Bankruptcy might be Detroit's only option - Freep article

[R8RBOB]

Finally, the writing has appeared on the wall.

Imagine, you were the mayor of a small town and the town's largest employer was having severe money problems. Years of mismanagement have crippled the company ability to maintain its operations. The company's president decides that a course of severe cuts is needed. Though these cuts helps the company save money, the president realizes that the company is spending more money than it is taking in. The president decides that more cuts are needed so more jobs are lost and as a results the goods that the company once produced is severely reduced because the work force has been slashed by half.

No matter what the president does to reduce cost, the company is still spending more money than it is taking in and cuts only provided a band-aid. What can the company do? File bankruptcy and go out of business. The business model that they used no longer works and there is no money to save them so good-bye business.

Detroit is not a business, it is a municipality and the rules for a city in distress is different for a business in distress. I have said this over and over. Cuts alone will not save Detroit because Detroit can't just go out of business. Detroit have been kicking the can of debt for decades down the road and the road is ending. As long as the population decreases, the money will continue to come up short. Every suggestion that Bing and the council have given to the public are band-aid fixes. Sure you can save a dollar today with cuts but tomorrow you will have to spend two dollars because the city still have to run its day to day. It is time to actively discuss bankruptcy and a much needed bail-out or loan. Whatever it takes....

[Zacha341]

Here's the article link:

http://www.freep.com/article/2011120...text|FRONTPAGE

[R8RBOB]

Here's the article link:

http://www.freep.com/article/20111204/NEWS01/112040584/Bankruptcy-might-Detroit-s-only-option-experts-say?odyssey=mod|breaking|text|FRONTPAGE

Thanks. I forgot the link.

[313WX]

Either of the options will put Detroit out of business as we know it.

The ultimate plan by the powers that be, since Detroit Works is DOA, is to completely depopulate the rest of the areas [[let them flee the city) so Detroit will only consist of downtown and midtown.

[Zacha341]

Well then I guess I'll hang in a bit longer as I live in Midtown... It's going to be a bumpy ride.

Either of the options will put Detroit out of business as we know it.

The ultimate plan by the powers that be, since Detroit Works is DOA, is to completely depopulate the rest of the areas [[let them flee the city) so Detroit will only consist of downtown and midtown.

[313WX]

Well then I guess I'll hang in a bit longer as I live in Midtown... It's going to be a bumpy ride.

Assuming that plan actually works out though, it's going to take forever to come to fruition.

98% of the city's population lives outside of downtown/midtown, and you can't continue subsidizing downtown/midtown if you're allowing whatever's left of the tax base to continue leaving the city [[no money).

[mwilbert]

That was not a very good article. It basically quotes people saying that if Detroit can't avoid bankruptcy, it will have to declare bankruptcy.

Shrinking the city [[which I am in favor of in principle) doesn't really address the problem because the legacy costs would still be there. I think bankruptcy might be appropriate, but I still doubt that the state will allow it. Instead, cuts of everything that they can think up, and probably some kind of revenue increase. The idea of making suburban employers do withholding on city residents taxes seems reasonable. So does some kind of state assistance in gathering other existing uncollected city taxes, since clearly the city can't handle it.

[iheartthed]

That was not a very good article. It basically quotes people saying that if Detroit can't avoid bankruptcy, it will have to declare bankruptcy.

Shrinking the city [[which I am in favor of in principle) doesn't really address the problem because the legacy costs would still be there. I think bankruptcy might be appropriate, but I still doubt that the state will allow it. Instead, cuts of everything that they can think up, and probably some kind of revenue increase. The idea of making suburban employers do withholding on city residents taxes seems reasonable. So does some kind of state assistance in gathering other existing uncollected city taxes, since clearly the city can't handle it.

Yeah, I think that article was getting way ahead of itself. The state hasn't even started to review the books yet, let alone appointed an emergency manager.

Also, who the heck would buy Belle Isle? That gave me a chuckle. Though if the situation is financial manager worthy, Cobo is gone. So is public lighting. Probably city airport too. I'm not sure how a sale of the water system would work. Would the suburbs form a coalition to purchase it? Could they all agree on a fair price to purchase it? And how much of a disaster will it be to have them all fighting each other over management instead of fighting Detroit? These will be some interesting times. But this all assumes that it is financial manager worthy... Which it probably is, lol.

If indeed it is worse than financial manager status, and worthy of bankruptcy, I do wonder if the feds might decide to step in before allowing the city to go completely bankrupt. If that happens, it will probably come with a lot of strings that will have major repercussions for "both sides of 8 Mile Rd". But then a bankruptcy of Detroit would have major repercussions for both sides as well...

[Gistok]

From personal experience... when average prices of homes in one of the most stable zip codes in the city.... 48224 [[far east side) go from $80,000+ to less than $10,000 in 10 years..... bankruptcy is.... INEVITABLE!!

As for who would buy Belle Isle.... I bet there's plenty of developers that would be drooling over that prospect... you wouldn't be laughing if someone did a "Bob-lo Island" to it.... as unrealistic and impossible as it may seem.

I wouldn't worry about the suburbs buying the DWSD... they can't afford it at the moment. Perhaps a Wall Street firm would find a buyer?

None of this sounds very good... but the ax will fall somewhere.... just not sure where....

[R8RBOB]

From personal experience... when average prices of homes in one of the most stable zip codes in the city.... 48224 [[far east side) go from $80,000+ to less than $10,000 in 10 years..... bankruptcy is.... INEVITABLE!!

As for who would buy Belle Isle.... I bet there's plenty of developers that would be drooling over that prospect... you wouldn't be laughing if someone did a "Bob-lo Island" to it.... as unrealistic and impossible as it may seem.

I wouldn't worry about the suburbs buying the DWSD... they can't afford it at the moment. Perhaps a Wall Street firm would find a buyer?

None of this sounds very good... but the ax will fall somewhere.... just not sure where....

I had to laugh when I saw the comment on how the suburbs can get together and pool their money to buy DSWD. This is the same suburbs that have spent decades trying to get the state to give them control of DSWD and now they would reach in their pockets to buy it. I don't think so.

[Gistok]

I had to laugh when I saw the comment on how the suburbs can get together and pool their money to buy DSWD. This is the same suburbs that have spent decades trying to get the state to give them control of DSWD and now they would reach in their pockets to buy it. I don't think so.

R8RBOB.... that "pooling".... would be more like "puddling".... they're in bad shape as well.

Ironically their one saving grace [[hard to believe as it may seem)... is the Headlee Amendment. All the folks who bought houses before the circa 1994 amendment kicked in, they were getting cheaper tax rates than their "newly moved in neighbors".... until now... even though house values in many of the burbs dropped in half.... the folks were only paying about half the taxes that they would have been had Headlee not been implemented. So I [[in SCS) and many of my long time neighbors did not see a drop in our property taxes. Only the newbies in the neighborhood who were paying much higher taxes, got a break.... that is if they decided not to walk away from their "now excessive" mortgage...

[JStone]

So what do you guys think will happen? If things get worse [[crime/services) or more expensive [[taxes/insurance), I'm pretty sure that the majority of folks paying taxes, keeping up their homes, abiding laws, investing in the city, fighting for the city, etc [[yah know the kind of citizens that make decent cities) will just leave, compounding the problem.

There comes a point when one must realize that going down with the ship is just plain dumb.

I hope it doesn't come to that.

[corktownyuppie]

So what do you guys think will happen? If things get worse [[crime/services) or more expensive [[taxes/insurance), I'm pretty sure that the majority of folks paying taxes, keeping up their homes, abiding laws, investing in the city, fighting for the city, etc [[yah know the kind of citizens that make decent cities) will just leave, compounding the problem.

There comes a point when one must realize that going down with the ship is just plain dumb.

I hope it doesn't come to that.

Your question indicates the proper analysis but presumes one fact: that resources are being allocated and used as efficiently as possible. If that were true, then, yes...the only solution is to sacrifice services, raise taxes...and that will result in everyone leaving.

But I don't believe that the dollars used in the city are being spent as efficiently as possible. Here are some areas that would cost nothing and yet drive a healthier balance sheet and cashflow:

- require police and fire to live in the city limits. Benefits? Higher property values...better tax base...money paid to employees comes back in local commerce...police living here means less crime in those neighborhoods.

- shrink the city. seriously. Eliminate all services to areas with less than 80-90% density. Encourage all other residents to move in to those areas by lowering property taxes in healthy neighborhoods and jacking them up in unhealthy neighborhoods. Why are we spending money to fix curb corners to make them ADA compliant in neigborhoods that are 90% vacant?

- Eliminate all non-essential government services. Outsource everything possible to the most competitive bid.

- Bring all city employee wages/benefits to the equivalent of the private sector.

- Eliminate unnecessary top layers of management.

- Property taxes. You pay them or you lose your house. And if the city takes over the land, that's great. It means they can can become landlords and reap gigantic benefits from purchasing huge swaths of habitable homes and rent them out.

Come back smaller. Better. Healthier. Create an environment that attracts the brightest, best, and most talented. Lots of ways to do this. But it means that a lot of people who call Detroit home won't be calling it home anymore.

[iheartthed]

As for who would buy Belle Isle.... I bet there's plenty of developers that would be drooling over that prospect... you wouldn't be laughing if someone did a "Bob-lo Island" to it.... as unrealistic and impossible as it may seem.

Some land development fundamentals in southeast Michigan need to change before Belle Isle becomes a valuable piece of real estate. It would fetch the city maybe several million dollars, which would be a drop in the bucket for what the city owes.

And a Bob-lo Island on Belle Isle? Are you serious? What exactly would make a Bob-lo Island on Belle Isle anymore successful than the original Bob-lo Island???

[skyl4rk]

There are some interesting reports on Detroit's budget problems here:

http://www.detroitmi.gov/CityCouncil...ctionPlan.aspx

Also, this:

http://www.freep.com/assets/freep/pdf/C4182427122.PDF

[skyl4rk]

And the return volley:

http://www.freep.com/assets/freep/pdf/C4182427122.PDF

[stromberg2]

Some land development fundamentals in southeast Michigan need to change before Belle Isle becomes a valuable piece of real estate. It would fetch the city maybe several million dollars, which would be a drop in the bucket for what the city owes.

And a Bob-lo Island on Belle Isle? Are you serious? What exactly would make a Bob-lo Island on Belle Isle anymore successful than the original Bob-lo Island???

I think Gistock means the homes that are now on Bob-lo, not turning Belle Isle into an amusement park.

Stromberg2

[Gistok]

^ Yes what Stromberg2 said... the appalling thought of subdividing the island into residential.

[401don]

I realize Detroit is unique due to its land mass as well as many other factors, but does anyone have any knowledge of what Detroit's revenues are compared with cities with similar populations? In other words, what is the minimum needed to sustain a city of this size? Could Detroit balance its budget after a bankruptcy if pension obligations, etc. were wiped out as happened with GM or would it just begin digging a huge new hole?

[Novine]

Here's a list of US cities by land area:

http://en.wikipedia.org/wiki/List_of...cities_by_area

It's difficult to do comparisons because cities don't always provide the same kinds of services, don't budget for it the same way and don't have the same tax structure.

Detroit:
Population: 717,000
Area: 139 sq. miles
General Fund employees: 7,800
Total employees: 12,600
General Fund budget: $1.6 billion
Total budget: $3.1 billion

http://www.detroitmi.gov/Portals/0/d...011-12.b_1.pdf

For comparison:

Denver, Colorado
Population: 600,000
Area: 153 sq, miles
General Fund employees: 7,100
Total employees: 10,300
General Fund budget: $945 million
Total budget: $1.4 billion

http://www.denvergov.org/Portals/9/d...%20Summary.pdf

One area where you see a big difference is between the water and sewer service. Denver's system services 1.3 million people. Detroit's serves 4 million people. That accounts for some of the difference between the budgets of the two cities.

[R8RBOB]

I know someone mention that the article in the Free Press wasn't a good article but I believed it needed to get out there. For weeks we have heard Bing or Pugh or Brown crying about how broke Detroit is and how they need to cut and cut and cut but none of them once mentioned the "B" word. Now I understand that the aforementioned individuals don't want say bankruptcy because it sounds like failure but when the options are short and few you simply have no choice.

[Dexlin]

I don't see why everyone is ragging on the article. EM or not, short of a change in the state constutition that would allow a city to rid itself of pension and health care obligations [[not going to happen, not even sure if you could do it retroactively if it were even possible), bankrupcty is inevitable. The article simply isn't wrong. You could cut into the bone marrow [[Detroit is already cut to the bone), and Detroit would still be structurally insolvent. The article shows that property taxes are only 14% of revenues, and property values are basically already maxed out. Raising the income tax, as both the council and mayor showed, would only bring in 10 to 40 million depending on how broad it is. Detroit could raise taxes, tomorrow, and cut thousands more employees [[only 7,000 left on the general fund payroll), and Detroit would still be basically bankrupt because of pensions, health care and debt service. How is the conclusion of the article wrong?

[Hypestyles]

who can legally initiate bankruptcy proceedings.. if it were to become official, how long could it legally last?

[Dexlin]

who can legally initiate bankruptcy proceedings.. if it were to become official, how long could it legally last?

As to your first question, ultimately, the municipality, but it must get permission from the State of Michigan, first. For instance, last December, Hamtramck requested that the state allow them to file for bankruptcy, which the state denied. Ultimately, Hamtramck found revenue to keep it afloat for one more fiscal year by working out a settlement with shared revenue over the Poletown Plant with the city of Detroit.

As to your second question of how long it would last, wouldn't that be up to the bankrupcty judge? I honestly don't know, but I'd think it's dependent upon the court once the cases is taken up by the court.

Chapter 9, Title 11 is the bankruptcy that deals with municipalities and public authorities/entities.

[iheartthed]

I think Gistock means the homes that are now on Bob-lo, not turning Belle Isle into an amusement park.

Stromberg2

Oh okay, thanks for the clarification. Does Belle Isle even have the infrastructure to handle a residential neighborhood?

Anyway, I still doubt the entire island would sell for more than $10 million on a good day, probably far lower in a fire sale.