Traverse City Record-Eagle

Jack Lessenberry

December 11, 2011

Jack Lessenberry: Detroit and emergency manager

By Jack Lessenberry, Columnist ----

DETROIT — Gov. Rick Snyder says Detroit is running out of time. Last week, he urged the city’s elected leaders to come together and sign what’s known as a consent agreement.

That would give them the ability to slash the budget, eliminate thousands of workers and even whole departments, and impose tough new contracts on city unions.

“I want to see people working together in a positive way,” said the governor, whose favorite phrase is “relentless positive action.” And just in case anyone missed the point, he added, “I don’t want to end up with an emergency manager.” It was clear, however, that he believes this is precisely what will happen otherwise.

But Mayor Dave Bing rejected that, saying outside intervention isn’t needed. “The mayor has outlined a plan … and that process needs an opportunity to succeed,” his press spokesman said.

So what’s the truth?

Joe Harris, now the emergency manager in Benton Harbor, ought to have a good grasp on Detroit’s situation.

A longtime CPA in private practice, Harris, a natty man who favors bow ties, served as Detroit’s auditor general for 10 years, until 2005.

He then returned to public service as Detroit’s chief financial officer for the nine months in 2008-09 Ken Cockrel served as interim mayor.

So given where the city now stands, does Harris see any way Detroit can stave off an emergency manager?

“Frankly, no,” he said last weekend — then caught himself. “Actually, there is a way, and that’s for the mayor and council and unions to get together and make some draconian cuts to labor contracts.”

Even that alone won’t get the city through, he noted.

“The mayor needs to understand that he cannot maintain the same public safety force,” Harris said.

So far, Bing has rejected the council’s proposal to lay off 500 uniformed firefighters and police, saying he didn’t want to put the public at risk. Harris understands that, but thinks there’s no choice.

Frankly, he thinks it’s the politicians who put the city at risk.

Not just the current crop, by any means. “You have to start with a plan,” if you are serious about fixing the city’s long-term problems, he said, adding, “Of the last four mayors, not one has presented a visible plan.”

When Bing ran for mayor, he said he would appoint a team of experts to analyze the problems and straighten out the finances.

But those he appointed lacked the knowledge.

“I am sure they were all good people who were respected in their fields,” he added. But they didn’t know anything.” And, despite Bing’s background in business, “He didn’t know anything either. His next plan was to sit down with his department heads and put their heads together to solve the problems.” But those were folks who had no experience outside the closed and irrational world of Detroit government.

“Actually, I predicted there would have been an emergency financial manager before this. They lasted a lot longer than I predicted,” Harris said. But not for the right reason:

What happened, he said, was that the city borrowed another quarter billion dollars, and instead of using it to reform, used it to continue the same bad spending habits as before.

When even a layman looks at the city finances in detail, it is hard not to be deeply shocked. Most of the press attention has focused on the city’s current budget deficit, which is more than $200 million and growing by $400,000 a day.

But the real problem is the legacy of decades of bad behavior.

According to a report from the non-profit, non-partisan Citizens’ Research Council, Detroit irresponsibly issued “pension obligation certificates” during Kwame Kilpatrick’s time in office, to make sure pension systems would stay fully funded.

That added $1.5 billion in principal debt, on which Detroit needs to make a $191.8 million-dollar-payment every year.

Additionally, Detroit has at least $5 billion in other “unfunded accrued liabilities for other post-employment benefits.” That situation seems likely to get worse, Harris noted; “more people are still retiring than dying.” Nor does the bleeding stop there; the city owes billions more in other funds.

Property tax collections have plummeted with housing values. The city estimates that half of all residents fail to pay their income taxes, but Detroit lacks the employees to go after them.

The city could run totally out of cash in April.

Despite speculation, bankruptcy isn’t an option, Harris said. Current law says only an emergency manager can recommend that — and the governor has the power to reject that recommendation. So even if Detroit were to adopt the “best practices” from now on, how can a largely impoverished city of 700,000 people hope to pay off all the long-term obligations previous generations accrued?

“The tragedy is that they’ve maxed out their credit,” Harris said. “This is a great time to borrow money,” because interest rates are so low.

He held out one glimmer of hope: If the city does adopt a regime of rigorous fiscal austerity and commits itself to behaving responsibly, it might reassure the credit markets about Detroit.

“Then maybe, maybe, the city could borrow some of it, and repackage their debt,” into something manageable. But what, I asked him, did he think the odds were of that? Or the odds of Detroit somehow avoiding an emergency manager?

He paused for a long moment, before turning back to work on the affairs of Benton Harbor.

“Just say, I wouldn’t bet the ranch on it.”

Jack Lessenberry’s email address is Bucca@aol.com.

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