It's a simple formula. Don't spend more than you make.
Charles Dickens' character "Mr. Micawber" expressed it this way in David Copperfield:
"Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."
"Misery" describes the city of Detroit's problems over the last several years.
Detroit has been breaking Micawber's rule for some time. In his report released last night, Detroit Emergency Manager Kevyn Orr wrote this:
Excluding proceeds from debt issuances, the City's expenditures have exceeded revenues from fiscal year 2008 to fiscal year 2012 by an average of $100 million annually.
Here's a representation of Detroit spending more than it makes in graph form:
In addition to borrowing money, the city has been putting off paying its bills to get by as well.
Orr points out that this report is a preliminary assessment and things could change as he learns more over the coming weeks.
But even though it's preliminary, it does give people an indication of what needs to be fixed and where action is likely to be taken. And in Detroit, that's pretty much every department and city service.
To get a sense of what's in the report, the Detroit Free Press put together a nice "9 highlights" post.
As is true for a lot of cities in the U.S. laden with debt, paying people who no longer work for the city (retirees) appears to be one large ball and chain:
Pension-related costs and other post-employment benefit obligations make up about $7.5 billion of the city’s approximately $15 billion in long-term debt. Orr’s report casts doubt on the financial health of the city’s two pension systems...
So a shrinking city is trying to pay its past obligations.
And here are the two biggies that have been working against Detroit:
And the kicker...
The state cut revenue sharing with cities, which was particularly bad for Detroit.
Kevyn Orr said he wanted a challenge. He's got one in Detroit. He plans to hold public meetings about his findings in the coming weeks.
