Olympics Of Restructuring: Detroit's Emergency Management Is A Start. Is It Enough?

March 15, 2013, 6:45 AM

"This is the Olympics of restructuring," says Kevyn Orr, Detroit's financial manager.  [Photo illustration by Lauren Ann Davies]

For many of Detroit’s 312 years of existence, it’s official motto has been “We Hope For Better Things; It Shall Rise From the Ashes”

However, for the better part of a decade the city operated under a Bob Dylan-coined maxim: You always said people don’t do what they believe in, they just do what’s most convenient and then they repent. And I always said hang on to me, baby, and let’s hope the roof stays on.

Yeah, that didn't work. Detroit’s roof is presently sitting in the living room. And it’s raining.

The numbers that tell the story of Detroit’s financial mess are staggering. $14 billion in long-term debt (or a mere $8 billion, if you want to subtract the water department’s separately funded obligations); an accumulated deficit of over $300 million that but for long-term borrowing would be more than $900 million; $474 million in fees paid to Wall Street; and 237,493 fewer residents than a decade ago.

City government is in dire straits. That’s acknowledged by all but the most delusional apologists for the status quo.

“It’s bad. It’s very bad, let’s be more blunt,” Gov. Rick Snyder said. “You look at the deficit of the city, the only reason it’s not $900 and some million is because there’s some $600 million that was borrowed in debt in the last few years. That’s not a sustainable situation.”

So let’s not ask if Detroit is in a financial emergency. It clearly is and the elected leadership has clearly shown it can’t fix the problem. The real question is whether or not Detroit’s newly appointed Emergency Manager Kevyn Orr can overcome the inherent barriers to a fiscally healthy Detroit.

“[Detroit is] the Olympics of restructuring,” according to Orr.

Pretty much.

Based on resume and first impressions, Kevyn Orr is an inspired choice to do the necessary restructuring work Detroit requires. He is precisely the kind of person who could deftly barter down the cost of Detroit’s debt, renegotiate legacy costs, modernize tax collection, and reshuffle the bureaucracy so it actually delivers services instead of just perpetuating its own existence. Then what?

Long-range uncertainty

Even if the EM process leaves Detroit with balanced budget and lighter debt load, this is still a city of 700,000 mostly poor people. It’s hard to see how Detroit as currently constituted can pay for its own government over the long run.

Orr touts his experience working on Chrysler’s bankruptcy as evidence that restructuring Detroit’s finances is not an insurmountable task. One shouldn’t forget that Chrysler’s successful bankruptcy was coupled with a federal infusion of cash to keep the lights on and a forced merger with Fiat.

Snyder’s spokeswoman Sara Wurfel says while the governor is happy to support pro-Detroit policy, pointing to the extension of the city’s utility tax, the new lighting authority, and the M1 project as examples, a state bailout won’t be part of the restructuring process.

That's to be expected because direct state aid to Detroit is political dynamite. Besides, any kind of bailout would be little more than a short-term fix. What’s more troubling is the refusal to put a Fiat-style merger (i.e. municipal consolidation) on the table for Detroit.

This is where both EM advocates and opponents fundamentally miss the same point.

Regional rationality

If municipal governance requires restructuring, and it does, then let’s not settle for half-measures. Michigan needs to tear down the obsolete and expensive local government system that begat 1,240 townships, 276 cities, and 257 villages — each with its own administrative overhead — spread over just 83 counties.

If a healthy region requires a healthy Detroit-proper, and it does, then Detroit and the suburbs need to start talking about going all in on regional, or at least, county government to replace this polyglot of municipal entities. 

I know, I know, this is metro Detroit. We can’t have anything shatter our fairy tale illusions that property values in Grosse Pointe Park aren’t linked to Detroit's health, that Detroit competes with Warren, that Warren doesn’t take any guff from Oakland County, and everyone has precious jewels that must be protected at all costs.

Fine, but Detroit, Ecorse, Highland Park, Allen Park, and River Rouge are all operating under emergency management or an EM-avoiding consent agreement. Hamtramck seems perpetually on the brink of another round of emergency management. Forcing these financially troubled communities to merge as part of the restructuring process would at least allow them to share certain expenses, for example, one city clerk’s office instead of six. Can we maybe start there?

Economy of scale is a real thing. The sooner we learn to make it work to our advantage, the sooner we can have fewer conversations about emergency managers.

Leave a Comment:

Photo Of The Day