
Well, those 5,000 workers provide a lot of services. And the thing that sort of happened
since 2008 is that all sorts of service provision have gone down. And so we’re often, what the
right and sort of Republicans, conservative Democrats often try to do is say that well,
you had–if you raise taxes to, you’re doing that on the backs of people who are trying
to get service–they’re trying to pit service recipients against service providers. And
the correct solution is that we need proper funding for services, period. And proper funding
for services means you got to fund the workers as well as the actual delivery of the service,
and that’s how you actually [underplay] the good, healthy economy. The other thing that’s important to note is
when we talk about, you know, helping the economy, if you eliminate–if you sort of
slash pensions down drastically, that actually has a huge negative impact on the economy.
Some of the best jobs in cities, particularly in cities with, that are predominantly or
majority minority, are often public sector jobs. And if you’re actually slashing pensions
or going after the public sector, that’s going to have a huge impact on the broader economy
of the city. NOOR: And so how do we change this conversation?
Because as you alluded to, this threat of bankruptcy is being used to go after public
sector pensions in Baltimore. This financial shortfall has led to a similar move to what’s
happening in Detroit. Thousands of people have had their water cut off, because they
say the city–because you know, the city says they are owed millions of dollars in overdue
water bills. So how do we rephrase that conversation? How
do we put the wealthy on the defensive, instead of always being on the offensive? BHATTI: I mean, it’s important to really shine
a light on who is paying their fair share and who is not. And looking at any crisis,
it’s also important to look at who’s profiting off of it. And you know, you mentioned the example of
the Baltimore water and the Detroit water. Well, in both of those cases one of the big
profiteers was actually Wall Street banks that had roped both the city of Detroit and
the city of Baltimore into interest rate swap deals that completely backfired as a result
of the economic crash. And they ended up costing both cities, Detroit and Baltimore, tens of
millions each year. And so in the case of Detroit, the Detroit
water department had to pay more than half a billion dollars in penalties on these swaps
in 2012. And as a result of that the water bills skyrocketed, because they had to take
out a new bond to pay that off. And currently about 40 percent of the water bill goes towards
paying off those swaps. And the thing that’s the kicker there is that there’s actually
a very strong legal argument that those swaps were illegally done, and that if the city
were to actually file a lawsuit to get that money back they could potentially recover
that money, but that’s never been on the table. Instead there’s a big push to really just
turn off people’s water, even if they’re only behind a couple of payments. They’ll turn
off people’s water for $150, but they’re not trying to recover the half a billion that
they paid to the banks. And we have a similar thing happening in Baltimore, where the interest
rate swaps in Baltimore were actually directly linked–a lot of them were directly linked
to the water and wastewater system. And they’ve actually really sucked a lot of money out
of the budget. And so I mean, that’s just one way that we
can start shining a light on who’s not paying their fair share. But really the key thing
is looking at these types of financial deals, looking at corporate tax subsidies, looking
at who are the people who are lobbying to keep taxes down, particularly progressive
taxes. Because the solution is not cutting. The fact is that we’ve had an anti-government–and
an anti-government, anti-taxing environment for the last 35 years, since Ronald Reagan’s
presidency. And we’ve actually cut services to the bone already. We can’t cut out any
more without permanently crippling ourselves. We need to actually start finding ways to
put more money on the table so we can properly fund the services that we all know that we
need and deserve. NOOR: Thank you so much for joining us. BHATTI: Thank you. NOOR: And thank you for joining us at The
Real News Network.