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Financializing Detroit

Jamie Peck & Heather Whiteside

To cite this article: Jamie Peck & Heather Whiteside (2016) Financializing Detroit, Economic Geography, 92:3, 235-268, DOI: 10.1080/00130095.2015.1116369

To link to this article: https://doi.org/10.1080/00130095.2015.1116369

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Financializing Detroit

Jamie Peck Department of Geography University of British

Columbia 1984 West Mall Vancouver, BC V6T 1Z2 Canada

[email protected]

Heather Whiteside Department of Political

Science University of Waterloo 200 University Avenue West Waterloo, ON N2L 3G1 Canada

[email protected]

Key words: financialization entrepreneurial

governance neoliberal urbanism technocracy credit rating bond markets Detroit

a b st ra c t Taking as its focus the not-so-special case of Detroit,

which recently experienced the largest municipal bank- ruptcy in US history, this article explores the financia- lization of American urban governance in both conceptual and concrete terms. The financially mediated restructuring of Detroit, through the imposi- tion of emergency management by the state of Michigan and subsequently through the federal bank- ruptcy code, has been portrayed as an extreme event, with deep roots in histories of deindustrialization, racial exclusion, and suburban flight. It is not to down- play the significance of this experience to suggest, however, that the Detroit case also represents an ordin- ary crisis of a faltering regime of financialized urban- ism. Compounding a shift toward entrepreneurial urban governance, cities now find themselves in an operating environment that has been constitutively financialized. Bondholder-value disciplines have become systemic in reach, along with an amplified role for financial gatekeepers like credit rating agen- cies; technocratic forms of financial management have been spreading and deepening, both in supposedly normal times and under externally imposed emergency measures; and in some cities the routinized play of growth-machine politics is being eclipsed by a new generation of debt-machine dynamics. While the ultimate focus of this article is on Detroit, its chief concern is with the framing of the city’s storied finan- cial crisis—theoretically and then institutionally.

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The bankruptcy of the city of Detroit in 2013–14 melded financial crisis with urban spectacle in a manner unmatched since New York City’s close encounter with insolvency in the mid-1970s. Detroit’s seventeen-month period of court-adminis- tered restructuring reached a conclusion of sorts when Judge Steven W. Rhodes endorsed the city’s (aptly named) ‘plan of adjustment’ in December 2014. This so-called exit plan involved the shedding of around $7 billion of the city’s estimated $18 billion in debts and the reinvestment of approxi- mately $1.7 billion in the selective restoration of local services. Announcing that his work had been done, along with his resignation from the controver- sial post of Detroit’s externally appointed emergency manager, Kevyn Orr declared that the city’s financial crisis had been ‘rectified’, but in truth this event merely punctuated what has been a historic process of deepening economic vulnerability and creeping financial intensification. It is forty years since New York City first came to symbolize the unfolding ‘fiscal crisis of the state’ (O’Connor 1973), setting the stage for one of the signature paths of neoliberal restructuring (Sites 2003; Harvey 2005; Hackworth 2007). In today’s much-later neoliberal times, what is to be made of Detroit’s (ongoing) structural adjust- ment by financial means? Detroit certainly has its own story to tell, not least

that urban crises are more than mere preludes to neoliberalization; they continue to punctuate and per- turb its distinctly nonlinear and checkered course (see Peck, Theodore, and Brenner 2013; Gotham and Greenberg 2014). But even if the proximate causes of the city’s default might be considered to be almost prototypically neoliberal—the collapse of the sub- prime mortgage market, along with property tax rev- enues; the dumping of socioeconomic risks and responsibilities by both federal and state govern- ments; misadventures on the municipal bond market —these conjunctural conditions have their own his- toric precedents, indeed drivers, in race- and class- structured processes of suburban flight, coupled with the centrifugal unwinding of the Fordist economy, resulting in especially intense manifestations of dein- dustrialization, social abandonment, employment insecurity, income suppression, and low or negative growth (see Sugrue 2005; Galster 2012). In this respect, Detroit’s ‘perfect storm’ bankruptcy was always more than an extreme weather event; the city’s predicament testifies to something closer to a

Acknowledgments

For helpful discussions and suggestions around the issues in this article, we are especially grateful to Josh Akers, Brett Christophers, Lucas Kirkpatrick, and Bob Lake, as well as to Jim Murphy and the reviewers at Economic Geography. We thank Eric Leinberger for cartographic assistance. The authors acknowledge the support of SSHRC through its postdoctoral fellowship and Canada Research Chair programs. Responsibility for these arguments remains ours alone, of course.

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climatic realignment, in the form of a prevailing pattern of urban governance increas- ingly predicated on financialized logics and technocratic practices.

The goal of this article is to position Detroit’s bankruptcy in terms of the ongoing financialization of urban governance in the United States. Complementing a diverse body of work in the critical study of finance, which has tended to problematize the scales-cum-sites of the national economy, the corporation, or individuals and households (French, Leyshon, and Wainwright 2011; Weber 2010), the article builds from an urban political economy approach to focus on questions of financial restructuring at the nexus of state restructuring and metropolitan governance. Across the burgeoning literature on financialization, which runs the gamut from longue-durée dynamics to the daily con- stitution of financial subjectivities, no fewer than seventeen forms of the concept were identified by Lee et al. (2009) in their call for a redoubled commitment to financial geography after the Wall Street crash of 2008, one that would need to embrace ‘rich, contextualized research [programs on] processes of financialization . . . beyond the usual financial industries, occupations and places’ (ibid., 736) Responding to this charge, the article presents an exploratory analysis of the financializaton of metropolitan govern- ance, contextualizing the Detroit case theoretically as well as institutionally. Here, financialization is taken to refer to a historic process of systematic financial intensifica- tion, which is reflected, inter alia, in an increased reliance on (and resort to) financial intermediation and financial engineering, along with a host of financial logics, metrics, and rationalities; in the empowerment of financial sector institutions and agents, includ- ing credit rating agencies, technocratic managers and overseers, bond market players, and legal advocates and arbitrators; and in the disciplinary roles played by shareholder- value pressures, capital-market interests, and the ‘permanent economic tribunal’ (Foucault 2008, 247) that is sustained budgetary restraint.

The article seeks to make three distinctive contributions. First, supplementing work that has explored financial dynamics, pressures, and outcomes within cities (see, e.g., Wyly et al. 2006; Crump et al. 2008; Aalbers 2012), we problematize the pan-urban scale and its relational constitution through hierarchical governance, constrained muni- cipal agency, credit networks, and so forth. Second, and in light of the comparative neglect of the state as an arena and agent of financialization, the article is explicitly concerned with the local or municipal state as a terrain and indeed target for financia- lized restructuring and technofiscal governance. Here, it makes common cause with those innovative lines of work that have been examining the financialization of muni- cipal government practices, projects, and programs (see, e.g., Weber 2010; Farmer 2011; Kirkpatrick and Smith 2011; Ashton, Doussard, and Weber 2014; Tabb 2014), bridging to the more general problematic of financialized urban politics and devolved fiscal governance, since ‘we know little about the politics of financialization at the local level’ (Weber 2010, 270). Third, the article engages with the challenge, originally articulated by David Harvey (1982), of conceptualizing what would come to be known as financialization as a ‘profoundly spatial phenomenon’, in the sense that what he originally called the ‘finance form of capitalism’ entails a transformative search for ‘financialized spatial-temporal fix(es) for the crisis tendencies of Anglo-American capitalism’ (French, Leyshon, and Wainwright 2011, 800). This, we will suggest, has engendered new forms of crisis management and risk displacement/deferral while at the same time bringing about a marked deepening of institutional stresses and systematic contradictions—both of which have been distinctly scaled and unevenly realized.

With these as its animating concerns, the article proceeds in three sections. First we ground the discussion in formative analyses of entrepreneurial urbanism, highlighting incipient tendencies for financialized urban governance in this historic context. We do

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this to index important continuities with earlier modes of metropolitan governance, which have long been concerned with matters of finance but also to emphasize their growing significance in the post-Keynesian or entrepreneurial era. This has not been a simple transition, but as the first-mover advantages of entrepreneurial cities have been exhausted, and as the purchase of the associated policy repertoire has declined, the ubiquitous form of weak entrepreneurialism now coexists with deepening dynamics of system-wide financialization. Historically speaking, the regime of urban governance in the United States has been financialized in more profound ways than ever before— symbolized by the atrophy of redistributive financing and the explosive growth of the municipal bond market—such that it might be appropriate to speak of its constitutive financialization. This has been accompanied by a drift toward postdemocratic modes of technocratic management and transformed rules of the fiscal game for municipal states, which has localized both risk and responsibility while extending the reach of financial discipline, incorporation, and control. Second, we move to a more concrete analysis of financialized urban governance in the United States, examining the institutionalization of the municipal debt regime as a contradictory space of late-entrepreneurial governance, the proximate manifestations of which include the endemic rescheduling of budgetary crises through credit market dependency; practical subordination to bond market logics, disciplines, and rationalities, not least by way of credit rating procedures; and the financialization of public infrastructure. Our purpose here is to account for the institu- tionalization of financial logics and contradictions within a radically restructured regime of municipal governance. Third, we turn to the question of the financialization of Detroit, the travails of

which—through bankruptcy and beyond—represent much more than a local problem. They are an especially acute manifestation of system-wide stresses on the (d)evolving regime of (inter)governmental financing, such that they might be considered to be ordinary crises of that structurally flawed regime. This is not to present Detroit as somehow typical, but it does mean working consciously against dominant political narratives of exceptionalism and endogenization, which seek to localize the causes, culprits, and costs of the crisis (see Kirkpatrick and Breznau 2014; Peck 2015). Ultimately, moving beyond scapegoating narratives demands that Motown is under- stood not in isolation but on the moving landscape of financialized urbanism, along- side centers of control and calculation, like New York City, home of the municipal bond market; fiscally gated suburbs and tight-fisted state capitals all over the place; hotspots of municipal privatization, like the ‘sell-off city’ of Chicago and its peers; and sites of intensified investment and disinvestment, including a host of other (near) bankrupt and financially challenged cities (see Peck 2012; Ashton, Doussard, and Weber 2014; Tabb 2014). Documenting, albeit in a somewhat schematic fashion, one of the hotspots on the

unevenly developed terrain of financialized urban governance, the article also raises questions of methodological framing. The Detroit case is explored here by way of the mesoanalytic categories of intermediation, instrumentalization, institutionalization, and intensification. There is potential for this exploration to be diagnostically revealing, even as Detroit’s plight is politically significant in its own right. This city is often portrayed as a harbinger of urban futures, by friends and foes alike. Seeking neither to localize nor universalize Detroit, the article’s conclusion positions the case both geographically and conceptually, returning to the theme of financialization as a transformative urban process—one that is pervasive in reach, yet uneven in effect. Given the continued intensification of financial regulation, governance, and management, staple understand- ings of urban growth machines and growth-elite politics may need to be augmented or

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revised, not least since some cities have come to resemble debt machines, existentially governed by the imperative forces of lean-state discipline, technocratic fiat, and budget- ary triage. This is a rather different story to the familiar one in which development agendas are hijacked by local business elites; in a world of slow growth, devolved risk and responsibility, and credit market dependency, urban-political power assumes a different kind of postdemocratic form, not one but two steps removed from local constituencies. The terrain of urban politics is therefore changing, as is that of urban political economy.

Banking on the Growth Machine: Entrepreneurial Turns through Financializing Times

There are few stylized facts in the interdisciplinary field of critical urban studies that can match the durability of the (repeatedly verified) claim that cities, urban governance, and interurban relations have been comprehensively entrepreneurialized, in historically contingent but significant ways, since the 1970s, activated on the inside by increasingly dominant growth-machine dynamics and animated on the outside by the rollback of federal programs and fiscal-transfer regimes; by the globalization of capital flows and supply chains; and by the intensification of (often zero-sum) competition for all manner of investment opportunities, cultural distinctions, and locational advantages (after Logan and Molotch 1987; Harvey 1989; Leitner 1990). ‘In recent years, in particular, there seems to be a general consensus emerging throughout the advanced capitalist world’, David Harvey (1989, 4) wrote a quarter-century ago ‘that positive benefits are to be had by cities taking an entrepreneurial stance to economic development’, a consensus that was already ‘hold[ing] across national boundaries and even across political parties and ideologies’.

While this consensus has in many ways been consolidated, the conditions of existence for entrepreneurial urbanism have been cumulatively transformed: the first round of entrepreneurial strategies emerged from the husk of the Keynesian welfare state and in significant respects were predicated on that inheritance; they are increasingly pursued, though, in an operating environment that has become deeply financialized and neoliber- alized, involving not only the widespread ascendancy of a repertoire of financial practices and policies but also reciprocal transformations in the fiscal operating envir- onment of cities. This does not imply that a historic break divides entrepreneurial from financialized urban governance, not least because entrepreneurial norms and practices have become effectively hegemonic, albeit prosaically so (Kirkpatrick and Smith 2011; Peck 2014a). Rather, it is to suggest that entrepreneurial strategies—the routinized performance of which is associated with seriously diminished returns—are increasingly realized through financially mediated means and in conjunction with credit market actors, agencies, and intermediaries. Conventional (critical) wisdom has it that the political economy of urban governance is animated by the pursuit of growth and, internally, by growth-elite dynamics. Increasingly, though, it is debt as much as growth that shapes and drives the system, while the locus of power and control has been shifting from growth coalitions to debt machines and from local business leaders to more distant finance-market interests. For many cities, the new urban governance is concerned with the structural challenges of debt management and the exigencies of credit market relations, under persistent conditions of budgetary constraint and fiscal stress. In as far as these conditions reflect the limits and contradictions of the entrepreneurial regime, financialization may be thought of, to borrow a Braudellian metaphor, as the autumn of the post-Keynesian mode of urban governance. Schematically, some of the shifts and

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realignments entailed by this financialization of late-entrepreneurial urban governance are summarized in Table 1.

Entrepreneurial Turns The turn toward entrepreneurial modes of urban governance was led by those cities

most exposed to the twin threats of deindustrialization and welfare-state retrenchment (Hubbard and Hall 1998). This was the transformative historic moment identified, notably by Harvey (1989), as a manifestation of the crisis of Fordism–Keynesian urbanism. Not all of this was new, of course. Documenting the long history of growth-machine politics in the United States, Logan and Molotch (1987) had earlier shown how the urbanizing frontier was commodified from the start, as local entrepre- neurs forged communities of fate around the pursuit of the intensified exploitation of land-based exchange values (see also Sbragia 1996). Often, it was the speculative financing of urban infrastructure—in effect a wager on future growth—that ensnared cities in an ‘infrastructure trap’, as large-scale fixed investments induced city leaders to ‘move heaven and earth to make sure they get that growth’, the capricious logic of which invited alternating threats of overbuilding or overuse, locking cities into cycles of ‘crisis-oriented growth-addiction’ (Logan and Molotch 1987, 87). Drawing from (and extrapolating across) concrete shifts in the political economy of

cities, especially in North America and Western Europe, Harvey’s would become the received account of the eclipse of Keynesian-style urban managerialism by

Table 1

Mutating Urban Governance: Between Strategic Entrepreneurialism and Systemic Financialization

Entrepreneurial City Strategies . . . . . . Under Financialized Urban Rule

Macroeconomic context

After-Fordist flexibilization and internationalization; weak and uneven growth; deflating downtown property markets

Speculative and predatory finance; credit market instability; low growth and precarity; real estate bubbles

Mode of urban government

Post-Keynesian restructuring; strategic prioritization of entrepreneurialism

Normalized lean administration; outsourcing and privatization

Intergovernmental fiscal relations

Rollback of Keynesian redistribution, automatic stabilizers, fiscal transfers, countercyclical budgeting; entrepreneurial leverage of inherited assets and infrastructures

Austerity; devolved cost containment; risk localization; fiscal mercantilism; asset shedding and tax suppression; fiscal gating of suburbs; procyclical budgeting

Techniques Corporate subsidization and place marketing; experimental privatization; enterprise zoning and deregulation

Monetization of revenue streams; P3 projects and public-asset sales; financial engineering; systemic use of TIF and cost-deferment measures

Finance-market relations

Conservative and generally risk averse; subordinate to economic development goals

Speculative and risk oriented; proactive bondholder strategies; debt management

Governing rationalities

‘Growth machine’ consensus; task-focused development coalitions; rentier class and exchange-value driven; publicly subsidized development with risk-averse partners; speculative construction of place

‘Debt machine’ dynamics; technofiscal governance; credit-reliant, crisis-prone fiscal-financial fixes; fictitious valuation as end not means; marketization of assets, revenue streams, and infrastructure

Political dynamics Urban-regime governance: growth coalitions, democratic deficits

Postdemocratic technocracy: emergency management, budgetary fiat, fiscal balkanization

Extraurban disciplines

Competitive insecurity; business-climate rating; cuts to public-sector budgets

Bondholder value; credit rating; systemic public- sector austerity

Regulation After the fact, by interurban competition Preemptory, through financialized conditions of existence

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entrepreneurial modes of governance (Harvey 1989; Peck 2014a). The tendential institutional form of this post-Keynesian entrepreneurial city was based on privatized governance arrangements and the proliferation of growth-chasing projects, centered on ‘the notion of a “public–private partnership” in which traditional local boosterism is integrated with the use of local governmental powers to try and attract external sources of funding, new direct investments, or new employment sources’ (Harvey 1989, 7). Generalized pressures arising from competitive insecurities and (perceived and actual) exposure to capital flight were compounded in the US case by Ronald Reagan’s New Federalism, ‘a clear effort to rearrange jurisdictional authority and funding responsi- bilities to help overcome local resistance to capital investment’, since ‘supporting growth infrastructure [had become] the only form of urban spending acceptable to [the Republican administrations of the 1980s]’ (Logan and Molotch 1987, 244–45). Cities had to fend increasingly for themselves, municipalities being pressured to engage in speculative ventures, corporate subsidization, and promotional initiatives, resulting in competitively induced responsibilization and an increased burden of financial (and social) risk at the urban scale.

The Keynesian city—as a manager of territorially based collective services, somewhat insulated from the pressures of interurban competition, and located within a web of fiscal transfers, automatic stabilizers, and redistributive programs—was falling victim to a host of competitive pressures, out of which was emerging the characteristically volatile order known as entrepreneurial urbanism. The (il)logics of capitalist urbanization were duly exposed in increasingly ‘naked’ terms by the rollback of Keynesian modes of sociospatial regulation (Harvey 1989, 15); there was ‘surface vigour’ at the level of speculative projects and promotional efforts (ibid., 16), but lurking beneath were accumulating risks, courtesy of these mostly credit-financed developments, beckoning a ‘quagmire of indebtedness’ (ibid., 13). These were also dynamics of contagion, as more and more cities were induced—by dint of the absence of viable alternatives—to play a competitive game that only a fortunate few could realistically expect to win. But if Harvey’s account was notable for the way in which it connected certain institutional manifestations of entrepreneurial urbanism with a prescient reading of post-Keynesian metagovernance, it was Leitner’s (1990, 149, emphasis added) rendering of local state entrepreneurialism that focused on the significant role of new financial pressures, instruments, and rationalities, including a generalized turn to industrial revenue bonds and equity financing, which was equated with ‘a significant intervention by the local state into the capital market’. (Anticipating our later argument, these ventures likewise unleashed a reciprocating historic process: significant interventions by capital-market interests into the local state.)

Confronted by dwindling local tax bases and a seemingly existential growth impera- tive, cities came to rely on a staple fare of economic development measures that were unequal to the task and unevenly effective at best. And nowhere was this more clearly exposed than in rapidly deindustrializing cities, the fiscal uncoupling and weak compe- titive position of which triggered crisis-driven attempts to ignite compensatory growth and rebuild the local tax base—for all the long odds. These efforts would become emblematic of the new urban politics of the 1990s. Cities responded by leveraging all manner of urban assets and by playing up local flavor, even as the strategies themselves expressed ‘remarkable similarities’ (Hubbard and Hall 1998, 6). As Harvey had antici- pated, competitive pressures and insecurities had led not to innovation as such, but to the serial repetition of a narrow (and increasingly tired) repertoire of growth strategies, predictably characterized by zero-sum dynamics and diminishing returns, after first- mover advantages were exhausted (Peck 2014a). In as far as entrepreneurial urbanism

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had become hegemonic, this was the hegemony of last resort. Cities had turned in escalating numbers to strategies aspiring to build high-tech clusters, to promote cultural tourism, or to attract the creative class not so much in the expectation of success (measurable achievement on this score being the exception rather than the rule, and often fleeting at that) but by virtue of the absence of feasible metropolitan-scale alternatives, given the gradual erosion of the developmental capacities of municipal governments, the drag effects of interjurisdictional tax competition and (subsidized) corporate mobility, and the retreat from (or privatization of) investment-based strategies on the part of federal and state governments.

Urban Financialization, Inside and Out Entrepreneurial strategies of various kinds have since become quite ubiquitous, even

if they continue to vary both in form and in effect. In the process, ‘the local state has undergone a conceptual reorientation’ (Hubbard and Hall 1998, 5). As Leitner identified early on, municipal governments were not just ‘acting out’ in entrepreneurial ways, they were beginning to ingest and internalize the logics of competition, finance, and business: ‘In a sense, city agencies have learned to imitate the outlook and financial practices of the private sector’ (Leitner 1990, 149), in the context of a distinctive patterning of scalar politics. Under the US model of fiscal federalism, financial disciplines are invariably pushed in a downward direction, to the cities (Pew 2012; Peck 2014b). In a political environment marked by aggravated fiscal restraint and small-state ideologies, cities have been hemmed in by the historic attenuation of redistributive federalism, by mandates against deficit spending (often married with legally enforced limits on local tax increases), and by their typically low (and volatile) tax bases, which have become more dependent on the cycles of the residential property market. This is the backdrop to the turn to Wall Street, and to a host of ‘innovatory’ means of accessing credit, including interest-rate swaps, derivatives, and securitized revenue streams (see Hackworth 2007; Ashton, Doussard, and Weber 2014), given that growth machines can no longer ‘survive without access to capital markets’ (Kirkpatrick and Smith 2011, 498). Financialization, as Rutland (2010, 1168) has observed, is an ‘economy-wide ration-

ality’. But even as financialized logics and patterns of governance can be considered to be increasingly systemic, in both reach and intensity, this does not mean that they are driving some singular process of convergent development. Cities have had limited room for maneuver, but they have exploited this in different ways, in the process producing new geographies of urban development, new forms of inclusion and marginalization, and new patterns of uneven fiscal development.

[The] generalized pressure to attract capital does not mean that local governments have been equally financialized across space. Some entrepreneurial cities have been able to convert their wealth into freedom from financial market dependence, while others have used it as leverage for more borrowing. Some cash-strapped municipalities have been ignored by financial markets altogether, while others have ‘paid to play’, becoming encumbered by high-interest debt on usurious terms.

(Weber 2010, 252–53)

As these variegated strategies indicate, city governments have become ‘active agents’ in the process of municipal financialization (Weber 2010, 257), although hardly under circumstances of their own choosing.

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There have been transformative changes on the supply side of municipal credit markets, too, especially since the mid-1990s, driven by a glut of yield-seeking capital, by a phase shift in the ‘engineering’ of new financial products, and by the speculative opportunities presented by inflating downtown real estate and property markets (see Hildreth and Zorn 2005; Torrance 2009; Hebb and Sharma 2014). This means that ‘the growth machine now [operates] in a context shaped by the speculative energies and disciplinary logics of financial markets’, along with a host of new organizations such as redevelopment agencies, special districts, and quasi-public agencies, many of which are predicated on the goal of accessing credit finance (Kirkpatrick and Smith 2011, 482). Infrastructure provision, which was integrated and socialized under Keynesian regula- tion, has since been extensively ‘unbundled’, rated for ‘return’, and financialized, in a manner that shifts the locus of power toward bond market networks and away from growth-machine coalitions per se (Perry 1995; Adams 2007; Kirkpatrick and Smith 2011). The interest of bondholders and urban-growth elites are far from synonymous and sometimes even ‘antagonistic’ (Kirkpatrick and Smith 2011, 495). The complex and less than transparent operations of these hybridized growth-and-debt machines has resulted in the further dilution of local democratic control, under the rule of what David Harvey (2006, 15) calls ‘bondholder supremacy’.

The first generation of post-Keynesian growth-machine strategies had been formu- lated within an institutional and infrastructural grid effectively inherited from the preceding era (Logan and Molotch 1987; Kirkpatrick and Smith 2011). Several decades later, following an extended period of underinvestment, infrastructure deficits have become, simultaneously, a brake on urban development and a new source of private investment opportunities. Today’s urban managers are tasked with more than rebuilding the jobs and tax base; they must rebuild the city itself as well. Reconstructing what Kirkpatrick and Smith (2011, 479) call the ‘infrastructural preconditions for urban growth’ has become a defining challenge for cities and one plainly exceeding the capacities of growth-machine coalitions at the local scale. Increasingly, urban fortunes are tied up with the management of infrastructure deficits, both physical and financial.

Debt-Machine Dynamics: Financialized Urban Governance under Slow Growth

If there is an underlying reason for the degraded state of growth-machine politics, and the rise of debt machines, it is that there has been very little growth to go around. Financialization has been practiced in a slow-growth environment. Average economic growth rates have slumped by half since the Fordist–Keynesian period, inducing entre- preneurial cities to commit increasing resources to corporate attraction and retention efforts as a means of defending local shares of a barely growing pie (see Story 2012). In the period 1961–71, annual US growth rates averaged a fairly robust 4.2 percent; by 2003–13, they had fallen to an anemic 1.8 percent (World Bank 2015). Urban growth machines may have been (hyper)active, but under these conditions, it is arithmetically impossible for any but a minority to have been productive. In circumstances of near stagnation, zero-sum interurban competition—for wealth, for key workers, and for pro- ductive capacities—has become the norm rather than the exception.

These structurally adverse conditions have compounded the problems faced by cities as they have been detached from state and federal funding circuits, amid a revival of urban ‘fiscal mercantilism’ (Logan and Molotch 1987, 148), leaving subordinate gov- ernments to do more with less. Beginning with the Reagan budget of 1981, block grants became a way of reducing federal spending while devolving administrative costs and

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responsibilities to state and local governments—in that year, Congress consolidated seventy-seven grants into nine, reducing the value of transfers by one-fourth (Finegold, Wherry, and Schardin 2004). This was but the first in a long series of cost- shifting maneuvers. Block grant reforms in the ensuing decades have disconnected federal spending from the actual cost of local services and from expressed social need at the urban scale, not to mention from the uneven capacity (and political will) of states to finance programs like food assistance, health insurance, and child welfare (Waller 2005; Whitney 2013). Similar trends are evident in infrastructure spending. In the 1950s, for example, the federal Urban Renewal Program subsidized many of the costs asso- ciated with downtown redevelopment, while the interstate highway system was largely bankrolled by the federal government. As federal funding was retrenched, after the late 1970s, state and municipal governments shored up revenues with gas taxes and other user fees, turning to the municipal bond market for larger-scale, revenue-generating public works projects (Sagalyn 1990; Thornton 2007). By the late 1980s, state and local governments were managing nine out of every ten dollars allocated to public works; since this time, with the exception of the interlude of Obama administration stimulus spending, the federal government has been increasingly absent from the infrastructure business (Leigland 1995; Peck 2012; Kanter 2015).

Bond-market Urbanism It was in the context of federal retreat and the competitive responsibilization of cities

that the municipal bond market assumed a central role in state and local government financing, the dramatic expansion in the scale and scope of which began in 1981. The ramp-up in local government debt began in earnest in the late 1990s, surging by 55 percent from 2000 to 2005 and by 60 percent in the five years after that (Federal Reserve 2014, tbl. D3). By 2012, the amount of outstanding debt in the muni bond market— which is valued at around $3.7 trillion, with 44,000 state and local issuers—was sixty times higher than in the 1950s (Securities and Exchange Commission [SEC] 2012). At root, this was driven by funding shortfalls during a time of fiscal restraint and devolu- tion, but the high rate of growth was also facilitated by reciprocal waves of innovation in bond markets and in public-sector budgeting practices, where key trends included the shift to revenue bonds and a growing tendency to borrow through devolved public authorities of various kinds, intraurban organizational mechanisms that have allowed cities to work around balanced-budget rules and constitutional limitations on public debt (Savage 1988). In the early 1960s, practically all of the public borrowing that occurred at the urban scale was undertaken by way of general-purpose funds secured by muni- cipal authorities like elected city councils; today, almost two-thirds of municipal credit flows through special-purpose authorities and quasi-private development agencies in the form of nonguaranteed revenue bonds (Adams 2007; Hackworth 2007). From an investor perspective, the municipal bond market has long been a place of

relative safety. The default rate on muni bonds, for example, is a miniscule 0.23 percent (Economist 2014b). Risk exposures for interest-bearing capital have been effectively externalized (or socialized) over the years through a combination of Supreme Court rulings that have granted some bondholders unlimited guarantees of debt payment (Sbragia 1996, 97–98). In the 1970s, commercial banks held roughly half of all municipal bonds; by 2011, their share had dropped to 7.6 percent, largely due to the Tax Reform Act of 1986, which reduced the tax benefits available to banks on these bonds (SEC 2012). Money market funds have generally regarded the municipal bond market as a backwater, due to its characteristically low returns, limited flexibility, and paucity of tax incentives (Hildreth and Zorn 2005; Lemov 2013), although the Wall

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Street Journal enthusiastically notes that these markets have been ‘on a tear’ of late, with 8 percent returns beating corporate and Treasury bonds (Kuriloff 2014, 1). By far the largest share of municipal debt is held by wealthy individuals, where investment security, high credit ratings, and tax incentives are a prime attraction: half of the $3.7 trillion total value of municipal bonds is held by households, and a further $550 billion is held on behalf of individuals by mutual funds and similar arrangements (SEC 2012). With tax incentives kicking in only for those with individual incomes of around $90,000 and up, suburban household wealth has become urban debt.

As the importance of bond markets has increased, new power dynamics have emerged. Although individual bondholders are granted property rights over city assets and tax revenues, courtesy of constitutionally protected debt obligations, local taxpayers possess no such rights with respect to urban wealth, income, or assets. The financializa- tion of municipal budgeting consequently redistributes power and property rights from citizens to debtholders (Hackworth 2007). In the process, creditors have effectively become a second constituency, courting and catering to which is an essential task of municipal government. Keen to cultivate perceptions of municipal financial rectitude and business-friendly investment climates, city managers have committed to repaying bond market debts by any means necessary, not least through strategies of dispossession. The protection of creditor interests has necessitated public-asset sales, the raiding of public-sector pension funds, cuts to the wages and benefits packages of municipal employees, and a host of other austerity measures (Sinclair 2005; Peck 2014b).

These manifestly short-term and often confiscatory strategies are being pursued both to appease market gatekeepers and as a new kind of wager on future growth. The response to failing or underperforming growth-machine strategies has been to double down: rounds of budgetary stringency have become a means to mask current imbalances in the hope of an improvement in fiscal circumstances. This urban-fiscal fix operates according to the following contradiction-ridden logic of temporal deferment: the growth that will be required to service proliferating debt is to be spurred on by investment enabled by the issue of general obligation bonds, based on the securitization of future property tax earnings; budgetary responsibilities are devolved to special-purpose agen- cies empowered to issue revenue bonds, which are to be repaid by anticipated income from user fees; and tax-increment financing (TIF) secures resources on credit today by pledging anticipated tax earnings from local development projects.

Financializing Urban Development TIF has been characterized as the epitome of ‘financialized urban policy’ and

arguably represents the most prevalent on-the-ground manifestation of this ‘financializa- tion of urban politics’ (Weber 2010, 254; Pacewicz 2013, 413). If the web of capital- market relations has come to play a constitutive role, at a distance, in the political economy of urban governance, devices like TIF call attention to the ways in which development spaces and governance arrangements within cities themselves have become arenas for credit-leveraged speculation and financial innovation. In ‘blighted’ neighbor- hoods, in particular, TIF schemes have become the mechanism of choice for financing redevelopment efforts. TIF measures have been available since the mid-1950s, but they were barely used until the late 1990s, when the conjunctural conditions of inflating real estate values and liberalized credit flows triggered a rapid and widespread expansion. Subsequently, TIF has allowed municipalities to ‘repackage the rights to a stream of future property tax revenues into fungible bundles and sell these rights to investors as debt instruments’, albeit as a ‘fundamentally risky instrument’ (Weber 2010, 258–59). Cities like Chicago have pioneered this trend, where TIFs have been used for everything

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from school construction to public housing renewal and transportation projects; by 2011, Chicago’s 163 TIF districts covered 30 percent of its land area and accounted for one- tenth of property tax revenues (Weber 2010; Peterson 2014). But if TIFs are also wagers on growth (or at least real estate inflation), other uses of

market finance in public-sector budgeting depart from the growth ambition altogether, instead playing a palliative role in light of neoliberal fiscal federalism and procyclical tax reforms (Krugman 2008; Kasparek 2011). Included in this category is short-term financing by way of tax notes (known as TANs) and revenue anticipation notes (or RANs) that are issued to cover shortfalls in revenue-sharing funds and/or tax receipts. Riskier still are the longer-term (often multidecade) financing deals known as fiscal stabilization bonds that pledge payments from a city’s anticipated income from revenue sharing, despite the demonstrated insecurity of these revenues and their inherent vulner- ability to political manipulation (even in cases of constitutional protection). Additional financialized budgetary items include tax liens that sell legal claims to delinquent real estate taxes and swap deals that alter the terms of debt obligations (for instance, switching from a fixed to a variable interest rate), which are used to (re)finance long- run expenditures like government employee pension systems. For state and local governments alike, the lack of control over federal monetary policy means that interest rate swap deals represent a significant gamble. Some of the biggest bets are being placed on the renewal of the aging stock of public

infrastructure, including highways, public transit, and water/wastewater facilities, which has become a key sphere of financial expansion and experimentation. ‘Infrastructure has emerged’, Hebb and Sharma (2014, 498) observe, ‘as the latest urban development asset class’, as well as a global investment market valued at more than half a trillion dollars. This has been associated, in turn, with the proliferation of public–private partnerships, or P3s, at the nexus of market supply and municipal demand. More than vehicles for stimulating rentier-oriented growth, P3s institutionalize the privilege of (often distant) creditors. As postdemocratic models of actor agency, they insulate investment and development opportunities from local political contestation, locking in a financial over- ride. In the business of urban governance, they may even be usurping the once- conspicuous place occupied by growth coalitions. P3 arrangements combine long-term, lease-based bundled contracts, often running for

decades, with complex risk-sharing provisions in order to privately design, build, finance, and operate/maintain what remains ostensibly public infrastructure. Governments pay a premium to offload project risks: higher interest rates through private financing and higher bid prices for the acceptance of risk. In contrast to traditional methods infrastructure financing in the United States (like user fees, revenue bonds, and intergovernmental transfers), the P3 model is restricted to projects that are commercially bearable (i.e., monetizable and profit enabling), while new risks are engendered through the institutio- nalization of creditor interests. P3s are predicated on the commercialization of services in order to generate competitive returns for private investors; they align targeted risks with private property rights and commercial/investor interests; and their design necessarily conforms to the requirements of financial instrumentalization (O’Neill 2013). Ownership rights are granted to those with an equity stake (typically engineering, procurement, construction, operations, and maintenance firms), and senior debt holders (mainly infra- structure funds, private commercial banks, sovereign wealth funds, and pension funds) are afforded legal and material control over the design, construction, and operation of the resulting public infrastructure. In contrast, user fee-based financing (such as revenue bonds) requires only that the project remain solvent; it does not intrinsically reconfigure public infrastructure risk, reward, and control.

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The mechanics of privately financed P3 infrastructure projects make Cerny’s (1993, 18) description of finance as the ‘infrastructure of infrastructure’ more true today than ever before. They may even have turned the notion on its head— infrastructure as the finance of finance—since P3s transform infrastructure assets into lucrative vehicles of financial accumulation. With muni bond interest rates typically 2–4 percent lower than the rates paid by private finance (National Council for Public–Private Partnerships [NCPPP] 2012), municipal demand for P3 deals has been somewhat muted in the United States. However, concerted lobbying from groups such as the Urban Land Institute, the National Council for P3s, and the Performance-Based Building Coalition has recently secured favorable policy changes, including federal tax exemptions, for private activity bonds in the water and transportation sectors (Colombini 2013). By leveling the tax-incentive playing field, P3 markets are set to expand further in the United States, particularly where these deals can be structured as leases and removed from public-sector balance sheets. This is another way in which financialization refers to more than the tyranny of tight budgets, but to a profound restructuring of the institutions of urban governance.

Furthermore, the reach of P3 practices far exceeds new-build infrastructure. City parking garages, parking meter systems, street lighting, and the like are also being monetized, as their anticipated revenue streams are bought and sold by private investors. Monetization converts infrastructure-based revenue streams into legal tender through long-term leases or outright sales, a ruse increasingly used by municipalities to cover budget shortfalls. Once again, Chicago has been a pioneer, with its ninety-nine-year lease of downtown parking garages (valued at $563 million in 2006) and its seventy- five-year lease of the public parking meter system (valued at $1.15 billion in 2009). These deals were structured in such a way that the city of Chicago received windfall revenues up front, in order to reduce the municipal debt/deficit, to stave off budgetary crises and improve the city’s credit rating (DiNapoli 2013). Such short-term gains only compound structural problems in the municipal budget while also eroding the public asset base. Furthermore, hastily assembled deals—such as Chicago’s parking meter P3, which took only three days to negotiate, on terms that will remain operative for most of this century—often facilitate private gain at considerable public expense: the inspector general’s office has reported that the parking meter system was underpriced by 46 percent (Hoffman 2009).

An augmented array of financial instruments, credit market maneuvers, and private-financing arrangements now constitutes a well-established repertoire for urban managers across the United States. Financially speaking, US cities must operate in the short term, avoiding or evading current account deficits, but their responsibilities—for infrastructure, social and environmental sustainability, economic development—manifestly extend to the long term. Caught in this vise, urban man- agers have had recourse to increasingly creative strategies of temporal displacement or institutional ring fencing, under pressure of fiscal restraint from above, volatile tax revenues, and flattening rates of economic growth. Understood from a systemic perspective, debt machine strategies like these arguably have more to do with the reorganization, rescheduling, and repackaging of urban fiscal problems than with their sustainable resolution. Once a realm of conservative financial management, indeed a bulwark against socioeconomic risk, metropolitan government has become a site of heavily leveraged assets, real estate market exposures, and financialized risks. ‘When cities accept the risk associated with financialized policy instruments’, Rachel Weber (2010, 260) writes, ‘their ability to stay solvent and [to] fund basic

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government operations, such as public safety, basic sanitation, and education, [is] potentially compromised’.

Rating Risk There are few more potent symbols of these changed times than the inordinate

significance attached to the ratings of cities and states provided by a handful of credit scoring firms (see Sinclair 2005; Hackworth 2007). Despite their proven implication in the Wall Street crash of 2008, the oligopoly powers of the credit rating agencies have been actively extended and entrenched in recent years (Economist 2015). During the 1990s, a period of increasing fiscal stress across the urban system, some 85 percent of all municipal debt defaults were on nonrated bonds (SEC 2012,). Creditors have since come to read ratings in the context of fiscal uncertainty and ever-more complex deal making (Sinclair 2005).1 Meanwhile, credit rating agencies’ judgments of the policy- making rectitude of municipal and state governments increasingly govern both access to and the cost of debt finance. The surveillance and gatekeeping functions of credit scoring agencies extend to evaluations of the fiscal and political ‘management’ of cities—a category that comprises fully one-fifth of Moody’s 2014 weighted scorecard for local government (Moody’s 2014). In Philadelphia, for example, speculative-grade ratings issued in the early 1990s made borrowing so prohibitively expensive that Mayor Rendell was compelled to introduce a draconian five-year program of cost-cutting measures, slashing $1.1 billion from the municipal budget in the service of a ‘forced’ reinvention of city government (Sinclair 2005, 101). Table 2 provides a snapshot of the landscape of municipal creditworthiness for the

one hundred largest cities in the United States, according to Moody’s. While a sub- stantial number of cities are judged to be ripe for investment, even in the wake of the Great Recession and the subsequent lagged recovery, a significant—and quite varied— group of cities languishes at the bottom of the investment-grade scale (including Philadelphia, PA, Miami, FL, and New Orleans, LA), while four (Fresno, CA, North Las Vegas, NV, Stockton, CA, and Detroit, MI) had fallen into speculative (or ‘junk’) bond status; at this time, two major cities (Chicago, IL and Newark, NJ) were on the equivalent of a financial watch list, hovering on the margin of speculative-grade status with negative outlooks. In comparison to these uneven geographies of fiscal stress at the urban scale, it is notable that the ratings for many states have improved rather markedly over the past decade, and that none are currently rated below investment grade (see Figure 1). More recently, however, both Illinois and New Jersey have been assigned negative outlooks by the major agencies, a situation that does not bode well for financially struggling cities in those states such as Chicago, Newark, and Atlantic City. At least circumstantially, the scalar disjuncture between what has been a relatively broadly based state-level recovery and quite divergent experiences across the country’s larger cities is consistent with the observation that under the regime of fiscal federalism, financial stress tends to roll ‘down hill’, to cities and to local governments (State Budget Crisis Task Force [SBCTF] 2012, 17; Peck 2012; Pew 2012; Tabb 2014). Cities like Detroit find themselves at the sharp end of this process, where they are uniquely exposed to the blunt instruments of financialized restructuring.

1 The experience of punishing downgrades during the 1990s gave rise to another secondary market in the expanding universe of municipal finance—the bond insurance industry. The state of California, for example, spent $102 million, between 2003 and 2007, on the insurance of its bonds (Mysak 2008).

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T ab

le 2

C re di t ra tin g an d in ve st m en t ou tlo ok

fo r se le ct ed

m un ic ip al iti es , N ov em

be r 20

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by Po

pu la ti o n Si ze )

C re di t R at in g

O ut lo o k

M un ic ip al it y (R an ke d

by Po

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C re di t R at in g

O ut lo o k

M un ic ip al it y (R an ke d

by Po

pu la ti o n Si ze )

C re di t R at in g

O ut lo o k

N ew

Y o rk , N Y

A a2

St ab le

Sa cr am

en to , C A

A a2

St ab le

G re en sb o ro , N C

A aa

St ab le

Lo s A ng el es , C A

A a2

St ab le

Lo ng

B ea ch , C A

A a2

St ab le

Pl an o , T X

A aa

St ab le

C hi ca go , IL

B aa

1 N eg at iv e

K an sa s C it y, M O

A a2

St ab le

H en de rs o n,

N V

A a2

St ab le

H o us to n,

T X

A a2

St ab le

M es a, A Z

A a2

St ab le

Li nc o ln , N E

A aa

St ab le

Ph ila de lp hi a, PA

A 2

St ab le

V ir gi ni a B ea ch , V A

A aa

St ab le

B uf fa lo , N Y

A 1

St ab le

Ph o en ix , A Z

A a1

St ab le

A tl an ta , G A

A a2

P o si ti ve

Fo rt

W ay ne , IN

A a1

[n o ra ti ng ]

Sa n A nt o ni o , T X

A aa

N eg at iv e

C o lo ra do

Sp ri ng s, C O

A a2

[n o ra ti ng ]

Je rs ey

C it y, N J

A 1

St ab le

Sa n D ie go , C A

A a2

St ab le

R al ei gh , N C

A aa

St ab le

C hu la V is ta , C A

A a2

[n o ra ti ng ]

D al la s, T X

A a1

St ab le

O m ah a, N E

A a2

St ab le

O rl an do

, FL

A a1

St ab le

Sa n Jo se , C A

A a1

St ab le

M ia m i, FL

A 2

N eg at iv e

St . Pe te rs bu rg , FL

A a2

N eg at iv e

A us ti n,

T X

A aa

St ab le

O ak la nd , C A

A a2

St ab le

N o rf o lk , V A

A a2

[n o ra ti ng ]

Ja ck so nv ill e,

FL A a2

St ab le

T ul sa , O K

A a1

St ab le

C ha nd le r, A Z

A aa

St ab le

In di an ap o lis , IN

A aa

St ab le

M in ne ap o lis , M N

A a1

St ab le

La re do

, T X

A a2

St ab le

Sa n Fr an ci sc o , C A

A a1

St ab le

C le ve la nd , O H

A 1

St ab le

M ad is o n,

W I

A aa

St ab le

C o lu m bu s, O H

A aa

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W ic hi ta , K S

A a1

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D ur ha m , N C

A aa

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W o rt h,

T X

A a1

St ab le

A rl in gt o n,

T X

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Lu bb o ck , T X

A a2

St ab le

C ha rl o tt e,

N C

A aa

St ab le

N ew

O rl ea ns , LA

A 3

N eg at iv e

W in st o n- Sa le m , N C

A aa

St ab le

D et ro it , M I

C aa

3 N eg at iv e

B ak er sf ie ld , C A

A 1

[n o ra ti ng ]

G ar la nd , T X

A A A 1

St ab le

El Pa so , T X

A a2

[n o ra ti ng ]

T am

pa , FL

A a1

[n o ra ti ng ]

G le nd al e,

A Z

A 3

St ab le

M em

ph is , T N

A a2

N eg at iv e

H o no

lu lu , H I

A a1

St ab le

H ia le ah , FL

[n o t ra te d]

B o st o n,

M A

A aa

St ab le

A na he im , C A

A a2

St ab le

R en o , N V

A 1

St ab le

Se at tl e,

W A

A aa

St ab le

A ur o ra , C O

A a1

St ab le

B at o n R o ug e,

LA A a2

N eg at iv e

D en ve r, C O

A aa

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Sa nt a A na , C A

[n o t ra te d]

Ir vi ne , C A

[n o t ra te d]

W as hi ng to n,

D C

A a2

St ab le

St . Lo

ui s, M O

A a3

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C he sa pe ak e,

V A

A a1

[n o ra ti ng ]

N as hv ill e- D av id so n,

T N

A a2

St ab le

R iv er si de , C A

A a2

[n o ra ti ng ]

Ir vi ng , T X

A aa

St ab le

B al ti m o re , M D

A a2

St ab le

C o rp us

C hr is ti , T X

A a2

St ab le

Sc o tt sd al e,

A Z

A aa

St ab le

Lo ui sv ill e,

K Y

A a1

St ab le

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A 1

P o si ti ve

N o rt h La s V eg as , N V

B a3

St ab le

Po rt la nd , O R

A aa

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K Y

A aa

St ab le

Fr em

o nt , C A

[n o t ra te d]

O kl ah o m a C it y, O K

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ra ge , A K

A a2

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A a1

[n o ra ti ng ]

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W I

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C A

C a

[n o ra ti ng ]

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A a2

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A a2

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C in ci nn at i, O H

A a2

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ID A a1

[n o ra ti ng ]

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A a1

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A Z

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o nd , V A

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rs ’ ca lc ul at io ns ; M o o dy ’s , Fi tc h.

N o te s: In ve st m en t gr ad e = A aa

to B aa 3;

sp ec ul at iv e gr ad e = B a1

to C .

1 G ar la nd , T X

is Fi tc h ra te d A A A = M o o dy ’s A aa .

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Financial Crisis as Urban Crisis: Detroit beyond Bankruptcy Dominant narratives of the Detroit crisis tend to range from the punitive to the

fatalistic. The city is portrayed as the irresponsible author of its own misfortunes, in accounts that variously foreground the antics of corrupt politicians, the failure to confront hard choices, the malign grip of public-sector unions, the suffocating weight of municipal bureaucracy and pension obligations, or the proneness of local residents to criminality or fecklessness. In these morality tales of austerity urbanism, fiscal purging is (re)presented as a necessary and proper response, indeed corrective—a form of financial atonement commensurate with the sins, mistakes, and excesses of the past. Writing for Bloomberg, the libertarian Cato Institute’s Michael Tanner presents this

Figure 1. Changing geographies of credit rating and investment outlook, United States, 2004–14. Source: Authors’ compilation; Moody’s. Notes: Investment grades run Aaa to Baa, from highest quality/lowest risk to medium quality/ moderate risk. Speculative grades (or “junk”) run Ba to C, from substantial credit risk (Ba) through poor standing/high credit risk (Caa) to those rated with little prospect of recovery of principal or interest, often in default (C).

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version of the unvarnished truth, ‘The city’s own choices . . . are really responsible for Detroit’s failure’ (Tanner 2013, 1). Liberal accounts may be less judgmental, and disinclined to indict the victims directly, but they too tend to see a phase of govern- mental rightsizing and fiscal cleansing as a (necessary) precursor to the city’s ‘rebirth’, led more often than not by creative entrepreneurs and bootstrapping innovators (see Katz and Bradley 2013). None of this is especially new, it must be said. Coleman Young, the city’s first African American mayor (1974–94), knew quite well what to expect from ‘conservative establishment bigot[s]’, but had no time for ‘pansy-ass liberals’ either, those who would ‘nibble cheese and model the latest political fashions . . . while radicals and money [were] at work changing the world’ (Young and Wheeler 1994, 6).

Radicals and money, in fact, would continue to change Detroit’s world, in ever-more profound ways. Back in Coleman Young’s day, it was already apparent that centrifugal forces were pulling apart the city. From the suburbanization of work and wealth to the adverse effects of ‘compounded and confounded federal policies’, from the ‘unsympa- thetic cycles of social and industrial evolution . . . [to] such damn things as decentralization and white abandonment and the Toyota Corolla’, this battling mayor would have to accept the unpalatable fact that ‘Detroit will never again be the city it once was’ (ibid., 1–2). Over the course of the two decades since this statement was made, Detroit’s apparently over- determined crisis has taken on an abstracted, almost mythical form. And there is no shortage of (politically plausible) causes and (guilty-looking potential) culprits. This said, ‘[b]ecause so much else has gone wrong in Detroit, politicians and academics tend to overlook the essential role that banks played in its collapse’ (Tabb 2015, 7). Radicals with money, one might say, have been at work here, although the base of their operations, and certainly the source of their power, is now far outside the city limits.

To invoke financialization in this context, however, cannot be a pretext for casting conspiratorial assertions, for underspecified catch-all explanations, or a license for vague allusions to fiscal atmospherics (cf. Weber 2010; Christophers 2015). It is necessary, rather, to specify discernable, sustained movements in the processes, pressures, and practices that variously shape, mediate, and reflect the (transformed) conditions of finan- cial existence of US cities; to identify institutionalized forces and realigned power relationships; and to map persistent shifts in the rules of the fiscal game (see also Pacewicz 2013; Ashton, Doussard, and Weber 2014; Lake 2015; Tabb 2015). To do so, in fact, is to chart what we have suggested here amounts to a new modality of financia- lized urban governance. If, as Tabb (2014, 2015) has been arguing, Detroit should not be seen as some metropolitan outlier, subject to special and exceptional forces, but as a city ruthlessly exposed to a politically amplified form of fiscal discipline, then analyses of the financialization of Detroit bear the responsibility of tracing what are particular manifesta- tions of more generalized dynamics. (Hence, our insistence that the Detroit crisis must not be read myopically, in local isolation, but must take account of the deep currents of financial transformation across the urban system, and their institutionalization within post- Keynesian modes of governance, from the federal to the local scale, and between.)

For his part, Richard Ravitch (the former lieutenant governor of New York and an adviser to the bankruptcy judge in the Detroit case) has rhetorically stated that ‘we can expect to see more Detroits’, in the sense that the stresses on the US state and municipal financing system are manifestly structural, not cyclical, ‘and the crisis is deepening’ (Ravitch 2014, A13). Borrowing to cover municipal operating deficits, underfunding pension scheme contributions, and other creative accounting practices have enabled most cities to muddle through, but hundreds are reckoned to be at the brink of bank- ruptcy, even as the chapter 9 code is understood to be a worse-than-last-resort option (Peck 2014b). Any more generalized turn to bankruptcy would, as Ravitch recognizes,

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‘inexorably’ increase the pressure for political responses of some kind (Ravitch 2014, A13). Consequently, the financialization urban governance does not imply a uniform rush to the bottom: Detroit may be an early warning, and its experience will shape how subsequent crises are managed,2 but this does not mean that a deepening crisis will bring literal repetitions of Detroit-like events. Indeed, in post-chapter 9 Detroit itself, new futures are already being imagined as

fiscally cleansed investment opportunities. According to the chief executive officer (CEO) of the Regional Chamber of Commerce,

The bankruptcy has only made Detroit a more attractive investment . . . So many international investors view the bankruptcy, the emergency manager, the election of Mayor (Mike) Duggan as signs that Detroit is really tackling its most difficult issues . . . Bankruptcy isn’t a dirty word in business any longer. It often means good investments at a great price.

(Sandy Baruah, quoted in Aguilar 2014, 1)

Detroit never was and never will be blandly typical, but its plight nevertheless exposes issues of both diagnostic and political significance. ‘Detroit’s special place in urban American history’, Coleman Young once said, ‘has been as its great indicator, a condensed, microcosmic, accelerated version of Everycity, USA.’ (Young and Wheeler 1994, 2). Does the city that once epitomized the leading edge of Fordist development now stand at the bleeding edge of financialized urbanism? Suggesting an affirmative answer, we present a brief overview of four dimensions of financialized urban governance that are manifest in the Detroit case, often acutely, and which in different forms also find more generalized expression across the metropolitan system of the United States—intermediation, instrumentalization, institutionalization, and intensification—some of the principal features of which are summarized at Table 3. The following discussion is intended to be methodologically and substantively indi- cative, not exhaustive, defining some of the principles of analytical pertinence for the interrogation of financialization at the scale/site of metropolitan governance. Similar frameworks might, in principle, be applicable to other cities, even in quite different circumstances, such as historically lean administrations and/or with those in high- growth regions. ‘Learning from Detroit’ must not be monopolized by the advocates of financialized restructuring.

Intermediation Financial intermediation, strictly speaking, is the process of connecting and mediating

between those supplying and demanding credit. More broadly, the class of financial intermediaries can be taken to refer to a heterogeneous grouping of actors, agents, and agencies variously engaged in the business of sourcing, regulating, and managing credit, which, for Detroit and other cities, centers on the muni bond market, the parameters of which are governed by the credit rating firms. In their ratings behavior, especially when it comes to punitive downgrades, financial market mediators manifestly represent supply-side interests in credit markets. But, of course, they do not act alone. On the demand side, cities and other municipal entities have actively sought new and creative ways to finance not only investment and infrastructure projects but, increasingly, to cover revenue shortfalls and other obligations as well. Heavily leveraged cities like Detroit are deeply enmeshed in these mediated financial relationships. On the eve of the

2 Detroit precedents are now regularly cited by financial-crisis managers near and far, from Atlantic City to Greece and Puerto Rico (see Corkery and Walsh 2015).

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Wall Street crash, Detroit’s Comprehensive Annual Financial Report stated that ‘the City is dependent on short-term borrowing for cash flow purposes’, including $127.4 million in RANs, in anticipation of revenue-sharing payments from the state, and $96.2 million in TANs, in anticipation of municipal tax revenues (Detroit 2009, 8). Longer-term financing to cover shortfalls was secured through fiscal stabilization bonds. The state of Michigan has not only permitted these debt-based (re)financing strategies, it has facilitated them. The Fiscal Stabilization Act of 2010 (originally PA80-1981) doubled the amount of debt that Michigan municipalities could issue to cover current-account shortfalls, from $125 million to $250 million, while also deregulating the obligation structures for ‘fiscal stabilization’ (these having previously been restricted to limited obligation bonds).

Aside from enabling the ‘management’ of unfunded shortfalls, access to credit markets allows municipalities to enlarge the scale and scope of their growth-oriented activities through revenue bond issues—a mode of financialized entrepreneurialism (see Kirkpatrick and Smith 2011). For economically stressed cities like Detroit, this creditor’s bargain is an especially asymmetrical one. So when in late 1992, the city’s hard-won rating as an ‘investment-grade’ city was downgraded by Moody’s to ‘speculative’ status (Ba1), pushing up borrowing costs and damaging an already tainted reputation, there was effectively no recourse: as Detroit’s finance director plaintively remarked at the time, ‘Who’s going to brawl with the ratings agencies?’ (quoted in Hackworth 2007, 38). Evidently, the adoption of a more business-friendly tax code along with an entrepreneurial repurposing of city agencies—both of which had been priorities for the Coleman Young administration since the 1970s—were not, on their own, sufficient; the city’s rating was being downgraded as a result of a hardnosed (external) assessment of its disadvantageous competitive and fiscal position. Looking beyond the balance sheet, Moody’s raised concerns about population decline, concentrated poverty, sinking median-income levels, and structural unemployment (Crowell and Sokol 1993; Sinclair 2005).

Table 3

Dimensions of Financialized Urban Governance, in Detroit and Beyond

Intermediation Expanded class of financial intermediaries and gatekeepers Financial discipline through credit rating

Deepening penetration of fiscal technocracy and management by financial fiat

Bond-holder value logics and disciplines become increasingly systemic

Instrumentalization Accelerated production of new financial instruments, acting as carriers of financial logics Engagement of municipal actors and agencies in coproduction of local financial innovation

Fiscal zoning via tax-increment financing

P3s privatize public assets and revenue streams, balkanizing urban development

Institutionalization Tendential devolution (under fiscal federalism) promotes localized self-sufficiency, fiscal gating, selective austerity, and uneven financial development

Growing dependency on local tax base, subject to cyclical volatility and (uneven) structural

decline

Rollback of revenue-sharing programs

Mutually reinforcing liberalization of credit markets and urban financing practices, fortified an ideology of fiscal fundamentalism

Intensification Financially mandated acceleration and compression of restructuring programs, in advance of (or during) chapter 9 bankruptcy

Imperative-driven contract negotiations, in the shadow of ‘objective’ fiscal necessity

Emergency (financial) management as hyperrational, postdemocratic governance

(Orchestrated) crisis-driven establishment of legal precedents, restructuring models, and policy

innovations

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More than two decades later, Detroit continues to be scored below investment grade, its ratings tanking in the rapid transition from the prereceivership ‘consent agreement’ with the state of Michigan through to the declarations, first, of a financial emergency and then of chapter 9 bankruptcy proceedings (see Figure 2). Moody’s downgrades have been rationalized by a forensically unforgiving, real-time analysis of the city’s path through the bankruptcy courts, having previously included a negative assessment of the statewide referendum decision to overturn Public Act 4, Michigan’s fortified emergency manager law, which was interpreted as a ‘weakened state oversight framework’ (Moody’s 2012). It is safe to assume that Wall Street was content with the amended law, which was cynically pushed through the legislature with a provision to inoculate its provisions from referendum challenge (Guyette 2014a; Peck 2015). This is not simply a matter of financial rule, exercised at a distance, however;

financial intermediaries are working on the inside too, technocratic management having become a defining characteristic of ‘reformed’ municipal governance. Emergency manager laws, such as those enacted by the state of Michigan in Detroit—on most accounts the nation’s strictest—install preemptive, unitary, and close-to unilateral forms of financial control, overriding the powers of elected offi- cials and circumventing local democratic channels. They allow state-appointed man- agers to rescind signed collective agreements, to hire and fire, to restructure city functions, and to privatize public and services assets at will. Michigan’s law also changed the nomenclature: what had previously law been called emergency financial managers became all-purpose emergency managers. Detroit’s emergency manager, Kevyn Orr, was the embodiment of what some in Michigan portrayed as tsar-like financial powers—and which the appointee presented as a form of benign rationality, the ‘rule of reason’ (quoted in Vlasic and Yaccino 2013, A17). With a background in corporate bankruptcy law, Orr had no previous experience of municipal governance. Serving at the pleasure of Republican Governor, Rick Snyder, he would bear no electoral accountability, channeling interests that effectively trumped those of local citizens. Conventional narratives of the Detroit crisis duly normalize this process of

Figure 2. City of Detroit credit rating history, 1971–2015. Source: Authors’ compilation; Moody’s.

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management by diktat and (electoral) depoliticization, as if local political control is synonymous with politicized mismanagement, while heaping praise on the imparti- ality, wisdom, and prudence of the out-of-town or comprador class of financial technocrats. Here is the Economist magazine’s accusatory narration of Detroit’s situation, for example:

Detroit has a long history of mismanagement, epitomized by Kwame Kilpatrick, who was mayor from 2002 to 2008 and is now in prison. Yet its bankruptcy has been handled with impressive efficiency by Kevyn Orr . . . and by Judge Rhodes, who presided over the bank- ruptcy trial . . . The adjustment plan sets aside . . . a vast sum for a city that has trimmed investments to the bone in recent years, but it will soon run out. Unless Detroit smartens itself up, though, no one will lend to it.

(Economist 2014a, 36)

Behind the promises to do what he could to protect the pension rights (and incomes) of current and former city employees, to secure the world-class collection at the Detroit Institute of Arts (DIA), and to deal evenhandedly with Wall Street creditors—as if these trade-offs could be managed in a politically neutral manner—Orr occupied a constitu- tional position that not only excused but demanded managerialist fiat. In this respect, emergency management measures properly belong to the repertoire of structural-adjust- ment approaches pioneered by multilateral lending institutions like the World Bank, not least in their apparently willful contempt for local democracy. The effective grip of these measures, moreover, exceeds the tenure of the emergency manager himself—an une- lected financial review commission will oversee the city of Detroit for years to come, approving municipal budgets, major contracts, and labor agreements.3 Central to the grand bargain provisions of the bankruptcy settlement, the price of ceding democratic control to this unelected commission was bargained against deeper cuts to the municipal pension scheme and the retention of the cultural assets of the DIA.

Instrumentalization A second dimension of municipal financialization, closely allied to these expanded

roles for financial intermediaries and technocrats, is that of instrumentalization. A host of new financial products, services, instruments, and devices has not only accompanied but has actively enabled the financialization of municipal governance and urban policy. Detroit has established a reputation as a proving ground for bold ‘innovations’ in municipal financing, and for the aggressive use of existing instruments. Its swollen roster includes RANs, TANs, and fiscal stabilization bonds, as well as revenue bonds, general obligation bonds, certificates of participation (COPs), swaps, bond insurance (wraps), private financing through P3s, TIFs, tax liens, and social impact bonds. Instruments like these serve, in effect, as carriers for financial rationalities and impera- tives; they inaugurate and deepen financialized relationships between local and extra- local actors and agencies; and they open up new horizons of financial opportunity and exposure. Long-run liabilities on Detroit’s balance sheet, including the public–employee pension system, were refinanced in 2005 through COPs, swaps, and bond insurance—an audacious thirty-year, $1.44 billion deal developed with Wall Street partners. TANs and

3 The nine-member commission comprises the state treasurer and budget director, the city’s mayor and the council president, as well as five gubernatorial appointees (the latter confirming the sociological narrowness of the world of financial oversight—Detroit’s former deputy emergency manager, executives from the auto and construction industries, a bankruptcy consultant, and an agent from PricewaterhouseCoopers).

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RANs were also heavily used, before the 2008 crash, to cover annual cash-flow problems and finance the deficit, while fiscal stabilization bonds were established as the cornerstones of the city’s long-run deficit elimination plan by 2010. Financialization therefore pushes the role of debt well beyond growth-oriented cyclical relief; finance becomes integral to the business of government. Just one element of this debt-based model of municipal service delivery, Detroit Water

and Sewerage Department (DWSD) debt made up one-third of Detroit’s $18 billion in long-run obligations owed in July 2013. Before the bankruptcy settlement had been concluded, DWSD issued an additional $150 million in sewerage-system improvement bonds and $1.64 billion through a bond tender scheme aimed at lowering long-run costs by consolidating and refinancing years of accumulated revenue bond debt. This refinan- cing was reckoned to yield $113.5 million in savings for DWSD by lowering interest rates and transaction costs. Beyond the management of shortfalls, it is the purported ‘gains’ from such arrangements that arguably reveal more about the fiscal restructuring of the state. A financialized solution to a debt-based problem is a telling indication of the systematization of finance and its logic, reach, and depth in urban governance. No longer are muni bond markets merely a source of funds—they are also selling, para- doxically, relief from debt. These activities are redrawing (and puncturing) the boundaries of the local state as

well. New generations of financial schemes are being coproduced (and often jointly managed) with private financial interests. These hybrid models assume a particular institutional form under P3 arrangements, a wide array of which have been used in Detroit—from commercial real estate development partnerships in the early 2000s (e.g., the Riverwalk and Campus Mauritius projects) to major infrastructure deals like the $140 million Woodward Avenue M-1 rail project and the $2.1 billion deal for the new Windsor–Detroit bridge (a joint federal–state–municipal endeavor). Furthermore, having had a Tax Increment Financing Authority since 1982, Detroit has authorized a wide range of TIF projects, including a $12 million expansion of the St. Regis Hotel and $750 million for a General Motors assembly plant. In addition to this shift to project-based financing, financial instruments have also

enabled new targeting strategies. The TIF mechanism is essentially a zoning technology; it splinters and Balkanizes urban-governance systems; and it incentivizes spatially selective forms of speculation. In Detroit, zoning strategies have been deployed in an especially radical form through successive waves of ‘blight removal’. Measures like the Delinquent Property Tax Foreclosure Public Act of 1999 were ostensibly designed to clear vacant land and abandoned buildings in order to rehouse low-income families but have more effectively served the interests of financial flippers and speculators (see Akers 2013).4 In the words of one finance-market player, ‘Parts of Detroit are [now] very investible’ (Matt Fabian, quoted in Priddle 2014, 1, emphasis added). Financial cherry-picking is enabled by the greenlining of investment priority areas, producing in its wake new hinterlands of financial exclusion and relative development blight. Meanwhile, the management of marginalized populations is being turned over to financial innovators and to new technologies of social policy like social impact bonds. Social impact bonds seek to control and suppress ‘subprime’ behaviors, such as prison recidivism, on a payment-by-results basis, in order to secure savings on future govern- ment expenditures. This amounts to a ‘financialization of urban policy [through] the

4 With speculators often dodging property taxes or abandoning purchases altogether, fifteen Michigan House and Senate bills were introduced in 2013/2014 to improve local enforcement through stiffer penalties (including wage garnishment and forced property foreclosure).

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repurposing, redesign, and implementation of urban public policy as a financial instru- ment’ (Lake 2015, 76). Michigan’s Partners for Success program operates under this rubric, for example, with technical assistance from Harvard’s Social Impact Bond Technical Assistance Lab.

Institutionalization A third dimension of financialized urban governance concerns the ongoing institu-

tionalization of financial rules of the game, routines, and relations. It is important to underline the fact—especially given dominant narratives that reduce the Detroit bank- ruptcy to a story of localized (and often racialized) political failure, or some lack of resolve/discipline in the face of so-called hard choices—that the city’s financial crisis is deeply rooted in an adversely structured regime of fiscal federalism (see Peck 2014b). This institutionalized pattern reflects a historic shift in ‘public philosophy [away from an approach] in which the spatial unevenness of resources to meet local needs was addressed through revenue sharing . . . to a belief that all jurisdictions must meet spending demands out of locally sourced resources’ (Tabb 2015, 4). Local revenue raising, principally through property taxes and user fees, remains an important compo- nent of municipal budgeting in the United States, but the contraction in revenue-sharing funds from both state and federal governments has been sustained and significant. In what has been described as ‘the Great Revenue Sharing Heist’, the State of Michigan has ‘balanced its own budget on the backs of local communities’ across the state, withholding over $700 million from the city of Detroit in the decade to 2014 (Minghine 2014 2). Federal stimulus funds in all likelihood averted a generalized municipal financial crisis in the wake of the Wall Street crash, but once these provisions were exhausted, the long-run structural trends toward devolved self-sufficiency and federal decoupling were promptly resumed (see Levitin 2012; SBCTF 2012; Peck 2014b). These institutionalized dynamics are deeply entrenched. It was in the mid- 1980s that the Michigan Supreme Court (Michigan Association of Counties v. Department of Management and Budget 1984, 584) ruled that, ‘the State does have an obligation under the Constitution to balance the budget [, but] it has no obligation to refrain from shifting the financial burdens of government to local government units’. For decades, Detroit has been contending with fickleness, mistrust, paternalism, and sleight of hand in its financial relationships with the state of Michigan, exacerbated by the erosion of federal funding on multiple fronts, detaching the city from redistributive circuits.

While the shift toward neoliberalized logics of financial devolution and fiscal restraint has been generalized in reach, local consequences have been anything but uniform. The regime of financial discipline bites hardest in sites of structural economic decline, flat or declining local tax revenues, and elevated social need. Communities of color are disproportionately disadvantaged by strategies like emergency management and devolved budgeting (Kirkpatrick and Breznau 2014). The Detroit–Warren–Dearborn metro area has long been afflicted by slow (or negative) growth dynamics, well behind state and national averages, with annual real gross dometic product slumping badly from $21 billion in 2001 to $17 billion in 2013 (Bureau of Economic Analysis 2015). Here, the persistent drag of economic decline leaves elected officials with few realistic alternatives to the self-defeating cycle of ‘falling tax base—raise taxes—drive out more tax base’ (Galster 2015, 19). This has meant an extended and often troubled history of financially mediated restructuring, some of the long-run movements and markers of which are illustrated in Figure 3.

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What has been popularly (mis)represented as Detroit’s ‘death’ certainly did not occur from a single financial blow (cf. Tabb 2015); its prolonged near-death state has been the product of a thousand cuts. These structurally embedded circumstances have prompted Detroit to explore, and then grasp at, ever-more creatively crafted credit arrangements, including swap deals fashioned with Wall Street ‘innovators’ that in all likelihood were illegal (see Bomey and Gallagher 2013; Turbeville 2013). The city of Detroit, it must be recognized, was an active player in these schemes, working with financial enablers to push the envelope of experimentation at a time when ‘[l]iquid markets and local policy liberal- ization [had become] mutually reinforcing’ (Weber 2010, 257). Detroit’s swap deals proved to be sufficiently rotten that (even) the emergency manager was moved to press the claim in federal bankruptcy court that they should be voided, a move that sent ‘shudders through the municipal bond and financial product markets’ (Tabb 2015, 7). While Detroit’s creditors successfully defeated this effort, the airing of financial dirty laundry was a reminder that corruption and malpractice are not the exclusive preserve of the office of the city mayor.

Intensification Lastly, financialized urban governance entails intensification. Objective conditions of local

financial crisis represent a time—and a place—where radical transformations can and must occur; they define moments of imperative reform. In the name of fiscal necessity, these conditions serve both to legitimate and necessitate extreme programs of restructuring, strengthening the arm of austerity advocates, and empowering change managers. In this context, strategies like emergency management and declarations of municipal bankruptcy serve the purpose not only of legal ring-fencing but also spatiotemporal intensification. They operate, in effect, as an accelerant for geographically targeted and institutionally concentrated restructuring programs, forcing cuts and concessions, imposing ‘haircuts’ and ‘cramdowns’,

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Figure 3. City of Detroit financial timeline.

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and mandating a host of nonnegotiable ‘hard choices’. Crucially in Detroit’s case, these legally enforced and technocratically managed ‘emergency’ measures have been the subject of meticulous and extensive planning. The raiding of public assets, the impairment of municipal employee and retiree benefits, and the imposition of radical restructuring on local-government systems and services were not isolated mishaps, but strategically envisioned measures. The investigative reporting of Michigan American Civil Liberties Union’s Guyette (2014a) has documented that preparations for Detroit’s bankruptcy went back at least as far as the beginning of Governor Snyder’s administration (in early 2011), when the strategy for a beefed-up emergency manager law was first made public. It involved a tight group of well- connected actors in and around the governor’s office in Lansing and at the Jones Day law firm, where Keyvn Orr has been a long-time partner. As Judge Rhodes later said, remarkably, of this extended phase of back-channel maneuvering, Detroit’s ‘bankruptcy was the intended con- sequence of a years-long, strategic plan .. . [t]he goal of [which] was the impairment of pension rights’ (quoted in Guyette 2014a, 1, emphasis added).

Notwithstanding the long history of financialized restructuring in (and of) the city of Detroit, the period of chapter 9 receivership was one of unprecedented intensity. It created a space for scorched-earth applications of fiscal rationality. And it set the stage for an asymmetrical struggle over the size, shape, and forward trajectory of the municipal state and its public-service portfolio. A constellation of creditors would encircle the city of Detroit, staking claims on remaining public assets and revenue streams, pressing for the stripping out of costs and obligations, and initiating programs of finance-led restructuring. Among these, bond insurers Syncora Guarantee and Financial Guaranty Insurance Company (FGIC) were the most aggressive. (FGIC had a $1.1 billion exposure from guaranteeing COPs issued to refinance the city’s pension debt, while Syncora held $400 million in COPs.) Early on in the settlement process, the bond insurers pushed to monetize the art assets of the DIA, valued at over $4 billion, as a means to cover pension debt exposures, triggering (mostly negative) international media coverage. This effort was ultimately thwarted in the grand bargain, but in the process, the city conducted a searching assessment of its property portfolio ‘to see what could be monetized’, in the words of a city attorney (Lambert 2014). Initially, Syncora and FGIC were to receive ten cents on the dollar, a severe haircut by any measure, but they eventually secured a 13.9 percent rate of recovery. By ‘adopt[ing] an all-out litigation strategy’, Syncora was able to drive up its recovery rate, while also acquiring a P3-style asset lease on the Detroit–Windsor bridge through 2040, a thirty-year asset-monetization lease on an downtown parking garage (with a tidy 40 percent return on investment projected), and ownership of a swathe of prime riverfront property, adjacent to the bridge, for retail and housing developments (Devitt 2014, 1; NCPPP 2014).

The last of the creditors to settle, FGIC, complained that any less favorable deal amounted to ‘unfair discrimination’. FGIC’s settlement also involved land and asset monetization: following the demolition of the Red Wings arena and a parking garage, the company would acquire a nine-acre site near Cobo Center, the downtown conventional hall, with approval for a mixed development of hotels, condos, offices, and retail, along with $152 million in city notes, partly backed by public-parking revenues, a novel form of asset monetization. Asset deals like these, the precursors of which had been floated in Detroit since at least the early 2000s (see Auditor General 2003; Citizens Research Council of Michigan 2010), lock in significant and ongoing roles for bond insurers in Detroit’s public works, infrastructure, and commercial real estate property market for decades to come.

During the bankruptcy process, successive proposals for plans of adjustment were negotiated in and out of court, with thousands of large and small creditors, current and former employees, advocacy groups, and interested parties, the sequence of which is summarized at Table 4. The final plan, agreed to in November 2014, crystallized one configuration of this

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Table 4

Detroit’s Bankruptcy Timeline

18 July 2013 City of Detroit emergency manager files for bankruptcy with $18 billion in outstanding long-term debt obligations (composition: 33% Detroit Water and Sewerage Department debt, 32% unfunded retiree health care liabilities, 19% unfunded pension liabilities, 16% government debt)

19 July 2013 State of Michigan rules out the option of a ‘bailout’

August 2013 Creditors (retiree associations, pension funds, and individuals) object to bankruptcy filing

23 October 2013 Bankruptcy eligibility trial begins; Judge Rhodes presiding

26 November 2013 Detroit Art Institute (DIA) assets targeted by bond insurers; demand that Judge Rhodes establish a valuation committee

3 December 2013 Rhodes rules Detroit eligible for chapter 9, but must have a plan for reinvestment and must negotiate with pensioners; calls for a ‘Grand Bargain’ with regard to DIA assets

25 March 2014 City of Detroit announces it is seeking proposals from private companies to run or buy Detroit Water and Sewerage Department (DWSD); City will ‘consider responses that contemplate alternative transaction structures, such as long-term leases and concession arrangement or sale’

8 April 2014 Unlimited tax general obligation bondholders settle (75% recovery, financed through a $278 million limited tax bond issue on 11 December 2014); city tax revenue dedicated to repay this debt

26 April 2014 Detroit seeks to invalidate pension debt accumulated through certificates of participation (COPs) issued in 2005/2006. Strikes deal with retiree committee (created by bankruptcy court to represent retired workers) to fund retiree medical coverage with money allocated to repay COPs. City later reneges and retiree health benefits are eventually cut by 90%

2 May 2014 Detroit Retired City Employees Association supports the plan of adjustment (general retirement system accepts cuts of 4.5% on monthly checks, COLA eliminated, clawbacks to monthly annuity; fire and police pensions recover 100%, annual COLA cut to 1%)

3 June 2014 Michigan state senate approves Grand Bargain

13 June 2014 Limited tax general obligation bondholders settle (34% recovery)

20 June 2014 Grand Bargain legislation is signed; state of Michigan authorizes $195 million up-front contribution, creating an oversight commission, DIA granted independence and severed from bankruptcy proceedings; in exchange DIA pledges funds to help bolster municipal pension system until 2033

6 August 2014 Regional water deal reached, refinancing DWSD through bond issue

22 August 2014 Emergency manager states ‘privatizing DWSD is not on the table’, but hires consultant Veolia Water to review its finances and staffing, and to recommend cuts

29 August 2014 $275 million in exit financing secured from Barclays; repayment is secured through dedicated portion of city income tax revenue

2 September 2014 Settlement trial begins

9 September 2014 DWSD regional water deal bond issue raises $2 billion over forty years for water infrastructure work in Wayne, Oakland, and Macomb counties

15 September 2014 Bond insurer Syncora settles (14% recovery plus land, P3 deals, asset leases)

25 September 2014 City council regains control of daily operations from emergency manager (subject to oversight by financial review commission)

16 October 2014 Bond insurer FGIC settles (14% recovery plus land, P3 deals, asset leases)

7 November 2014 Judge Rhodes approves the plan of adjustment. $7 billion of $18 billion in long-term debt to be shed, 80% of which derives from cuts to retirees’ benefits (via reduced health insurance and pension outlays, and changes to an annuity savings scheme); approximately $1.7 billion new spending on blight remediation, public safety (police, fire, EMS departments), public transportation improvements, IT systems overhaul, and streamlining of city operations

Source: Authors’ compilation.

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labyrinthine pattern of deals—a ‘settlement’ with long-run implications, especially for some of the most disadvantaged of Detroit residents. This shaved $7 billion from Detroit’s long-term debt (estimated at around $18 million, including future accrued liabilities such as pension obligations and bond interest), with fully 80 percent of these immediate ‘savings’ coming at the expense of retirees, including a $4 billion reduction in health insurance coverage, $1.3 billion removed from pension outlays, and a $190 million cut to an annuity savings scheme (Guyette 2014b). The speed and intensity of the Detroit bankruptcy settlement has since become a ‘selling point’, as the Regional Chamber’s CEO puts it, as he touts lucrative investment opportunities in pockets of downtown Detroit (quoted in Priddle 2014, 1).

On the question of public-sector pension rights, the Detroit bankruptcy settlement may be truly precedent setting: trumping even the state of Michigan’s additional layer of constitutional protections, the principle that pensions can now be ‘impaired’ under chapter 9 will set a pattern for legislative efforts in other jurisdictions, having been closely watched for this very reason (Peck 2014b, 2015). This is but another way in which Detroit’s extraordinary crisis is being rendered ordinary, as the harbinger of a new normal. (Recall Judge Rhodes’s declaration that the strategic goal of those that initiated, and indeed planned for, the Detroit bankruptcy had been the impairment of pension rights.) Any additional increment of the total costs of default that is borne by pensioners, and by citizens deprived of municipal services, is, of course, a burden shared or spared for Wall Street creditors. Creditors knew full well that they were taking on some degree of speculative risk when they purchased Detroit bonds, subsequently sold at deep discounts and with correspondingly high yields (Tabb 2015). But in contrast, Detroit pensioners—whose annual incomes, on average, are less than $20,000—were supposed to have been the beneficiaries of nonrisky investments in social security, having been entitled (ethically as well as literally) to believe that their deferred savings were sacrosanct. There can be few more perversely apt illustrations of these financia- lized times.

Conclusion: Collateral Damage The bankruptcy of Detroit, we have argued here, has not been an isolated, unique, or

indeed local phenomenon. Rather, the city has been a notable pressure point in a historic process of financial intensification, unevenly experienced and realized. A more-than- proximate account is therefore called for, one that recognizes not only Detroit’s history, but the history of deepening financialization across the governmental and urban system of the United States. Positioning the city in this way, we have suggested, might usefully be seen as a shared task between urban political economy and financial geography, within which there is common cause in the pressing questions of financializing metro- politan governance.

Writing in this journal several years ago, Rachel Weber argued that ‘conventional accounts of urban governance, emphasizing regimes, power, and formal legal arrangements, can assist critical [financial] geographers in their studies of the place- based articulations of global finance’ (2010, 271). We echo this point here, albeit in reverse—suggesting that the time has come for research in the tradition of urban political economy to engage more squarely with ongoing processes of financialization, their variegated forms, and diverse contradictions. This is not just a matter of the same old game of urban entrepreneurialism, played with some new instruments; the rules of the game are changing, along with the cast of players, and the sources of their power. We have suggested here that financialization is not just something that happens to cities, or even in cities, but has come to function, in its own terms, as a transformative urban

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process, the reach of which has become systemic. Yet this cannot simply be a matter of announcing the epochal arrival of big-F Financialized Urbanism. Even if this is a big process, with collateral effects that are both deep seated and far reaching, making sense of its workings on the ground must involve granular and specific forms of analysis— close to actors, agents, and actions, but at the same time attentive to structural positions, systemic rationalities, and recurrent patterns—forms of analysis, in fact, that have, for some time, been associated with various traditions in urban political economy but will surely need to be augmented to account for the rise and reach of financialized governance. Adequate analyses of financialization must exceed broad allusions to atmospheric

movements, as if financial incentives and disciplines work in some blanket fashion, and neither can wide or loose extrapolations from local (or sector-specific) circum- stances to allegedly system-wide conditions be considered sufficient, as if the Detroit bankruptcy beckoned a singular urban future. Rather, there is a need to be attentive, in a more particular fashion, to the generative processes, local formations, institu- tional conditions, and characteristic behaviors associated with particular forms and geographies of metro-scale financialization, along with its winners and losers. This calls for a more sustained engagement between urban political economy and critical financial geography. Where critical-finance researchers have taken up urban ques- tions, this has tended to focus on drivers and contradictions of real estate markets, or the interrogation of specific instruments, policies, or funding mechanisms like TIFs. This foundational work has opened up the field, but it has yet to squarely engage with financialization across the relational scales of metropolitan governance or with the fiscal restructuring of the (local) state itself. The goal of this article has been to complement and augment this extant work in critical financial geography by building a bridge from urban political economy, both theoretically and through the case of Detroit. For its part, while finance has been a continuing concern of urban political

economy, this has often taken a macro-theoretical form (such as capital-switching dynamics or the determination of speculator-class rationalities), while the more grounded methodological optic of the entrepreneurial city has foregrounded growth- chasing actors and activities. Again, in the interest of supplementing rather than supplanting this tradition, we have called attention to compelling reach, depth, and systematicity of financial disciplines and dynamics, as well as to the diminishing returns of late entrepreneurialism. If Harvey’s (1989) classic account described the springtime of entrepreneurial urbanism, financialization arguably characterizes its con- tradictory autumn. It is in this sense that financialized urbanism emerges not as some new stage, with discrete logic, but out of the contradiction-laden conjuncture that preceded it—at the limits of post-Keynesian urban-growth politics. The tangled net- works of financialized metropolitan governance have grown out of the degraded soil of entrepreneurial urbanism. And while private-sector growth elites are still on the scene, their effective power is being eclipsed by a rising class of financial technocrats, many of them positioned off stage. Our purpose, then, has been to broaden the channels of dialogue between urban

political economy and critical financial geography, not as a corrective to extant work but as an additive and collaborative gesture. A case can be made for urban political economy to take what we might hesitatingly call a financial turn, not least since its own theater of operations has been colonized by financial actors, instruments, institu- tions, and imperatives as never before. Today, the fortunes of cities are increasingly

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deeply entwined with the diktats of technocratic governance and the dilemmas of debt- machine management, arguably more so than with the low-returns game of growth- machine entrepreneurialism, with its worn out and repetitive strategies. (These are conditions that extend far beyond crisis-torn cities like Detroit, and other wards of the financializing state.) By the same token, a case can be made for financial geographers —whose critical gaze has been characteristically bifocal, trained on the celestial movements of global finance, or on the earthly precincts of local policy instruments and financialized subjects—to focus more insistently on the fields of municipal governance, intergovernmental financing, and state restructuring, and the amplified roles of credit market disciplines, devolved austerity, and bondholder-value concerns. No longer backwaters of public accountancy, these are increasingly significant sites of financial (and political) action.

We have argued in this article that systemic processes of financialization are driving historically distinctive forms of metropolitan restructuring across the United States, with significant consequences for municipal governance, for local democracy, for city services, and for public-service workers. The roots of this systemic transformation run deep, having been gestating for several decades, although they have been exposed to especially intense forms since the Wall Street crash of 2008. These quite unprece- dented pressures have not, however, inaugurated some across-the-board race to the bottom in municipal finances, leading to a flat earth of lean or bankrupt local states. Rather, they are carving out new and distinctive geographies of state and local government indebtedness and creditworthiness, along with spatially differentiated patterns of exposure to municipal fiscal crises, resulting in highly uneven—if quite systematically structured—processes of municipal restructuring and downsizing. Meanwhile, more favored cities—with stronger local economies, relatively healthy property markets, and as a result more robust revenue streams—enjoy preferential access to the municipal bond market, and to circuits of public and private investment more generally.

Debt-machine strategies have been normalized in this environment of slow and uneven growth, as wagers on inescapably unpredictable urban futures. There is more at stake here than the (differential) supply of credit, though this is certainly important. Invasive processes of financial colonization, often realized at the nexus of bondholder- value pressures and imperative programs of neoliberal restructuring, have been reshap- ing the operating environments, internal dynamics, and governing rationalities of US cities. Structural indebtedness has been rising across the metropolitan system as a whole, although never equally, as the snapshot in Figure 4 shows. The turn to the bond market, in state after state, often to meet basic operational obligations in the areas of education, transportation, utilities, and the environment, may well be the ‘most critical piece of the states’ fiscal dilemma’ (Ravitch 2014, A13). Notably, after stimulus-spending measures expired in 2011, it was Michigan that led the rush back into muni bond debt, its rate of new borrowing ballooning by 366 percent in a single year, while New York and Massachusetts saw their new money muni bond debt loads increase by 124 and 151 percent, respectively (Barnes 2014).

Never a typical place, Detroit occupies a unique position on this constantly moving map of governmental financialization, but the systemic character of the forces that have been driving the city’s restructuring—both fiscal and political—cannot be dis- missed as some freakish outlier. Detroit’s misfortune has been to be subjected to an especially punitive form of financially led and technocratically managed restructuring. The city has been structurally adjusted through mutually reinforcing processes of financial repression and political suppression. But for all of the profound, long-term

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consequences of Detroit’s bankruptcy settlement for the municipality and its residents, this has been from the start more than a local story. The city may have started by placing bets on growth, but before long it was forced to borrow even to manage its own decline—resulting in a codependent relationship with bond market enablers and financial engineers that would soon become dysfunctional. Today, Detroit is facing financial intensification, imperative-driven governance, and fiscal responsibilization in perhaps the most unvarnished, if not brutal, form that these have yet to take. And by virtue of its sheer scale and political visibility, the city has been elevated to the status of a demonstration case for stress-tested models of urban restructuring. There is agency and intentionality at work here, not just cold structural logics. Detroit’s bank- ruptcy was not an accident. Its crisis, in the carefully chosen words of Judge Rhodes, was ‘orchestrated’ (quoted in Guyette 2014a, 20). Detroit has since become a testbed for austerity models of public-sector employ-

ment and pension reform, for the triaged delivery of public services, and for postcrisis experiments in privatized regeneration. Even as speculators display an interest in some of the well-packaged investment opportunities in downtown Detroit, forty square miles of the city have been designated as officially empty. Mayor Duggan therefore has to articulate a vision somewhere between qualified optimism and fiscal realism, reckoning that the road to recovery has only just been joined. He can plan and he can hope, but the city’s fortunes will continue to be shaped by forces and interests far beyond local control: ‘I can’t predict a national recession. I can’t predict state revenue-sharing cuts. I can’t predict different casinos being approved’, he told Judge Rhodes in bankruptcy court (quoted in Aguilar 2014, 1). For all this uncertainty, Detroit seems to have no option but to place new wagers on what will be a very different kind of urban future.

Figure 4. New state debt, 2011. Source: Authors’ adaptation from Barnes (2014).

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