Consent and dissent
The short-term fix — and the long-term gorilla in the room
Published: April 18, 2012
Watson also brought up the issue recently when speaking at a national gathering of anti-foreclosure activists held in Detroit. Just as the city has been devastated by the loss of property tax revenues the crisis triggered — a crisis caused at least in part by predatory lending practices that often targeted low-income minority homeowners the banks knew wouldn't be able to repay loans once higher interest rates kicked in — Detroit is feeling the sting of high bond rates because of its financial predicament.
At this point, Detroit has a rating equivalent to "junk bond" status.
Watson and other critics of the consent agreement, such as activist attorney Jerome Goldberg, say that, just as the banks are being shielded from losing money on their bad loans as homeowners are shoved to the curb, the state's primary interest is ensuring that the bondholders' investment is protected, no matter how much the city might suffer.
The consent agreement contains no promise of a cash infusion from Lansing to help Detroit through the crisis, even though state revenue-sharing has been cut by nearly 30 percent since 2002.
The state, however, did agree to let the city borrow another $137 million so that it would remain solvent in the coming months. Otherwise, Detroit's coffers were expected to run dry by summer.
Big Apple's bite
What's occurring now in Detroit isn't unprecedented. In 1975, New York City was on the verge of bankruptcy.
A report from the nonprofit Citizens Research Council in Detroit described the dilemma.
"The potential impact of a New York City bankruptcy on the city, state, nation and beyond could not be predicted, but the effects were expected to be very serious. If bondholders prevailed, services would be devastated, potentially resulting in strikes and social disorder. ... If services were protected, bondholders would not be paid and the financial markets would be affected."
Looking for a way out of the mess, the state Legislature created an Emergency Financial Control Board composed of the governor, mayor, state and city comptrollers, and three private industry experts.
The board "had control of the city's bank accounts, could issue orders to city officials, and could remove city officials from office. It could review and reject the city's financial plan, operating and capital budgets, collective bargaining agreements, and borrowing. Most importantly, the EFCB forced city officials to take politically unpopular actions (and conveniently provided a scapegoat for those actions)."
There was also a request for a federal bailout, which then-President Gerald R. Ford vowed to veto. He eventually relented on assistance, however, and Congress approved extending a $2.3 billion line of credit to the city.
The measure passed the U.S. House by a mere 10 votes.
Within four years, the city's budget was balanced and it was again on sound enough footing to obtain cash through the commercial bond markets. Eleven years after the board was created, its control over city finances was suspended.
However, the city continues to submit its financial plans to the board, which retains the authority to "reimpose control" if the city fails to meet various conditions, including failure to pay debt service when due.
New York City officials were no more pleased with the idea of external control than Detroit's are. Former New York City Mayor Ed Koch described the city as being an "indentured servant" to the financial control board.
U.S. Rep. Hansen Clarke, a Detroit Democrat, last month held a press conference to announce that he intends to ask the federal government to find the funds to help Detroit through its crisis just as New York City was helped. He admitted that as much as $1 billion might be needed, according to published reports.
But given the Tea Party's influence on the Republican-controlled House, and the emphasis conservatives are placing on budget-cutting as the fall election approaches, it is difficult to see Clarke's efforts as anything more than quixotic at this point.
Given the help New York City received, however, is it really unreasonable to think that if Detroit is to recover, it is going to need help in refinancing its massive debt?
Harris, the former Detroit auditor general now running the city of Benton Harbor says it is unreasonable.
If the feds step in to help Detroit, he says, what about other financially stressed units of government? Such places as Jefferson County in Alabama and Stockton in California.
Sounding much like a hard-line conservative, Harris — echoing the sentiments he says were voiced at a municipal bonding conference he recently attended in Philadelphia — says that Detroit created its financial mess, and it is now incumbent on the city to make the cuts necessary to ensure that it remains solvent. Otherwise, the state will step in and do the job for it.
In his 2005 presentation to City Council, Harris, along with chastising the mayor and council for lacking the political will to put the city's financial house in order, also heaped criticism on Detroit's labor unions:
"Unless the city's unions accept the reality of the city's financial quagmire, unless city officials make the decisions that are necessary to keep Detroit afloat, a receivership will not only be the outcome, it will be preferable to the dysfunctional government to which our citizens are being subjected."
Seven years later, the city's unions say they've given back — and given back. A coalition of 33 city unions representing about 4,500 workers (not including police and fire fighters) in late March agreed to a 10 percent pay cut and other concessions that would have saved the city nearly $100 million. The Bing administration initially signed off on the deal, then reneged after Lansing said it wasn't enough.
As a result, the new contract wasn't sent to the City Council for ratification.
Richard Mack, an attorney for the coalition, says the state's insistence that the unions concede even more despite the fact that a deal had been reached speaks to what he described as the Snyder administration's hostility toward organized labor in general.
"They wanted to take on the unions, and take them on they did," Mack says of Snyder and state Treasurer Andy Dillon, a Democrat appointed by Republican Snyder to the post.
Mack points to union provisions in the consent agreement — such as the elimination of "bumping rights" that allow senior employees to stay in their jobs over others when layoffs are made — as one example of a stipulation that he says has nothing to do with saving the city money.
"What they did was go after bread-and-butter union issues," says Mack.
On the other hand, the state — which has socked away $255 million in its rainy day fund since Snyder took office — isn't offering to lay any money on Detroit's table.
"What they did was allow the city to borrow more money so that it could service existing debt," Mack says.
But even council members who voted in favor of the consent agreement say that's not enough.
Dealing with debt
In 1975, New York City's bondholders "agreed to renegotiate city debt to extend maturities and lower interest rates," according to the Citizens Research Council report.
So far, similar discussions involving Detroit's debt haven't occurred. Figures vary, but Detroit's debt has generally been reported to be about $12 billion (although much of that is associated with the Water & Sewerage Department, and will be repaid from fees charged users throughout the region).
But at some point, those talks are going to have to be put on the front burner, says City Councilmember Ken Cockrel Jr. (son of Ken Cockrel Sr., a legendary champion of progressive causes in the city).
Debt, he says, "is a gigantic gorilla that is crippling Detroit. Moving forward, we have to discuss ways to deal with it."
It's not just Detroit, he says. "There is growing concern in many cities about their ability to meet bond debt."
Former City Councilmember Sheila Cockrel (Cockrel Sr.'s widow) tells Metro Times that the consent agreement could help the city do that.
If the powers that be see that Detroit is actually getting its financial act together, "instead of continuing to kick the can down the road," lenders might be more open to negotiations.
But turning things around is going to be painful. Ken Cockrel Jr., who describes himself as a longtime supporter of organized labor, says that the city unions have to realize that the landscape here has permanently changed. The city's survival demands it.
Council President Pro Tem Gary Brown, formerly a deputy chief in the Detroit Police Department, voices similar sentiments. He, too, voted for the consent agreement. Like Ken Cockrel Jr., he saw it as the only way to avoid imposition of an emergency manager that would be able to make cuts unchecked — and also have the authority to sell off city assets.
Both Cockrel Jr. and Brown say the obligation of the city can't be to provide employment. It can't be if the city is going to survive. Local government is going to have to be whittled down to the point where it is only providing core services: police, fire, trash pickup, public lighting and transportation.
What's crucial is that those services are of high quality. They will have to be. And schools will have to provide the city's children with a quality education.
That is the only way to halt the exodus of people that has been so devastating. That's just the starting point. The key to turning the ship around — and it won't be anything that happens quickly — will be attracting not just young single people, but also families and empty-nesters.
The state is going to have to play a big role. Brown says Snyder can take a big step in that direction by using the power of the governor's office to push for consolidation of the Detroit Department of Transportation and the suburban SMART bus system, followed by overall expansion of service both in the city and the region as a whole.
As Sheila Cockrel says, disinvestment in the city began as far back as the 1940s. Reversing that trend isn't going to be easy, but it has to be done, not just for Detroit, but the entire metro area.
That's just one example of what some say is the real key: a government mind-set that, along with seeking efficiency, also strives to invest in the city's economic health.
The Rev. D. Alexander Bullock, state coordinator for the progressive Rainbow PUSH Michigan organization, opposes the consent agreement signed by the city. He sees it as a curtailment of voting rights people shed their blood to win, and he rails at the thought that they are being signed away.
Like JoAnn Watson and others who argued against the agreement, he also thinks that the imposition of austerity measures will only continue to drive people from the city and exacerbate Detroit's economic woes.
"To talk about economic stability without talking about economic recovery does not move us in the right direction," he says.
Detroit didn't cause the Great Recession of 2008. And it didn't create the auto industry's problems or drive manufacturing to Mexico or overseas. Neither is the city responsible for collapse of the housing market and the foreclosure crisis. It is a victim, with tens of thousands of families driven from their homes, which were left vacant to be stripped bare by scrappers.
And he sees using the threat of imposing something as draconian as an emergency manager to get officials to sign the consent agreement as "gangster politics."
"It's not really a choice if you are being coerced into doing something," he says.
He's troubled by the fact that the discussion so far has focused solely on issues of "financial cut and cap" and not on ways that government should be used to spur economic recovery.
What is absent in Detroit is a larger vision. It is not enough to simply say we are going to cut. That won't lead the city out of the devastation.
"Detroit is demoralized at this point," he says. "What it needs are public officials with bold ideas. Right now, expansion and investment are not part of the political lexicon. And they need to be.
And it is not just Detroit.
The problems may be more profound in this city, but the situation is far from unique.
"Poverty and disinvestment" in America's urban areas "has to become part of the national conversation" in the run-up to November's elections, he asserts.
If it's not, then the people who are the lifeblood of this city are going to continue to flow out of it, and there will no recovery as long as the patient continues to bleed.
Curt Guyette is Metro Times news editor. Contact him at 313-202-8004 or email@example.com.
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