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Wed December 7, 2011
Can Detroit avoid an emergency manager?
So, does Detroit really need an Emergency Manager? Can the city’s elected leaders somehow get the job done? This much we know: The governor has ordered a preliminary review of the city’s finances. There have been major signs of trouble for years.
Now, the city is running a large budget deficit, and the mayor says that as it now stands, the city will run out of cash by April.
Nevertheless, despite constant squabbling, the mayor, the city council and the unions agree on one thing: They say the city does not need an emergency manager. Last week they all appeared together and nodded when the mayor repeated that, and added, “WE can manage the city and we intend to do that on a collective basis.”
But what’s the real story? What took my breath away was a report last week from the non-partisan, non-profit Citizens Research Council of Michigan. It revealed that apart from the current budget deficit, the city owes $1.5 billion in principal debt on certificates it issued to keep its pension systems funded.
Worse, the city has $5 billion in other unfunded liabilities for post-employment benefits for city workers.
How in the world is a largely impoverished city of 700,000 people going to come up with that money?
I talked to the one person I know who really understands the city’s finances—Joe Harris, now the Emergency Manager in Benton Harbor. Harris was Detroit’s auditor general for ten years, from 1995 to 2005.
While he was there, he put out a series of reports detailing how messed up various parts of the city were—the pension fund system, for example, and transportation. These reports were widely praised at the time. But, as he said, “nobody ever acted on them.”
Given the current situation, does he see any way the city can avoid an emergency manager? “Frankly, no,” he said—Then hesitated. “Actually, there is a way, if the mayor and council and the unions get together and make draconian changes in labor contracts.”
Mayor Bing has rejected council suggestions that he lay off 500 police and firefighters. Harris said that was unrealistic, that those layoffs have to be made, if there is any change of staving off a manager.
Even that might not be enough. It should be said that Joe Harris has no reason to like Mayor Bing. Interim Mayor Ken Cockrel had made Harris Detroit’s Chief Financial Officer, a job he lost when Bing defeated Cockrel in a special election in 2009.
But Harris said this is not about personalities, but numbers. He said Mayor Bing has submitted budgets with unrealistic revenue projections, and hasn’t sought advice from those who really understood both city finances and national economics.
However, the city’s biggest sin in his eyes is not having a comprehensive, long-term plan for getting out of the hole.
“Of the last four mayors, not one has presented a visible plan,” he told me. So what does he think the odds are of the city avoiding an Emergency Manager—or worse, yet, bankruptcy? Joe Harris paused before returning to working on Benton Harbor‘s affairs.
“Let’s just say I wouldn’t bet the ranch on it,” he said.