Consent and dissent
The short-term fix — and the long-term gorilla in the room
Published: April 18, 2012
To cover the shortfall, the city borrowed and borrowed and borrowed. From 2005 through 2011, the city took on more than $600 million in new debt to meet its general fund expenses. The problem with that kind of borrowing is that, as with households making basic purchases on credit cards, meeting obligations becomes increasingly difficult because repayment of that debt becomes more and more of a burden.
It is not that the city didn't make any cuts. From 2002 through 2011, the city's workforce went from 17,480 employees to 11,824, a reduction of more than 30 percent. Other costs, however, continued to rise. In 2002, the city was paying out $76.2 million a year in pension costs and $119 million in what are known as "other post-employment benefits" — which primarily cover the medical expenses of retirees not yet eligible for Medicare. Those two items total more than $195 million, which represented about 7.8 percent of the city's total revenues, according to the annual financial reports the city is required to submit to the state.
A decade later, in 2011, those costs had ballooned to $133.3 million for pensions and $325 million for the other post-employment benefits. That combined annual total of more than $458 million represented more than 19 percent of the city's total revenue.
State law prevents the city from attempting to lower those payments for the retired workers already receiving them.
Back in 2005, with those costs already visible on the horizon and Kilpatrick sitting in the mayor's office, Harris told the council that it would have to step up and take the lead in ensuring that the city lived within its means. But that didn't happen.
"Lansing and Wall Street will be watching," he said as his 10-year term as auditor general expired. "Failure by this body to satisfactorily develop a plan to address the anticipated shortfalls may be your last opportunity to do so for several years because your failure will prove that our elected officials are incapable of governing this city."
The warning proved prophetic.
Harris is now the appointed emergency manager for Benton Harbor, which has had its own years-long descent into a fiscal hole.
In a phone interview last week, Harris told Metro Times that it is vital that the city provide core services such as police, fire and public transportation, but that it is going to have to find "cutting-edge" ways to ensure that government operates both effectively and frugally.
Not surprisingly, Harris, who briefly served as Detroit's chief financial officer while Ken Cockrel Jr. served as interim mayor after Kilpatrick was forced to resign, is a proponent of state intervention, saying that the city is in dire need of qualified and innovative experts.
Under the terms of the consent agreement entered into two weeks ago, a nine-member financial advisory board has to be established within a month. That board — with members appointed by the governor (3), mayor (2), City Council (2), state treasurer (1) and one member jointly appointed by the mayor and governor but subject to confirmation by the council — will provide "targeted operational and technical support and consultation" in a variety of areas including payroll and accounting, and financial reporting. It will also monitor and report on the city's "ongoing financial performance."
In addition to that board, the city is also required to hire a chief financial officer and program management director.
Final decisions will continue to rest with the city unless it fails to meet the conditions outlined in the agreement. Those reforms include such things as income tax collection improvements and consolidation of departments.
David Whitaker, director of the council's Research & Analysis Division, explained it this way in a report issued before the council's vote:
"The basic mechanism of the agreement works essentially like a light switch; city government continues to have power until there is a 'Reform Default Condition' in which the PMD [program management director] and FAB [financial advisory board] determine that they are not doing enough ... to pursue the state's reform agenda."
At that point, the switch is flipped and the state is granted the power to unilaterally determine policy and make financial decisions for the city. In other words, if the city fails to abide by the terms of the agreement, the equivalent of an emergency manager will take over.
The public, at least the part of it that showed up to weigh in on the issue in front of the City Council in recent weeks, was sometimes thoughtful, but more often outraged, if not belligerent. One community activist declared that anyone who voted for the agreement was either "too stupid, retarded or traitorous for the people to allow you to stay in office."
Councilmember JoAnn Watson, according to published reports, raised the issue of $220 million the state promised to provide to Detroit in return for the city agreeing to lower its income tax rates. The deal was struck when John Engler occupied the governor's office, but the money never materialized.
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