New Report: Detroit’s Innovative “Grand Bargain” Model Holds Promise for Struggling Rust Belt Cities

Philanthropy, business, government, and labor all have roles to play in “grand bargain.”

NEW YORK, NY — In 2014, Detroit was bankrupt, crippled by retiree pension-payment obligations and unable to provide essential city services. But while the city was mired in intractable bankruptcy negotiations, an innovative approach by the city’s major foundations broke through the impasse. A new report by the Manhattan Institute’s Howard Husock explores the promise Detroit’s innovative model holds for other struggling Rust Belt cities.

The Detroit “grand bargain” mobilized some $366 million of philanthropic and corporate support that, in turn, helped convince Detroit labor unions to make their own contribution toward lowering the city’s pension debt. Although sparked by a unique circumstance—that the collection of a city-owned art museum might be sold to pay the pension bill—the same approach, Husock’s report concludes, could nonetheless be applied elsewhere.

In this new report, Husock examines whether Detroit’s “grand bargain” model could be applied to four similarly struggling Rust Belt cities: Buffalo, NY; Chicago, IL; Cleveland, OH; and St. Louis, MO. Though these four cities are remarkably different from Detroit, in several key ways, they are quite similar:

1. They all contain significant foundation wealth relative to municipal expenses.
2. The sources of these cities’ foundation endowments are connected to the historical sources of wealth specific to the respective cities.
3. All four cities are characterized by high levels of household poverty and low median household incomes, making it difficult for their municipal budgets to support both high retiree costs and core public services.

Absent a “grand bargain,” these cities will continue to see property taxes rise as pension liabilities crowd out core city services. Such a bargain would significantly decrease these cities’ pension liabilities and free up funds for spending on core city services, all while being eminently affordable for leading local foundations.

These and many other U.S. cities face a simmering crisis that threatens to upend their ability to pay pensions and keep streets clean and safe. While philanthropy should not, as a general rule, be expected to fill the role historically associated with local government, a “grand bargain” like the one modeled in Detroit holds immense promise as an innovative way out of a profoundly difficult situation.

Click here to read the full report.