If Detroit's in bankruptcy court, why isn't Flint too?
With all the talk about Detroit’s path into bankruptcy court, some people have been asking why hasn’t Flint gone the same route?
Like Detroit, Flint’s city finances have been a mess for a long time.
Governor Snyder not only appointed an emergency manager to run Flint, he did so more than a year before he appointed one in Detroit.
So why is it that Flint, a city with many of the same problems as Detroit (huge legacy costs, declining property values, a massive deficit .and a looming structural deficit threatening to add millions of dollars of red ink) isn’t also declaring bankruptcy?
Flint Emergency Manager Mike Brown says the city doesn’t have to.
“Flint is on a different path from Detroit,” Brown said during a recent news conference, “And we believe we’ve got a path toward solvency.”
Flint’s financial woes are nowhere near as bad as Detroit’s. Flint’s deficit is a much smaller percentage of its annual budget.
Also, while much of Detroit’s debt is owed to private lenders, Flint mainly owes its debt to the state.
In the nearly two years since Mike Brown was first appointed emergency manager, Flint has been cutting employees, raising fees and outsourcing city services, all in an effort to bring the city’s financial crisis under control.
Chris Douglas is an economist at the University of Michigan Flint. He says it’s possible if Flint can continue to hold the reins on spending it may just be able to avoid bankruptcy. But Douglas says Flint leaders are walking a fine line.
“If you cut city services, like police…fire…which are already kind of shaky in Flint…public parks, that just further erodes the tax base because it gives residents that much more incentive to leave,” says Douglas.
And while the city ended last year with a balanced budget and hopes to again this year, city officials warn the loss of federal grant funding and other problems threaten to stick the city with two to three million dollars a year in structural budget deficits beginning in the 2015 fiscal year.
Flint leaders say a boost in the city’s income tax rate could close that gap, but they’ll need to have the legislature and city voters sign on first. A vote may not come until next year.
And then there’s legacy costs. Flint leaders are fighting a legal battle with city retirees over health care coverage. The city wants retirees to pay substantially more for the coverage, including a big increase in deductibles and co-pays. The retirees have been winning in court against the changes.
“If we were to lose in the retiree health care suit, we’ve said that’s a ‘game changer’ for us. We would have to find another path,” says Jerry Ambrose, Flint’s finance director, “The size of that into the future will be too great for us to bear.”
Bankruptcy court may be Flint’s only option to reduce its retiree health care costs.
So it’s still possible that Flint may find its way to bankruptcy court. But before city officials take that step, they may want to see how Detroit finds its way out of bankruptcy.