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 Michigan to take over Detroit city government 
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RIP Killer
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Post Michigan to take over Detroit city government
http://money.cnn.com/2013/03/01/news/ec ... picks=true

CNN Money wrote:
Michigan to take over Detroit city government

Michigan Gov. Rick Snyder announced Friday that the state will take over the operations of Detroit's city government due to its long-standing financial problems.

The takeover is short of a formal bankruptcy, but it will include appointing an emergency manager who would have many of the same powers as a bankruptcy judge. It could mean throwing out contracts with public employee unions and vendors that the city can't afford, and could lead to further cutbacks in already depleted city services.

Detroit has 10 days to appeal Snyder's decision that there is a financial emergency in the city. Snyder said he has a "top candidate" for the manager post, but that he won't announce it until after the appeals period has passed.

Snyder, a Republican, insisted the emergency manager is the best way to deal with the problems facing the city's operations.

"The current system has not been working. We have not stopped the decline," he said. "This is time for us not to argue or to blame, but to come together as Detroit, Mich., not Detroit vs. Michigan, and bring all of our resources to bear."

The U.S. auto industry, long associated with the city, has enjoyed a resurgence in the last few years since General Motors (GM, Fortune 500) and Chrysler Group went into bankruptcy and received federal bailouts. But the auto turnaround has done little to help Detroit's finances. While GM's headquarters are in downtown Detroit and there is still a concentration of auto plants and suppliers in southeastern Michigan, there are relatively few facilities within the city limits.

Related: Best car sales in five years

A week ago, a state review board issued a report saying the city faces a cash shortfall of more than $100 million by June 30, and that long-term liabilities, including unfunded pension liabilities, exceeded $14 billion. Detroit has been borrowing to continue operations and would have fallen about nearly $1 billion short last year if it hadn't issued new debt.

"One of the things that needs to happen is all creditors need to be called to table, asking something from everyone," Snyder said when asked if Detroit would get relief from the debt it owes those who own the city bonds. He said he hoped different payment schedules could be worked out for those who are owed money.

Under Michigan law, the emergency manager is expected to stay in place for at least 18 months. Snyder agreed with a questioner who said that is not enough time to solve the city's problems, but said it should be enough time to implement a plan and put a "structural process" in place.

The review team said that while the mayor and city council deserve credit for some difficult financial reforms, "those reforms are too heavily weighted toward one-time savings and apply only to non-union employees who represent only a small portion of the city's overall wage and benefit burden."

The review team therefore found that an emergency exists in the city "because no satisfactory plan exists to resolve a serious financial problem."

That report set the stage for Snyder to announce the takeover. Snyder has made many decisions unpopular with Democrats in the state, including signing a "right-to-work" strongly opposed by unions. The state takeover of Detroit is very unpopular with many residents in the state's largest city, especially its unions. Neither Mayor Dave Bing nor any member of the city council attended Snyder's announcement Friday, which was made at a town hall meeting where residents had the opportunity to ask questions.

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March 1st, 2013, 5:11 pm
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Post Re: Michigan to take over Detroit city government
'Bout damn time. It may cost Snyder his second term, but it needed to happen. Detroit is an abysmal pit of a rathole, and the current administration is completely incapable of fixing the problem. Break all of those union contracts, fire 1/2 of them, and save hundreds of millions of dollars. There's no reason that City can't thrive on its current revenue.


March 1st, 2013, 5:38 pm
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Post Re: Michigan to take over Detroit city government
It's actually fairly easy to solve Detroit's problems. Eliminate every union contract within the city. Until that is brought to the table, nothing will be solved.

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March 4th, 2013, 4:08 pm
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Post Re: Michigan to take over Detroit city government
http://www.nytimes.com/2013/03/12/us/fo ... oming.html

NY Times wrote:
For Detroit, a Crisis of Bad Decisions and Crossed Fingers

DETROIT — This city was already sinking under hundreds of millions of dollars in bills that it could not pay when a municipal auditor brought in a veteran financial consultant to dig through the books. A seasoned turnaround man and former actuary with Ford Motor Co., he was stunned by what he found: an additional $7.2 billion in retiree health costs that had never been reported, or even tallied up.

“The city must take some drastic steps,” the consultant, John Boyle, warned the City Council in delivering his report at a public meeting in 2005. Among the options he suggested was filing for bankruptcy.

“I thought all hell would break loose — I thought the flag would finally be raised,” Mr. Boyle recalled in an interview last week. But his warning drew little notice. “It was utterly astounding,” he said.

The financial crisis that has made Detroit one of the largest cities ever to face mandatory state oversight was decades in the making, a trail of missteps, of trimming too little, too late, of hoping that deep-rooted structural problems would turn out to be cyclical downturns that might melt away as the economy picked up.

Some factors were out of the city’s control. As auto industry jobs moved elsewhere over the decades, for example, Detroit lost much of its affluent tax base. Lower than expected state revenue sharing did not help, nor did corruption allegations in the administration of Kwame M. Kilpatrick, a mayor who resigned in 2008 and was convicted on Monday of racketeering and other federal charges.

But recent findings from a state-appointed review team and interviews with past and present city officials also suggest a city that over the years was remarkably badly run.

The state review team found in recent months that the city’s main courthouse had $280 million worth of uncollected fines and fees. No one could tell the team how many police officers were patrolling the streets, even though public safety accounted for a little more than half the budget. The city was borrowing from restricted funds and keeping unclaimed property that it was required to turn over to the state. In some city departments, records were “basically stuff written on index cards,” as one City Council member put it.

“This was bad decisions piled on top of each other,” Gary Brown, the Detroit City Council president pro tem, said the other day. “It has all been a strategy of hope. You keep borrowing where every piece of collateral is already leveraged. You have no bonding capacity — you’re at junk status. You’re overestimating revenues and not managing the resources. Now the chickens have come home to roost.”

Once the nation’s fourth-largest city, Detroit had grown up around the auto industry, booming right along with it in the 1950s. City workers gained ground with pay increases intended to keep pace with those the United Auto Workers won for its members, analysts said.

“It was easy to do so back in the 1950s,” said Joseph L. Harris, Detroit’s former auditor general. “The city had 1.8 million residents then.”

But as auto jobs moved elsewhere and the region aged, Detroit’s labor costs — retiree health care costs, especially — ballooned.

At the same time, officials papered over growing deficits with more borrowing. Finally Detroit’s legal debt limit, which is linked to the total value of real estate in the city, fell when the mortgage bubble burst and property values plunged. Today the city says its debt limit is $1 billion, and it has effectively lost its ability to issue debt in the name of its taxpayers.

When a city cannot borrow, it cannot function; New York City showed that in 1975, Cleveland in 1978. But even as Detroit has approached the critical limit, some city leaders have seemed unaware, quarreling over smaller, symbolic issues like whether to lease a city-owned park to the state.

“It is peeling an onion,” Mayor Dave Bing said of his growing understanding after he took office in 2009 of the depths of the city’s financial woes. “You dig and you dig and you dig, and you really start to find out how bad the problem was. “

Mr. Bing knew plenty about the city’s struggles before taking office and ran on a platform of reversing the spiraling finances. Still, within his first six months in office, the city came close to not making payroll.

“That’s a scary moment,” he recalled in an interview. “You’ve got people living from paycheck to paycheck, week to week, and you’re about to run out of cash. You can only imagine what kind of impact that that’s going to have just on the life of the average person.”

The big structural imbalance was hard to see building up, because until 2008, when a new accounting rule took effect, cities like Detroit were not required to keep track of their workers’ lifelong health care bills. That is why Mr. Boyle found a $7.2 billion promise that no one knew about. Detroit’s general-obligation debt to its bondholders, by contrast, was a little less than $1 billion that year, safely within the city’s legal debt limit, then $1.4 billion.

But while the numbers are particularly grim here, the basic story line is hardly unique. The same path, long and slow, can be found from Providence, R.I., to Stockton, Calif.

To preserve cash, the city resorted to increasing its workers’ future pensions at contract time, instead of raising their pay. That helped balance the immediate budgets, but set up a time bomb sure to explode as more workers retired.

The cost of the retirees’ pensions also grew because of an inflation-protection feature that compounds every year. Detroit cannot renege on paying the benefits, at least outside of bankruptcy, because the State Constitution makes it unlawful to reduce pensions after public workers earn them.

By the 2000s, Detroit was borrowing to solve budget shortfalls. Meanwhile, property tax revenues fell, not just because of departing residents, but also as values fell and some people quit paying. The city has reported collecting 84 percent of property tax levied, but a Detroit News analysis suggests a collection rate closer to half of property owners.

In recent years, city officials have made deep cuts in staff and operations, leaving residents complaining of darkened streetlights, slow police response times and bus delays. But while cutting workers can help reduce the current year’s costs, it moves many of those people into the ranks of retirees, putting heavy long-term pressure on Detroit’s two public pension funds.

By late 2011, a sense of crisis descended on Detroit. In November, Mayor Bing, a Democrat, addressed the city on live television, warning that Detroit would run out of money without concessions from unions, layoffs and privatization. A month later, Gov. Rick Snyder, a Republican, called for a review of Detroit’s finances, a first step in cases where the state is preparing to send an emergency financial manager.

City officials held off further intervention by committing to a legal agreement with the state in 2012 that laid out measures to save money. By fall, a board overseeing the agreement said progress was moving too slowly. While City Council members are contesting the matter during a hearing in Lansing on Tuesday, Mr. Snyder’s administration is preparing to name an emergency manager within days. Mr. Bing says his administration has drawn up a plan to spare the city, though he acknowledges that it has yet to be fully put into effect.

Under Michigan law, the emergency manager would ultimately have the authority to remove local elected officials from most financial decision making, change labor contracts, close or privatize departments, and even recommend that Detroit enter bankruptcy proceedings, a possibility that experts say raises the prospect of the largest municipal bankruptcy in the nation’s history, at $14 billion worth of long-term obligations.

None of the decisions, experts here say, will be simple, and some wonder whether Detroit can be saved at all. Some 700,000 residents now live in this vast 139-square-mile city that once was home to nearly two million people. That number may fall to close to 600,000 by 2030 before the population begins to rise again, one regional planning group projects. By pushing costs into the future while its population is shrinking, Detroit has left the people least able to pay with the biggest share of its bills.

“Detroit is a microcosm of what’s going on in America, except America can still print money and borrow,” Mr. Boyle said.

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March 12th, 2013, 12:51 pm
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