Yikes: Review declares a state of financial emergency in Detroit

posted at 1:21 pm on February 20, 2013 by Erika Johnsen

Detroit, that historical magnate of the American auto industry, was once the country’s fourth most populous city — but the municipality has long since fallen off the fiscal straight-and-narrow, and here come the consequences. After decades of a fleeing population and tax base, incessant cash shortfalls, and $14 billion in long-term liabilities, the state has accumulated such a hot mess of debt that a state-appointed review team is wondering if it isn’t finally time for an emergency manager to step in and take the controls away from the politicians. Reuters reports:

An expert panel concluded on Tuesday that Detroit faces a fiscal emergency in a city plagued by “operational dysfunction,” leaving Governor Rick Snyder with a controversial decision of whether to declare a financial takeover by the state. …

The review team appointed by Snyder said Detroit… has not made the financial decisions that will put the city on a path to recovery. …

The report described a chaotic administration of the city. For example, it said Police Department and city officials gave differing figures on police staffing, and the review team could not resolve the discrepancies. …

The report said Detroit continues to deplete its cash reserves and faces a cash deficit of $100 million by June 30 without significant spending cuts. The city has long-term liabilities including pensions exceeding $14 billion, it said.

An emergency manager would have the power to sell off assets, lay off workers, renegotiate labor contracts (which, as you might imagine, certain parties would find most unwelcome), and could make the decision to recommend municipal bankruptcy — meaning that the city’s mayor and city council would lose a good bit of their power, a move on which they are not too keen. Perhaps they should have thought of that while they were frittering away opportunities to make the hard choices and institute substantive, city-saving financial reforms.

Last April, the state of Michigan and the city of Detroit entered into a consent agreement allowing for some state oversight to help with the city’s troubled finances in return for some fiscal reforms, but the city was repeatedly off the mark in meeting deadlines and benchmarks — which is probably why the report suggests the city is incapable of dealing with reality on its own.

The final report also said the city’s bureaucracy is too inflexible to make the meaningful changes that would be necessary to change course.

Dillon said the state has given Detroit opportunities to get their fiscal house in order, but city official have failed to do so. “We gave the city every chance to avoid the outcome that we’re recommending to the governor today,” he said.  In a statement the treasurer said “key reform measures have not occurred quickly enough, if at all.”

Detroit’s bankruptcy, by the way, would set a new bar for the biggest municipal filing in U.S. history if it does go down.

This is a few of years old now, but this has always been one of my favorite videos from Steven Crowder; as he points out, years and years of progressive policies have left Detroit struggling in more ways than one, and the results have been nothing short of tragic.


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