Detroit’s Revenue Reality

For decades, Detroit has held a “mythic status” as a lost city. One major aspect of concern is the city’s continuing trek towards financial ruin. Detroit, however, doesn’t have to join the ranks of bankrupt municipalities. Appointing an emergency manager would do much for Detroit’s financial stability – if Detroit were willing to buckle down and face reality.

Reality isn’t pretty. The city continues its struggle to make payroll. This should raise real concern when, according to the Toronto Star, the city government is surpassed only by the Detroit Public schools in the number of jobs provided to Detroit. While the city managed to escape its most recent cash crisis, the outstanding $80 million short term loan the city took out in April on the state’s guarantee is still a gloomy spectre.

Decades of financial irresponsibility continue to compound consequences. Estimations of the budget deficit run around approximately $200 million, and the long-term debt burden is estimated to be over $7 billion.  One of the city’s major problems is its rapidly shrinking population. It is estimated that the town has lost a total of 61 percent of its population since 1950, of which 25 percent has occurred since 2010. The size of government infrastructure, however, has not matched pace.

While Detroit has managed to skirt bankruptcy thus far, citizens may soon be reminded that, like Stockton, CA, money doesn’t grow on trees. Stockton recently became the largest city to ever file Chapter 9 bankruptcy, and could foreshadow things to come should Detroit have to do the same. According to Robert Benedetti, a professor of political science at the University of the Pacific in Stockton, a judge will now have the power to decide how Stockton’s debts are to be paid off.

There are other available outcomes. Ecorse is one Michigan city that has been able to successfully avoid bankruptcy with an emergency manager. Anne Schieber, Mackinac Center senior investigative analyst, reports that the city has gone from a deficit that was “50 percent more than its annual operating budget” to escaping bankruptcy. The town had spent more than it brought in for decades. However, Joyce Parker, the city’s emergency manager, has been able to make some tough calls to bring spending back in line with revenues.

If Detroit citizens are apprehensive about the possibility of an emergency manager, they must keep in perspective how much control their elected officials will lose if a judge is given control in a bankruptcy situation. Bankruptcy has major costs and repercussions. It creates a lot of uncertainty, and damage to a city’s bond rating has the potential to make improvement projects more expensive. Unions that are protective of their collective bargaining rights should keep in mind that while an emergency manager may void contracts, new ones may still be agreed to. Under bankruptcy, a judge may choose to bypass contracts altogether.

Detroit is on an unsustainable trajectory. An emergency manager is a promising strategy for stabilizing Detroit’s teeter toward bankruptcy – if Detroit is willing to undergo the discomfort of adjusting to reality. The cost of pushing it off to another generation will only make the eventual price more painful. Take responsibility, Detroit: your children’s future depends on it.


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