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Capital Markets

US municipal finances: How to win the war on worklessness

As Detroit files for Chapter 9 bankruptcy, municipalities need to look at ways to increase revenues. The battle to create and attract jobs is on.

From the Second World War through the 1960s, Boeing’s success drove Seattle. As the aerospace manufacturer boomed from providing warplanes and then commercial aircraft, the economy of the northwestern US city also took flight. The population doubled and in the late 1950s every other manufacturing worker in King County, Washington state, was employed by Boeing.

But in 1970, as demand changed and a national recession kicked in, Boeing laid off 43,000 people. Seattle had the worst post-Depression unemployment – nearly 12% – of any big US city. Many people left and signs were often posted: "Would the last person who leaves Seattle please turn out the lights."

It is a story constantly repeated and one now being lived out by Detroit as it files for Chapter 9 bankruptcy protection over its $18 billion in debts. When the number of jobs declines, so too does the number of taxpayers. Costs are cut and it takes a while for taxpayers to notice they are now paying for fewer services. If taxes are raised, inhabitants notice more quickly that they have less money, and many vote with their feet by leaving.

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