Report Challenges Kevyn Orr's Version Of Why Detroit Went Belly-Up

November 20, 2013, 2:48 PM

A former Wall Street investment banker is taking Detroit Emergency Manager Kevyn Orr to task for blaming the city’s financial collapse, in part, on pension and retiree health insurance, Chad Livengood reports in The Detroit News.

Wallace Turbeville, senior fellow at Demos, a liberal think tank in New York, released a new report Wednesday that asserts the city’s financial collapse had more to do with declining revenue than its legacy costs.

This is part of Turbville's conclusion:

The City of Detroit’s bankruptcy was driven by a severe decline in revenues (and, importantly, not an increase in obligations to fund pensions). Depopulation and long-term unemployment caused Detroit’s property and income tax revenues to plummet.

The state of Michigan exacerbated the problems by slashing revenue it shared with the city. The city’s overall expenses have declined over the last five years, although its financial expenses have increased. In addition, Wall Street sold risky derivatives financial deals to the city, which now threaten the resolution of this crisis. To return Detroit to long-term fiscal health, the city must increase revenue and extract itself from the financial transactions that threaten to drain its budget even further.

Livengood's analysis:

Turbeville’s report blames Detroit’s population loss in the last Census for triggering a $24 million reduction in constitutional state revenue sharing. The Legislature cut Detroit’s annual statutory revenue sharing by an additional $42.8 million. The cuts account for a third of the city’s revenue losses between the 2011 and 2013 fiscal years, Turbeville said.

“By cutting revenue sharing with the city, the state effectively reduced its own budget challenges on the backs of the taxpayers of Detroit (and other cities),” Turbeville wrote in the report. “...Furthermore, the Legislature placed strict limits on the city’s ability to raise revenue itself to offset these losses.”

Turbeville also calls into question Orr’s assertion the city owes its pension fund $3.5 billion — one of the main debts cited in Detroit’s July 18 bankruptcy filing that is at the center of its Chapter 9 case.

Orr's spokesman could not immediately be reached for comment by The News.

Read more: A recent interview with Orr on WXYZ-TV

Read more:  The Detroit News

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