How Detroit Went Broke

The Detroit Free Press looks into Detroit's finances through the years.  Yes, failure to shrink government payrolls and generous pensions played a major part, but I don't think anything is a bigger factor than this:

There was just no way to come to grips with that major of a population change, especially as those left behind were the poorest folks in the region.  A few other interesting causes of the financial trouble, smaller amounts of state aid, corporate welfare to bring back auto plants, and Mayor Kwame Kilpatrick's disastrous Wall Street deal to take on debt to fund pension plans:

The deal hailed by Wall Street was a disaster. The borrowing scheme now represents close to one-fifth of the city’s debt and stands as a key reason the city filed for Chapter 9 bankruptcy on July 18.
Many said it seemed like a good idea at the time, but the financial machination now stands as a prime example of the city’s willingness to borrow huge sums — and how Kilpatrick took borrowing to new heights.
For a year, Kilpatrick had lobbied the City Council to approve the idea of borrowing to fund pensions. The mayor said the city’s pension obligation, left unaddressed, would force him to lay off 2,000 employees.
But his new deal was designed to fix all that. He estimated the city would shave $277 million a year from its pension contribution obligation and prevent layoffs. It worked like this: Detroit sold pension obligation certificates of participation and shoved the money into its pension funds, making them nearly 100% funded. Separately, the city also bought so-called swaps, or derivatives, a complex Wall Street financial deal to permanently lock in steady interest rates in the range of 6%, a comparatively good rate at the time....
Three years later, interest rates tanked and the stock market collapsed. Detroit’s credit rating was downgraded. In desperation, the city pledged its casino tax revenue as collateral to creditors to avoid a payment of up to $400 million that, back then, would have pushed Detroit into a bankruptcy filing.
The city now owes $2.8 billion for principal, interest and insurance payments over the next 22 years, according to a Free Press review of the city’s records. The bill soared in part because the city made only interest payments for about five years.

Wow.