Orr to creditors: Detroit on 'brink of financial and operational ruin'

[iheartthed]

This is true, but it doesn't really explain Detroit's situation. Do you think CAY would have lost any of his re-election bids if he had tightened up work rules and annoyed the unions? I don't. He didn't make any such attempt because he was by inclination a union man, because he saw city jobs as the rightful spoils of his victory and didn't want to do anything to make it harder for him to reward his friends, and because he didn't have any interest in actually administering the city.

City government has been the largest employer in the city for decades. CAY certainly wouldn't have lasted as long as he did if he was anti-union. However, I don't think unions are the root cause of Detroit's troubles...

There isn't any question but that the political power of municipal unions can cause elected officials to agree to things that are dubious, but it doesn't make much difference if you elect people who don't care about administration in the first place, and with the possible exception of Archer, Detroit hasn't elected anyone with an administrative bent in the last 45 years.

I have pointed out on this forum many times that the city has been abysmally run for as long as I can remember, and that this is a root cause of Detroit's dysfunction. And what I usually get as a response is that the problems are economic and structural and demographic, suburbanization and segregation and deindustrialization. And those are real, serious problems. However it seems to me that many cities have had to cope with those to a greater or lesser extent, yet somehow or other provide their citizens with a better quality of life, have lost less population, aren't about to go bankrupt, etc. Administration is really important, and having the EM in place to improve it will probably do more to help the city than most people think.

Well, let's step back. Detroit's not hardly the only Michigan city that has teetered on bankruptcy. I think the better question to ask is why so many communities in Michigan have come into financial emergencies. Detroit is just the one that threatens to expose the flawed system since its a systemic threat.

[Wesley Mouch]

City government has been the largest employer in the city for decades. CAY certainly wouldn't have lasted as long as he did if he was anti-union. However, I don't think unions are the root cause of Detroit's troubles...

Heaven now. They aren't the root cause. The root cause is a bad foundation, bad construction, and abusive use. Everything's a problem.

How do you solve a systemic problem? Fix everything.

Thus, saying unions aren't the 'root' problem is ignoring something that's broken and needs to be fixed.

[Wesley Mouch]

...snip...I think the better question to ask is why so many communities in Michigan have come into financial emergencies. ...snip...

Not a Michigan problem:
City and Locality Bankruptcy Filings [[7):
-- City of San Bernardino, Calif.
-- Town of Mammoth Lakes, Calf. [[Dismissed)
-- City of Stockton, Calif.
-- Jefferson County, Ala.
-- City of Harrisburg, Pa. [[Dismissed)
-- City of Central Falls, R.I.
-- Boise County, Idaho [[Dismissed)

[iheartthed]

Not a Michigan problem:
City and Locality Bankruptcy Filings [[7):
-- City of San Bernardino, Calif.
-- Town of Mammoth Lakes, Calf. [[Dismissed)
-- City of Stockton, Calif.
-- Jefferson County, Ala.
-- City of Harrisburg, Pa. [[Dismissed)
-- City of Central Falls, R.I.
-- Boise County, Idaho [[Dismissed)

Unlike Michigan, California cities don't need state permission to file bankruptcy. If Michigan's laws were like California then Michigan would probably already have 8 cities and two school districts to have gone bankrupt.

[mwilbert]

CAY certainly wouldn't have lasted as long as he did if he was anti-union. However, I don't think unions are the root cause of Detroit's problems.

I think this is a false choice. CAY wouldn't have had to be "anti-union" to negotiate reasonable contract provisions, and I suspect that given his credibility with labor, CAY would have been in an ideal position to get better contracts with the city's unions without suffering any significant political damage. I don't think he didn't do it because of union political influence. I think he didn't do it because it wasn't something he wanted to do nor something he thought was important.

Well, let's step back. Detroit's not hardly the only Michigan city that has teetered on bankruptcy. I think the better question to ask is why so many communities in Michigan have come into financial emergencies. Detroit is just the one that threatens to expose the flawed system since its a systemic threat.

Well, I suspect a lot of those cities were also mismanaged, but in addition Detroit had some financial advantages. It can levy an income tax. It has casino revenue. There is no question that the system of municipal finance in Michigan is broken and is getting worse, and that is a structural problem for Michigan cities, but it seems clear to me that isn't the entire explanation.

[Wesley Mouch]

... There is no question that the system of municipal finance in Michigan is broken and is getting worse, and that is a structural problem for Michigan cities, but it seems clear to me that isn't the entire explanation.

Over the last few weeks, I've really noticed that often issues like municipal finance, but also school finances and other entitlements are framed in terms of 'funding'. To me, this is a fundamental difference in how I view things. I'm sure funding could be reworked, but I see the problem as increased costs. I don't argue for austerity because I think its the right financial choice. I argue for austerity because I want what money we spend on public good to accomplish public good.

Yes, there are many problems, but a big one is our spending problem. Kevin Orr could have stopped our spending years ago. And the result would have been more police officers, better wages, funded pensions, and happiness. Instead, we spent on new buildings we don't need, additional office staff we don't need, programs we don't need -- not to mention corruption, graft, theft. Why do we need a new police station. When in tough times, you just get some trailers and get to work. Build monuments when things are great [[1950s here, 1990s rest of world.) Until we have spending under control, no amount of funding will help. More money just goes to Ficanos who pay his friends and family program consulting salaries in addition to their 13th retirement paycheck while being guarded by dozens of officers about to retire at age 36 with until-recently tax-free pensions so they can get another county / city job or two so they can have a $400,000 annual pension at future taxpayer expense. [[Exaggeration intentional -- hoping to point out that we do have a spending problem -- not so much as a 'funding' problem.)

[mwilbert]

Over the last few weeks, I've really noticed that often issues like municipal finance, but also school finances and other entitlements are framed in terms of 'funding'. To me, this is a fundamental difference in how I view things. I'm sure funding could be reworked, but I see the problem as increased costs. I don't argue for austerity because I think its the right financial choice. I argue for austerity because I want what money we spend on public good to accomplish public good.

Yes, there are many problems, but a big one is our spending problem. Kevin Orr could have stopped our spending years ago. And the result would have been more police officers, better wages, funded pensions, and happiness. Instead, we spent on new buildings we don't need, additional office staff we don't need, programs we don't need -- not to mention corruption, graft, theft. Why do we need a new police station. When in tough times, you just get some trailers and get to work. Build monuments when things are great [[1950s here, 1990s rest of world.) Until we have spending under control, no amount of funding will help. More money just goes to Ficanos who pay his friends and family program consulting salaries in addition to their 13th retirement paycheck while being guarded by dozens of officers about to retire at age 36 with until-recently tax-free pensions so they can get another county / city job or two so they can have a $400,000 annual pension at future taxpayer expense. [[Exaggeration intentional -- hoping to point out that we do have a spending problem -- not so much as a 'funding' problem.)

I don't think you understand what I mean. It is clear that some cities have a spending problem, and I am all in favor of trying to fix those problems [[although we might not agree on what constitutes a problem--I sure we agree on not having inappropriately large pensions paid out to people at an early age) but just because there is a spending problem doesn't mean there isn't a revenue problem. It seems clear to me that there is a structural revenue problem because of the limitations that have been placed on property taxes.

The only way municipalities can keep their revenue flows even with the regular increase in costs is by using the extra money that comes in from new development, so once a town is built out, they are running a race that they are pretty much certain to lose eventually. Maybe some municipalities can cut enough [[waste or not) in the short term to keep their budgets in balance, and maybe some have enough unused taxing capacity to do it, but in the longer term unless changes are made to the finance model they are screwed.

[corktownyuppie]

....but just because there is a spending problem doesn't mean there isn't a revenue problem. It seems clear to me that there is a structural revenue problem because of the limitations that have been placed on property taxes.

We can agree that there is a structural revenue problem, but the next logical step is determining ways that those problems can be solved.

We can increase property tax revenues by:

[[1) Increasing building, because more residents equal more homes, equal more taxes.

[[2) We can increase the value of our property and thereby increase our property tax...property values are generally linked to the income level of its residents. So we can either attract higher-income residents or we can increase the income of our residents. We can also improve our services in order to make the cost/benefit equation regarding property taxes more attractive.

The financing model is [[generally) not screwed. What is screwed is the idea of making promises today for costs that will be paid from money generated 30 years from now. Notice that I didn't say "paid 30 years from now"; I'm arguing against costs paid from money that won't be generated until 30 years from now.

In a healthy property tax model, properties are either stagnant to rising, and services are comparable and competitive with neighboring communities. Right now we have falling properties, the worst services in all of Michigan, the highest taxes, and the highest legacy costs [[pension/medical costs that were promised 30 years ago but unfunded).

None of this is a surprise....Many neighboring counties started fixing these exact same problems with this 10-15 years ago. We chose not to do it and are paying steeply.

[Hermod]

The only way municipalities can keep their revenue flows even with the regular increase in costs is by using the extra money that comes in from new development, so once a town is built out, they are running a race that they are pretty much certain to lose eventually. Maybe some municipalities can cut enough [[waste or not) in the short term to keep their budgets in balance, and maybe some have enough unused taxing capacity to do it, but in the longer term unless changes are made to the finance model they are screwed.

No, it wasn't just growth that failed. The localities also operated on the principle that housing prices [[and the resulting ad valorum property taxes) would continue to increase forever. The mortgage industry made the same assumption. Unfortunately, in 2006, the music stopped and not everyone could find a chair.

[mwilbert]

No, it wasn't just growth that failed. The localities also operated on the principle that housing prices [[and the resulting ad valorum property taxes) would continue to increase forever. The mortgage industry made the same assumption. Unfortunately, in 2006, the music stopped and not everyone could find a chair.

This isn't really true. You are ignoring the problem is that in Michigan the property taxes can't increase with property values anyway. That is why the growth is so significant--new construction can be taxed at current valuations, unlike old construction.