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Mon December 5, 2011
Detroit's cash crunch: Report highlights role of debt and legacy costs
A recent report from the Citizens Research Council of Michigan highlights a sometimes overlooked part of Detroit’s current fiscal crisis: the city’s debt and legacy costs.
According to the report, Detroit has about $14 billion in liabilities (though about $5.2 billion of that is for the Detroit Water and Sewerage Department, and thus shared with its suburban customers).
CRC Senior Research Associate and report author Bettie Buss said pension costs and other retiree obligations make up the bulk of the liabilities.
Buss said the city has also borrowed heavily to keep from running out of cash—most recently, $250 million in “fiscal stabilization bonds” in March 2010. But paying that back is now eating up more and more funds, at a time when other revenues are declining.
“It required repayment from general revenues that would otherwise be available for services, going out years and years in the future,” Buss said. “So the city’s essentially been kind of using a credit card to live on.”
Buss said the city would need to drastically slash its services to meet those obligations. “But the question is: can you maintain a viable city with services cut that much?”
A state review of Detroit’s finances is under way. That process could lead to the appointment of an emergency manager.
An emergency manager would have some powers to restructure debt. But some experts have suggested Detroit’s only way out could be through bankruptcy.