The garage sale of Detroit

In a bankruptcy scenario, one of any entity’s most obvious options for raising some cash with which to pay down debts and obligations is to start selling off assets to the highest bidder. In the case of Detroit, their list of public assets includes 22 square miles of lands, public utilities and infrastructure, as well as collections of art and animals, all of which you might think sound like pretty reasonable items to include in their pending municipal garage sale — except that, oddly enough, the few assets with which Detroit is actually looking to part ways could in fact just be… well, garages. Via the Financial Times:

Kevyn Orr, Detroit’s emergency manager, says the City is open to public-private partnerships and believes its nine parking garages, two parking lots and 3,404 parking meters should be attractive to outside investors.“It’s one of the easiest assets that someone can underwrite and run more efficiently,” he told the Financial Times.

Elsewhere the scope for further sales looks limited, as Mr Orr concentrates on wringing multibillion-dollar concessions from creditors that put the potential receipts from asset disposals into perspective.

This is especially the case because many assets are losing value as Detroit’s economy continues to go in reverse, as the population drops, manufacturing declines and joblessness rises. …

The city owns 22 square miles of Detroit’s 139 square miles, but much is blighted. “The vast majority has limited current commercial value,” its bankruptcy filings state.

Detroit’s most attractive assets include its water and sewage operations. But the city does not plan to put those operations up for sale to the private sector either.

Instead, it plans to work with neighbouring, and far wealthier, districts to establish a new unit that would provide services to the city and its environs and that would continue to have access to the capital markets. Such a deal could unlock $50m-$150m, Mr Orr says.

Admittedly, getting involved with many of Detroit’s beleaguered assets probably isn’t that attractive an option for potential investors in plenty of cases, at least not right now; but Detroit has a long way to go to even get close to managing the city’s $18 billion in debt and unfunded liabilities… and yet they somehow have the money for a $400 million hockey arena. Go figure.

And speaking of those unfunded liabilities, more than five billion dollars’ worth are in the form of health care and other retiree benefits for the city’s workers; as I mentioned earlier this month, a bunch of broke cities across America are looking at unloading some of those expensive and long-term political promises onto the incoming ObamaCare system in search of a little financial relief (…and when I say “ObamaCare,” what I really mean, of course, is American taxpayers). Now that Detroit is officially underwater, they’re moving forward — er, “Forward!”? — with that plan, via the NYT:

As Detroit enters the federal bankruptcy process, the city is proposing a controversial plan for paring some of the $5.7 billion it owes in retiree health costs: pushing many of those too young to qualify for Medicare out of city-run coverage and into the new insurance markets that will soon be operating under the Obama health care law.

Officials say the plan would be part of a broader effort to save Detroit tens of millions of dollars in health costs each year, a major element in a restructuring package that must be approved by a bankruptcy judge. It is being watched closely by municipal leaders around the nation, many of whom complain of mounting, unsustainable prices for the health care promised to retired city workers. …

Unfunded retiree health care costs loom larger than ever for localities across the country, and the health law’s guarantee of federal subsidies to help people with modest incomes afford coverage has made the new insurance markets tantalizing for local governments. A study issued this year by the Pew Charitable Trusts found 61 of the nation’s major cities wrestling with $126 billion in retiree health costs, all but 6 percent of that unfunded.