Stephen Henderson on Detroit's financial emergency

Facts & Myths, Problems & Solutions

You know, I have this whole philosophical post swirling in my hand admonishing Democrats, Democratic-sympathizers, liberals, and so-called progressives to think about why so many are so willing to conveniently roll over and reappropriate conservative talking points, and jumping to believing and repeating stereotypes they see in the state, media and newspaper comment sections.  Because, really, I do think it's easier to do this when the folks being put under such scrutinty don't exactly look like you.  If I were charitable, I'd call this convenient docility naivety, but it's really too sustained and constant to be honest, unwillful ignorance.  

And, really, there needs to be a come-to-Jesus moment among a not-insignificant wing of this party that talks a good game, but who will throw other Democratic constituencies under the bus in a hot minute, either for self preservation or because they don't believe half the shit that comes out of their mouths...

But, I'll focus on appealing to some folks immediate reason over philosophical issues.  The problem with Detroit's finances - and the difference between whether this is an immediate crisis or "simply" a long-term structural defict - has gone so far beyond the talking point of an "incompetent city government" or the so-believed city government inside theft, that's it's ridiculous anyone should have to explain this.  

At the moment, Detroit has a few basic and immediate issues threatening it, not all of them the primary fault of the city.  Some are one-time cash-flow issues, and others are long-term structural issues.  

1.  Detroit is owed hundreds-of-millions of dollars from a whole host of mega-entities, from the State of Michigan ($220 million) to Olympia Entertainment on the other ($1 to $2 million) that it can't realistically collect without having to spend money it doesn't have to risk trying to get it back in the courts.  The $220 million from the State is in the form of back revenue sharing payments promised the city, and this is on top of general revenue sharing cuts to cities over the past decade or so.  Essentially, the entity that wants the city, is the same entity that greatly contributed towards engineering the situation.  The State can not be an honest broker.  Here is where my opinion comes in, but Detroit should trust even less the intentions and abilities of the State than it should those of the State, given both the the revenue sharing broken promise, and the success - or lack thereof - of emergency management, which is a whole other issues I'll save for another post.  

2.  Then, you have the small residential and business/bank property owners that owe the city, collectively, $246.5 million in the 2011 fiscal year.  This is a structural issue, and probably the biggest contributor to both the immediate solvency of the city and the long-term solvency.  Detroit literally does not have the workforce - and, consequentially and ironically, because it's followed through on state suggestions and then orders to cut its workforce, and has be over 3,000 employees since 2009 - to go after tax scofflaws, which is why the city has been begging for going on nearly four years, now, to help the city get what it is owed.  

THIS, right here, is the singular difference between a fiscally unhealthy city, which could be said for nearly every major city in the state and many cities in the nation, and a city in an immediate fiscal crisis.  This specific issue I'd blame pretty equally on both the city and state.  For the city, at first (earliere in this decades long crisis) this was simple incompetence, as the city did have the money and workforce to go after these small-time scofflaws, and it eventually snowballed into a major problem when the city became so broke that it literally didn't have the people to go after the money, anymore.  Which is where we bring in the state.  It should be pretty obvious what their culpability in this is.  When this got to crisis level when the city council asked for help in 2009, the state should have handed over the expertise to help keep Detroit out of the current situation, and even more important, when Snyder crafted the consent agreement, tax collection help should have been in the agreement and the VERY FIRST thing the state should have addressed.  If Detroit really is broke, the elephant in the room is that collecting what is owed to Detroit would place Detroit's immediate budget deficit at least less than half of what it is, or there wouldn't be a deficit, at all, depending on who you ask and believe.  Again, this is not even counting the State and big business scofflaws.  To further put into perspective how this is the difference, where property taxes acount for 50 to 75% of the general fund budgets in most other major Michigan citie, it accounts for only 13% of Detroit's general fund budget reveneues.  This is CRAZY for a city with the sheer amount of land that Detroit has to tax.

3.  Last - and this is probably almost solely the city's fault - is the issue of Detroit's long-term debt.  Even I concede that even if they are overstating the city's general debt by wrapping in that of the DWSD's, that that still leaves around $7 billion in general city debt with allegedly $2 billion coming up for payment in two years.  I say allegedly, because this is probably the only claim I haven't looked directly into.  But, if we entertain it as fact, there is no scenario under which Detroit will have $2 billion sitting around in surpluse in two yeaers.  Not even close.  Even negotiating payments down, it'd still probably swamp the city.  Detroit borrowed when it could not afford to, and for any and everything: payroll, to pay down debt service on debt coming due, to pay for capital projects, etc...

So, here's the thing, if the city is actually in an immediate fiscal emergency, the state is probably the major, single contributor in pushing it there.  And, let's entertain that EVERYTHING the state alleges about Detroit's finances are true; the State has yet to prove - even after nearly a dozen fiscal emergency managers stretched out over two decades - that emergency managers are ANY better for the long-term health of the cities they occupy.  Even if there if there is an argument to make that there is a window in which emergency managers can work - and I think there is a case in town's with relatively intact tax bases where the only problem really is fiscal incompetence and corruption on part of the city in question - I'd argue that Detroit never had this window, or that that window was passed decades ago.  If Detroit is bad off as Snyder says it is, there is no management left, there is only bankruptcy.

For a "solutions"-minded governor, emergency management is one helluva "solution", huh?  In order to trade local democracy for fiscal solvency, you better have a hell of an excuse, and the State has not made that case.  They can do what they want because they have the power, but fair and progressive-minded folks should not be jumping on the bandwagon, and shame to those so quick to rollover to something so-close to bordering on fascism in small doses.  

The solution to Detroit's fiscal problem is rather easy to put down on paper, and rather impossible to get to.  The solution is a mixed plan of residential repopulation (growth), bolstering and growing the treasurer's and assessor's office to routinely get the money the city is owed, and the cessation of large-scale borrowing, which may happen, anyway, because fewer and fewer entities are willing to loan to a broke city.  I am hardly convinced a manager, this far down the road, will be anymore successful that the city government in bringing this about, and it's because of this simple logic (and philosophical reasons on top) that I oppose this takeover.  Detroit is headed for municipal bankruptcy, regardless of who is in control, short of the state helping the city to collect its taxes, in the short-term, and, in the long-term, some entity agreeing to refinances the city's debt.

Those who will trade this seeming pittance of liberty for so-believed fiscal security - even at the local level - deserve neither...because they will trade more when asked.

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by: MiddleGrandGuy @ Mon Mar 04, 2013 at 05:15:01 AM UTC

So, it's a racism thing to you?

I can assure you that I'm not motivated to thinking that this is harsh medicine that Detroit brought upon itself because most of the people involved are African Americans. I'm motivated to thinking this because the elected leadership of Detroit approached declining population and falling property values with immaturity and parochialism. There are communities all across the state, some of them majority minority, that have been able to navigate contraction in local millages and shared revenue without yelling about state takeovers and dabbling in conspiracy theories.

Also, the real racists are the people who say that Detroit's residents got what they deserve because African Americans aren't fit to govern their own affairs. Instead, what you're mostly seeing are people critical of the elected leadership and not the citizenry at large.

Among the Trees

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by: Eric B. @ Mon Mar 04, 2013 at 15:24:42 PM UTC

[ Parent ]

You've answered a couple of questions...

Now that an EM Czar is a matter of When and Who rather than If, the next questions deal with How.

What concrete steps will the EM Czar take to show he's TRYING to balance the City of Detroit's books?

[W]when Snyder crafted the consent agreement, tax collection help should have been in the agreement and the VERY FIRST thing the state should have addressed.  If Detroit really is broke, the elephant in the room is that collecting what is owed to Detroit would place Detroit's immediate budget deficit at least less than half of what it is, or there wouldn't be a deficit, at all, depending on who you ask and believe.

Contracting with one or more private collection firms to go after all the little bits of money owed by individuals and small businesses will happen. The EM won't consider using the state's system (MARCS), because there's money to be made collecting money.

Private collectors will make news and be universally hated, but will bring in tens of millions owed to the City -- this year.

Again, this is not even counting the State and big business scofflaws.

Another thing that will happen is the EM and State reaching an agreement on a small payout from the back-dated revenue-sharing imbalance, and negotiating a settlement with the biggest corporate players in the City -- Quicken, Compuware, GM, Ilitch Holdings, the casino operators, etc. -- to clear their accounts for a fraction of their value.

Combined, the state and corporate payouts will make for some nice headlines because of the amount, and count as another "win" for the EM Czar.

Then, of course, the State will put the Belle Isle lease deal back on the table, and the EM Czar will sign it -- saving that $6 million annually AND shutting up those people convinced the Czar will privatize Belle Isle or give it to those idiots who want to make it into a Ayn Rand commune.

If these 3-4 can happen by the end of 2013, voters across the state will come to believe the EM Czar is actually working -- when really, all he'll be doing is things the City government COULD have done with just a little help from the State when it mattered.

Of course, none of that is enough to balance the books, so we'll go into 2014...when DWSD goes on the block and the City's employees (except DPD and DFD) will likely lose their collective bargaining rights altogether.

"The two most common elements in the universe are hydrogen and stupidity." ~ Harlan Ellison

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by: helzapoppn @ Mon Mar 04, 2013 at 19:31:33 PM UTC

[ Parent ]

Nibbling Around the Edges

Yep.  There will be much nibbling around the edges that will make it look like emergency management is a "success".  This has basically happened wherever an emergency manager has been put in place.  They sell off assets and bring in a few one-time cash infusements and balance the books for a year or two, and then are labeled "successes" when nothing has been done to address long-term structural issues with the funding of city government in our cities.  

Yeah, there is some low-hanging fruit the council could have done, but I think they realize like everyone else that they were being played like trained circus animals.  The whole Belle Isle fiasco was a perfect example of this, an issue so inconsequential as the budget, that the media blow-up of it to use to display "council incompetence" was insulting, because when Snyder asked them to jumped they didn't say "how high?"

In my opinion, there are but two real options.  Everything else is insulting theater.  The first is a strengthened consent agreement, but in this one the state actually offers help in terms of providing bodies and expertise in property assessing and tax collection.  The second option is the state leads the city through a structured municipal bankruptcy.  It's really no wonder why Snyder pushed this before the new law went into effect.  The new version of the law would have allowed Detroit to choose either of the two options I mentioned, but that makes too much sense.  

An 18 month dicking around in minute and macro municipal affairs, and picking the low-hanging fruit so you can look like you're doing something while the city will still be structurally solvent when you leave, is not only not helpful, but deeply insulting to the people you are quite literally ruling over.  What's the emergecy manager going to do when Detroit's bond payments come due in two years?  Oh, that's right, they'll be gone a few months before the city is ultimately pushed into bankruptcy, anyway.  So, why are we even talking about an EM, at all?  This is about two things, for them, two things I think they are greatly miscalculating.  They want some kind of political gain out of this (fat f%ckin' chance on that), but more important, they want the assets that can make money (DWSD) before a judge can get to them.

Snyder is playing with fire.  This is not a game, yet the state is treating it as such.  They can not even imagine the bitterness and revulsion on the ground.  First, you've been f%cked over by your city government for years, and now the state is coming in to f%ck you over, and it's even worse, because you know that these dictators have never liked you.  This has been a case study in how not to do state intervention in a perpetually troubled city with historically shitty race relations coloring everything.

Snyder is always going on about being a "partner" to the city, and the declawed media eats this shit up.  But, like the good vulture capitalist and Republican that he is "partnership" means "I tell you what you need to do and when, and you jump" just like "bipartisanship" means, in the infamous words of one Dick Murdoch, Republican nominee for an Indiana Senate seat:

"I've said many times through this campaign that one of the things I hope to do is to help build a conservative majority in the United States Senate and continue to help the House build a Republican majority and have a Republican White House and then bipartisanship becomes having Democrats come our way."

Republicans (Dick Snyder included) are not serious, trustworthy partners.  They just aren't.  Their intentions are disingenuous and their leaders are as incompetent and clueless as the city governments they are trying to oust, which is the irony in all of this.  

Is Detroit a financially troubled city?  Hell yeah.  Is it in an imminent fiscal emergency?  Maybe.  Maybe not.  Is Michigan's emergency manager law the solution.  Hell no.  All of these things can be true, and I often feel like Michiganders are talking past each other and making connections where connections shouldn't and can't be made.  It's like trying to kill a fly with a cannon instead of a swatter, except that this cannon isn't even going to kill the fly, ultimately.

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by: MiddleGrandGuy @ Tue Mar 05, 2013 at 05:50:32 AM UTC

[ Parent ]

GOP hatched structural policies that harmed Detroit

Republican control of state government and the constitutional convention permitted it to dictate municipal tax policies that contributed greatly to the decline of Detroit.  Properties were supposed to be assessed at full value which Detroit did and most townships and small cities did not.  So, when the state reformed property taxes under the GOP, SEV was set at half the property value.  In exchange for slashing the revenue from this source, Detroit and other cities were given the income tax with Detroit given a much higher rate on its residents along with a rate on commuters.  This made Detroit a high-tax community compared to its suburbs.  It contributed to the decline in population and business in Detroit.

Such inequities are easily understood by Michigainers and acted upon in their private decision making.  So, until the inequities of Detroit and municipal finance are redressed the population shift to lower taxing municipalities will continue.  Census data has shown that townships, the lowest taxing municipalities in Michigan now have the majority of Michigan's population.

It is only right that the whole structural question of municipal finance be address in any long-term solution to the plight of Detroit and of many of Michigan cities.  Not doing so is perpetuation of unfair inequities hatched by anti-Detroit and anti-city politics.

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by: Jim Brazier @ Mon Mar 04, 2013 at 15:39:30 PM UTC

The media's

reporting is absolutely not accurate. Your cheerleading for EMs is deplorable.

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by: MIChange @ Tue Mar 05, 2013 at 14:54:12 PM UTC