Troy City Government is going BANKRUPT by 2016.

[Danny]

Recent source from Channel 4 News reported that The City of Troy is suffering an financial crisis and the city will run out of cash by 2016. How can a middle class city with a booming skyscrapers and Somerset Mall along Big Beaver Rd. going dead broke like Detroit within 4 years? Something's weird is going on in Troy and its burning.

[Hermod]

Recent source from Channel 4 News reported that The City of Troy is suffering an financial crisis and the city will run out of cash by 2016. How can a middle class city with a booming skyscrapers and Somerset Mall along Big Beaver Rd. going dead broke like Detroit within 4 years? Something's weird is going on in Troy and its burning.

Nothing weird about it. The real estate tax take is down because of the 2006 housing crisis. Unless the tax take is increased, the city will burn through its reserves by 2016. Between now and then, either housing values have to recover, the tax millage rate needs to increase, or they need to reduce their budget. The possible solutions are difficult, but not very complex.

[313WX]

I guess it's time to bring in the EFM...

[corktownyuppie]

I guess it's time to bring in the EFM...

It will be time to bring in the EFM. They've got 48 months to solve the problem, otherwise that's exactly what's gonna happen.

[Detroitnerd]

I guess it's time to bring in the EFM...

Troy was already starting to feel the pain a few years ago. There was a time when they just couldn't build enough commercial space. Between 1970 and 2000, developers built about 10 million square feet of commercial space. I wonder what the vacancy rate is. I imagine Troy still has more jobs than residents, but the appeal of the "City of Tomorrow" seems to be wearing a little thinner every year. They had to give Kelly Services a huge tax abatement to convince them to double down on their HQ there; that wouldn't have happened 10 years ago.

If I remember correctly, Troy has the third most commercial space in the metroplex [[and, likely, the whole state), behind Detroit [[1) and Southfield [[2).

[j to the jeremy]

Recent source from Channel 4 News reported that The City of Troy is suffering an financial crisis and the city will run out of cash by 2016. How can a middle class city with a booming skyscrapers and Somerset Mall along Big Beaver Rd. going dead broke like Detroit within 4 years? Something's weird is going on in Troy and its burning.

I will try to avoid schadenfreude and just say that their tax rates are too low to be sustainable and city too spread out, infrastructure wise, to attract young people. Major businesses no longer want to locate in edge cities, they want exciting walkable areas to attract high-level young employees. Too bad for Troy that they have just been cutting taxes and services for too long now, and there's nothing left to cut. I guess the friends of the Troy Library should get ready for another fight.

Makes the mayor who hates federal matching funds look a bit naive, no?

[jj84]

A lot of this is also tied with Lansing trashing personal property tax. If an alternative tax source isn't made to replace Personal Property you will see many Cities with EMF come 2014-2016 and some will probably file bankruptcy and may even dissolve.

With the Changes in Personal Property Tax Cities and School need other options for funding. How you go about raising that revenue is another thing. The way sales tax is distributed to communities also needs a major overhaul but Lansing isn't going to do that. It would need to be a constitutional amendment.

[Bham1982]

Is there any evidence whatsoever that the premise is even true? Where's the media source?

I find it hard to believe that Troy is the next Highland Park. Given that they have a huge office, retail and industrial base, they would probably be among the last Michigan cities to suffer from changes in residential composition [[and I don't even think that's remotely true).

[Bham1982]

I just looked it up, and Troy has AAA bond rating, highest possible for municipalities.

Most Metro area cities don't have this rating.

[detroitsgwenivere]

I don't find it hard to believe. Has anyone driven down Stevenson or through the industrial prkway lately? I do about once or twice a month and believe me, its starting to look like a ghosttown. Some of the commercial space has even been torn down because its been vacant so long that its considered outdated and detrimental to the neighboring commercial property values.

But that doesn't mean the city can't turn it around in time. Brooksie won't let his gem turn into coal- I mean HP.

Nothin against HP of course.

[corktownyuppie]

Is there any evidence whatsoever that the premise is even true? Where's the media source?

Big difference between Troy and Highland Park is that Troy will likely do [[and be able to do) what ever is necessary to avoid insolvency. But, yes, the budget problems and projected shortfalls are real.

As budget talks continued Monday evening, Troy City Manager John Szerlag gave a sobering presentation of the five-year projected budget, which showed the steady depletion of the city’s fund balance over the next five years to a zero balance in 2017, despite the city adding $1.9 million to the fund balance this fiscal year.

“You needed to see this,” Szerlag told City Council Monday evening. “The job of a city manager is to let a community know what they need to hear, not what they want to hear. … This is something you have to address. You can put it off, but it’s still there.”

http://troy.patch.com/articles/5-yea...nkrupt-in-2017

[iheartthed]

I just looked it up, and Troy has AAA bond rating, highest possible for municipalities.

Most Metro area cities don't have this rating.

That means nothing. Detroit had a AAA bond rating 10 years ago too.

[jj84]

Troy is smart and does a 3 year budget [[most cities do not do this) So they can see what is on the horizon with reduction in property taxes and personal property taxes. If they just kept going as is and made no changes they would have exhausted their savings by 2016 and run a deficit.

They might get savings by refinancing bonds they currently have out -- enter revenue sharing agreements with their local DDA/TIF's etc. There are many options out there to fix this issue. I think the news media jumped on it just for a story, and to be like they are just like Detroit!

[Detroitnerd]

That means nothing. Detroit had a AAA bond rating 10 years ago too.

Haha. And weren't those "derivatives" and "mortgage-backed securities" also triple-A rated?

[corktownyuppie]

Haha. And weren't those "derivatives" and "mortgage-backed securities" also triple-A rated?

Well, that's actually a complicated question. Most MBS were not Triple-A Rated. But they were insured by 3rd parties who WERE Triple-A rated. I had clients purchasing Mortgage Backed Securities back in 2008 that were AAA even without the insurance. The mortgages were required to be no more than 75% Loan to Value, seasoned at least 5 years to show 5 years of current payments, and 760-800+ credit scores.

Needless to say, there were no problems with any of these going into default.

Most of the MBS that were AAA-rated only because of the insurance companies have been relying on the insurance companies to make payments when the mortgages went bad. So far, that's happened. But, unfortunately, that's leaving the insurance companies with much less cushion in their capital accounts....lowering their ratings.

The MBS that really caused the problems were the subprime trash. And even though I still blame the bankers for the total disaster, the investors buying them should have known that what they were buying was really iffy. Seriously, would you lend your money to someone who wouldn't provide income verification and offered to make annual payments less than the interest accruing [[so your mortgage increases every year)?

Shame on the banks for pitching that stuff to clients. But shame on the clients for really thinking you could make a quick and easy 13%, too.

[Detroitnerd]

As I understand it, the ratings agencies were definitely part of the problem. At one point, they were in front of Congress claiming that their ratings were not to be taken seriously, that they were just opinions, that they were just free speech, anything to get them off the hook from furious and litigious investors who'd lost quadrillions...

[corktownyuppie]

As I understand it, the ratings agencies were definitely part of the problem. At one point, they were in front of Congress claiming that their ratings were not to be taken seriously, that they were just opinions, that they were just free speech, anything to get them off the hook from furious and litigious investors who'd lost quadrillions...

Yes, they were definitely part of the problem. And there are inevitable issues when the people paying the ratings agencies are the entities that are getting rated. I'm just wanting to clarify that derivatives and mortgage backed securities were not themselves the problem. It was only a small subset among MBS that caused problems....but those problems were massive.

Then you complicate the question because fancy bankers were using borrowed money to buy the investments, which is great when they're behaving normally. When they aren't...you're in a position where you're liquidating assets to pay debts. And every time you liquidate an asset, you drive the price of those assets down. Which forces others to liquidate their assets. Etc. Etc.

The ratings agencies were certainly complicit in that they missed systemic risks in their protocol as well the systemic risks in generally accepted practices in banking...in part because of incompetence...but in larger part because the system was setup in a way that unduly harsh ratings agencies were penalized by getting less opportunities to get paid.

This is one reason why in real estate, you are no longer allowed to choose your appraiser. You might be the one paying for him/her, but the appraisal needs to be done blindly. And that's what was missing in the ratings agencies too. It wasn't necessarily blatantly fraudulent...but it might have been willful blindness.

To get a AAA rating is really tough. Only 3 US Corporations have it.

Yes you are right...the Ratings Agencies are not be blindly trusted. And their "legal arguments" in front of Congress were a total farce. But they're not just fabricating ratings out of thin air, and their analysis still has some value.

[Parkguy]

I have a sneaking suspicion that you'll see more of these stories. The balkanized system of local government we have does fine as long as there is unlimited growth, but I think we are going into a period of limited, slower growth [[after a long bout with flat line in Metro Detroit), so the suburbs are in for a rough few years, at least as far as city services are concerned, just like Detroit. Lots of small suburbs have already begun sharing costs and services-- mergers are next, along with some un-incorporations. The same will probably happen with school districts.

[douglasm]

A couple of quick questions about the Michigan tax structure....

1) does the state allow for a local option sales tax?
2) does the city really get that much from property taxes?

Now, a view from afar. I understand that the mayor is against taking Federal funds to help pay for projects. That's all well and good, but out here in the little town I'm a councilman in, it seems like we don't buy a box of tissue without a grant of some kind.

I'm going to assume most cities are under the same kind of pressure. State eqalization funds are bing cut, property tax revenues are decreasing [[they're only about 10% of our income right now), and matching funds are drying up.

We're just competing an $8m sewer project that is 70% grant funded, last year put in a new $800k well that was completely grant funded, and just started putting together a $100k recreation plan that will be 100% grant covered. None of this would be possible in our town of 900 without state and federal grants.

When dealing with smaller governments and their budgets, there really isn't much room for ideology. You're operating a small business, and your obligation should be to use any means available to you to do the best possible job of meeting the needs of your residents. There's a town north of me that has a very conservative city government. All that conservativism sure went out the window when they needed $20m to fix a failing sewer system.

[Hermod]

I have a sneaking suspicion that you'll see more of these stories. The balkanized system of local government we have does fine as long as there is unlimited growth, but I think we are going into a period of limited, slower growth [[after a long bout with flat line in Metro Detroit), so the suburbs are in for a rough few years, at least as far as city services are concerned, just like Detroit. Lots of small suburbs have already begun sharing costs and services-- mergers are next, along with some un-incorporations. The same will probably happen with school districts.

Some of the public employee unions are going to have "come to Jesus" moments as well. At some point in time, the bureaucracies have to be trimmed. Some cities and other political entities may request the state to put in an EFM just long enough to void the union contracts.

[Detroitnerd]

Some of the public employee unions are going to have "come to Jesus" moments as well. At some point in time, the bureaucracies have to be trimmed. Some cities and other political entities may request the state to put in an EFM just long enough to void the union contracts.

Funny how all that "tough love" stuff goes out the window when it concerns bankers who trash the economy, pharmaceutical companies that kill tens of thousands, oil companies that destroy the environment, etc.

Reminds me of the old cartoon of two giant capitalists riding a little train that can barely haul them. One looks down at the diminutive fireman and engineer and cries, "There's the problem!"

[mwilbert]

Financing cities via a capped property tax [[as in Michigan) means that they are always in peril once they are built out. Infrastructure ages and has higher maintenance costs. If there is inflation, property taxes don't keep up. If there isn't, property values fall as the buildings age. The only situation that works is lots of turnover [[to reset the cap), and property inflating faster than the general price level, and I think that story is over for the next couple of decades. Expect more municipal distress unless the state is willing and able to cough up more money for local government.

[RO_Resident]

A couple of quick questions about the Michigan tax structure....

1) does the state allow for a local option sales tax?
2) does the city really get that much from property taxes?

1) The state constitution does not allow a local option sales tax.
Various proposals have been put up the flag pole over the past few years. None have gained any traction.

2) Troy got $48.6 million [[42.6%) of their revenue from property taxes. Detroit took in $563.4 million [[20.8%) from property taxes. Both are from 2011.

You can look up lots of municipal financial information on Munetrix.com.

[MikeyinBrooklyn]

Makes the mayor who hates federal matching funds look a bit naive, no?

I will not try to defend that loudmouthed fool of a mayor, but I will say that her only discernable sensible quality is that she doesn't want Troy to spend more money, whether city-raised or federal in origin. Spending less to reduce the cost of government as shouldered by taxpayers is anything but naive. I also think people who advocate spending other people's money [[i.e. Troy spending a federal grant) find out that the costs to themselves to supplement or sustain the original grant are substantial. We're seeing that now with the President's original stimulus: states and localities got a boatload of federal loot, much of it unfront. The following year[[s), they either need to raise taxes or cut back drastically. Troy's problems, like Detroit's [[although massively smaller, obviously) are entirely fixable at the local level. Unlike Detroit, they probably will. But, not to have a double standard, yes, if the checks start a'bouncin in 2016, an EFM should be appointed.

[Mark Smiles]

I would be glad to see Troy take a hit.

Hope they have to lay off the Cops who had nothing better to do but "Click-it-or-Ticket"

No, they never got me, but I was always disgusted seeing the big show they would put on.

Seeing folks with money to burn, go broke, is funny.