Detroit's Leaders to Michigan: Give Us the Money and Get Lost

Detroit's mayor and council play power games as the city careens towards bankruptcy.

Most people who are drowning would gratefully grab a lifeline tossed their way. But the elected leaders of the (formerly) great city of Detroit might actually prefer to drown.

How else to interpret their response to a proposal—or a “consent agreement”—crafted by Michigan Governor Rick Snyder to help the city avoid bankruptcy when it runs out of operating cash in less than 60 days?

Detroit Mayor Dave Bing, a former guard for the Pistons and a businessman who can barely raise his voice to a whisper when dealing with the city’s public unions, has found his inner lion against the Republican governor’s plan.

Unless Bing, a Democrat, and the city council sign the agreement, it can’t go into effect. But, Bing roared in a recent radio interview, “Why the hell would I sign it?” Likewise, some city council members have described the agreement as a hostile takeover that eviscerates the rights of Detroit’s voters. They have been negotiating for weeks without resolution. Meanwhile, a financial review team has declared that Detroit is facing a severe fiscal emergency. If the city leaders and governor don't iron their differences and accept the agreement today, they will set in motion a process that will lead to the takeover of the city's books by a state-appointed emergency manager.

What exactly in the agreement has gotten Bing and the council members so mad?

Essentially, in exchange for letting the city borrow an additional $137 million in state-backed debt so it can pay its bills until the end of the year, the agreement would put the city’s finances in the hands of a nine-member financial advisory board.

The board, which would be appointed jointly by the governor, mayor and city council, would pick a new chief operating officer and chief financial officer who would run the city’s day-to-day finances. The panel would have sweeping powers to sell assets, outsource city services, and rewrite or void union contracts to put the city’s long-term fiscal health on a sound footing.

A consent agreement is actually the least intrusive deal on the table because it entails less loss of control for Mayor Bing and the city council, who would be responsible for executing the agreement, something that would leave them at least nomially in charge. But an emergency manager would make the governor solely responsible for Detroit's fiscal destiny, something that is politically risky.

But Bing and others reckon that they can play hard ball with Snyder on the consent agreement and get more out of him for even less loss of control.

That’s because the bankruptcy of Michigan’s largest and most visible city would be damaging for the whole state. Coming at the heels of the federal bailout of General Motors and Chrysler, it would cement Michigan’s reputation as an economic basket case, potentially raising statewide borrowing costs while making it harder to attract businesses.

Bing is leveraging this fear to demand that the state hand over $220 million in cash—not debt, mind you—that Detroit is allegedly owed as part of a previous revenue-sharing formula. And he wants more control over the city’s finances.

There is certainly some room to negotiate on the second count given that, as the consent agreement currently stands, the advisory board would remain in charge of Detroit’s budget until the city posts three consecutive years of financial solvency and transforms its junk-bond credit rating to AA. But it might take Detroit 20 years to improve its rating that much, if it ever can, effectively giving the board control into perpetuity.

It would be foolish of Snyder to run Detroit for that long, so he should back down on that provision. But it is hard to see how he can let Bing retain any control over the collective-bargaining aspects of the agreement, especially given Bing’s track record of timidity with public unions.

Detroit’s accumulated debt stands at more than $10 billion, something that puts its debt-to-asset ratio at 33-to-1. By contrast, GM’s debt-to-equity ratio when it went into bankruptcy was 22-to-1. Detroit’s annual debt payments—$600 million a year—exceed its primary tax revenue by $60 million.

This, despite the fact that Detroit has the highest income tax rates for residents (2.5 percent) and nonresidents (1.25 percent) in Michigan and its corporate tax rate is 1 percent. In other words, Detroit has maxed out its credit cards and is taxing its residents to the hilt, and it will still run out of money to pay its employees and creditors by the end of this year. Some vendors have been complaining that they have not been paid for months.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • Auric Demonocles||

    I'm visiting for a week long business trip in May. At least a cute girl from undergrad lives in Ann Arbor.

  • Appalachian Australian||

    Pretty much every productive part of Detroit's economy moved to Ann Arbor about a decade ago.

  • ||

    Don't forget Grand Rapids who's still alive. Anyone who remember their libdub they did last year?
    http://www.youtube.com/watch?v=ZPjjZCO67WI

  • ||

    Detroit makes Cleveland look like Gary!

  • Mike M.||

    Contrast this tale of woe to the story of courageous Rhode Island treasurer Gina Raimondo: the democrat who took on the unions.

  • Tonio||

    But Shikha, the mayor and councilcritters aren't drowning. Obviously, they're still getting paid; unlike the vendors to whom the city owes money. It will only become a crisis for them on the first payday where there isn't enough money to make payroll.

  • ||

    It will only become a crisis for them on the first payday where there isn't enough money to make payroll.

    *Imagines a beautiful spring Friday morning in Detroit when the union members check their bank accounts and find their pay didn't get deposited.*

    *smiles*

  • Janeane Garofalo||

    Criticizing Detroit is racist, straight up.

  • ||

    I'm not a racist and I don't h....well, I'm not a racist anyway.

  • WTF||

    ^the fuck?

  • Mary Stack||

    I'm very angry at Sloopy right now so I'm acting out!

  • Paul||

    Mary Stack is back? We've missed you!

  • ||

    Racist shmacist

    Fuck Detroit,

    let it cease to exit

  • ||

    Same thing for LA, Chicago, NYC, Miami, San Fran, San Diego, Newark, etc., etc.

  • Janeane Garofalo||

    And that's the way I like it...straight up my ass!

  • Slim||

    "Detroiters, reeling from their demands, have rushed to the exit doors"

    The productive people in Detroit left to escape diversity, not the unions.

  • Old Mexican||

    Re: Slim,

    The productive people in Detroit left to escape diversity, not the unions.


    Diversity of what?

  • ||

    In Detroit, you have your choice of unions to join in the remaining closed shop businesses.

  • ||

    Yes, but what Slim means is that the people left to escape the negroes.

    Which is probably true. And the number that left probably includes plenty of the "diversity".

    Many blacks, particularly older ones, are just as upset by "fleetfooted youth" as the writer of the newsletters was. Particularly since they are the most frequent victims of that kind of crime.

  • ||

    I think Slim is trying to say they left because of the black-majority city council and series of black mayors and their policies which were perceived as being anti-white.

  • ||

    Makes perfect sense too - I've noticed the same thing in Atlanta, NYC, Los Angeles, and other cities with a large minority population. So that has to be it. Couldn't possibly be the deplorable public finances and crushing taxes. It's white flight because racist whitey won't live in the same city with none of them negroes.

  • ||

    If you look at any failing city you will find that a democrat liberal is and has been running them for several years. Liberals are the right arm of unions and unions are "KILLING" this country.

    Until blacks wake up and realize that liberals and people like Jackson and Sharpton are NOT their friends these cities will continue to collapse.

  • ||

    The productive people in Detroit left to escape the Third World.

  • Paul||

    The productive people in Detroit left to escape diversity, not the unions.

    So if people left to escape diversity, did Detroit end up less diverse? So then those people could move back... or would that make it more diverse?

    This identity politics thing is always so confrusing.

  • Old Mexican||

    Coming at the heels of the federal bailout of General Motors and Chrysler, it would cement Michigan’s reputation as an economic basket case, potentially raising statewide borrowing costs while making it harder to attract businesses.


    But.... Jeff Daniels said that Michigan was the best place to invenst - he said it, it must be so!

  • Appalachian Australian||

    Indiana or Ohio blow Detroit out of the water, Indiana moreso now that it decided to be an RTW state.

  • rectal||

    I'LL MAKE SOCIETY PAY FOR MY DADDY ISSUES IF IT'S THE LAST THING I DO!

  • ||

    He looked a lot like Che Guevara,
    drove a diesel van
    Kept his gun in quiet seclusion,
    such a humble man
    The only survivor of the National People's Gang
    Panic in Detroit, I asked for an autograph
    He wanted to stay home, I wish someone would phone

    Panic in Detroit

    He laughed at accidental sirens that broke the evening
    gloom
    The police had warned of repercussions

    (cont'd)

  • ||

    (cont'd)

    They followed none too soon
    A trickle of strangers were all that were left alive
    Panic in Detroit, I asked for an autograph
    He wanted to stay home, I wish someone would phone

    Panic in Detroit

    Putting on some clothes I made my way to school
    And I found my teacher
    crouching in his overalls

    I screamed and ran to smash my favorite slot machine
    And jumped the silent cars that slept at traffic lights

    Having scored a trillion dollars,
    made a run back home

    Found him slumped across the table.
    A gun and me alone
    I ran to the window. Looked for a plane or two
    Panic in Detroit.
    He'd left me an autograph
    "Let me collect dust."
    I wish someone would phone

    Panic in Detroit

  • Appalachian Australian||

    Has anyone considered adding an upvote/downvote feature, or e-mail verification, to the reasonable add-on for Chrome?

    At the least, the current "checks for WI" needs to be broadened to "check for rather or rather's 5,000 alternate personalities".

  • Rectal Stack||

    I HAS BEEN FOUND OUT SO I'LL FLAIL AROUND IN RAGE UNTIL I DECIDE ON ANOTHER SITE TO TROLL. IF LEWROCKWELL.COM ONLY HAD COMMENTS!

  • Old Mexican||

    Detroit’s accumulated debt stands at more than $10 billion, something that puts its debt-to-asset ratio at 33-to-1.


    What assets? Governments don't create wealth. Those "assets" are not the government's. The debt is entirely on the populance's shoulders, which is why the populance is revolting by leaving.

  • ||

    That would be around $300mm in assets. I guess those could be "hard" assets - real estate, equipment, could be a hospital, etc.

  • ||

    Not sure what their public works structure is like, but the assets may include snow removal equipment, road building/repair equipment, their real estate holdings (although I suspect they have them valued at book rather than real value.

  • Ronnie Schreiber||

    What assets?
    The Detroit Institute of Arts' collection is worth more than a billion dollars. The city owns the DIA. The Detroit Historical Museum collection includes about 6 dozen very rare and historically significant cars, many of which would sell for more than a million dollars. The city owns the Historical Museum and its collections.

    Details here:
    http://www.carsindepth.com/?p=7825

    The city also owns the Detroit Water System, which gets many millions in revenue from water sold to suburbs.

  • Chronic Handwasher||

    Sounds like the Greek crisis.

    http://www.youtube.com/watch?v.....ature=plcp

  • Old Mexican||

    I would actually be worse than the Greek crisis, because the Greek government could at least leave the EU and default through inflation (what some call with a sick sense of humor "money printing.") Michigan cannot do that - the US fought a fraticidal war to "settle" that issue, remember?

  • Cytotoxic||

    Greece would still be bankrupt but with inflation. They aren't Iceland. And Michigan can leave because they aren't forming a slave state...well aside from their politics...

  • Abe Lincoln||

    I was willing to help them pass protections for the institute of slavery into the Constitution, but neocons from the Claremont Institution time traveled back to tell me it doesn't fit into the narrative.

  • ||

    Claremont Institution

    Institute

  • Brian||

    Clearly, Detroit's problem is that they can't control their own currency. The best approach, clearly, is for the fed to come in and bail everyone out. Otherwise, we might find ourselves in a situation that looks like massive reform.

  • Brian||

    Clearly, I need to clearly work the word "clearly" more clearly into my everyday conversation, clearly.

  • Chronic Handwasher||

    Yes, I'm familiar with the differences. I was just looking for an excuse to post that video.

  • ||

    Let Detroit go under in a spectacular default / bankruptcy. Hopefully the court will dismiss their union contracts and pension plans along with half the city employees during the proceedings.

    It will be a teachable moment for everyone.

  • The Left||

    It would be a teachable moment if only we could be taught.

  • Fluffy||

    It's much more likely that Obama would corrupt the bankruptcy process again to favor the unions over bondholders and vendors.

    And when the muni market collapsed the day after they did that, he'd go on TV and rant about "evil speculators".

  • ||

    Holders of Detroit bonds obviously have much to learn also.

  • ||

    I think Fluffy's got it. The corruptocrats in Detroit figure they'll get a better deal if Obama wins re-election than they will from the state, so they're holding out for that.

  • ||

    Oh, there will probably be some proposal to bail out the cities - call it the "City Rescue of America Plan" - to pour billions in so that the party can go on.

    The trick, of course, will be getting it through the House.

    Unless Obama simply directs the Fed to buy the cities' bonds.

  • steam||

    I see, and like, what you did there.

  • Realist||

    You can't fix stupid.

  • Radioactive||

    but you can certainly shot the stupid fuckers in the knee cap or the back of their obviously thick skulls...to great effect no doubt

  • Paul||

    It will be a teachable moment for everyone

    Shyeah. Get out your wallet, because it'll go Federal. You seem to forget there's a fucking bailout happy President who's totally charles-in-charge of anything with a Union label on it.

  • ||

    Maybe Helicopter Ben will rescue them.

  • Paul Krugman||

    I LIEK HELICOPERS.

  • Realist||

    How could Detroit help itself, it's full of loser scum?

  • ||

    Let us acknowledge the right for all workers to collective bargaining with the limitation that it is a right, but should not be a condition of employment. The UAW got sweetheart deals, and management looking the other way when workers got less and less productive. Result? Check out the nearest lot for Hondas, Nissans and Toyotas. The public sector is much the same in that the negotiators across the table from the unions are as corrupt and spineless as those of the Big Three who gave away the store to the UAW. Let us require public sector contracts be put to the vote of the taxpayers, just as the UAW contracts and member behavior were put to the vote of the car buyer. Unions' and management’s last best offers go on the ballot for a binding vote. If the politicians representing us have made too generous an offer to the unions, we need only look down the ballot to throw them out.

  • ||

    The best course of action, of course, is to institute 50 State Reserve Boards (modeled after the Federal Reserve Board, as it has done such an exemplary job). This way, each state could print as much of its state currency as necessary to pay for "necessary" (i.e., everything they already got) state functions. The market for state currency trading (modeled on ForEx) would allow the State Reserve Board to print state dollars, cause inflation, and retire debts. Nobody in the state would realize they are working harder for less. Exchange rates would adjust....

    Now, if your scratching your head wondering why people would work in a state with a depreciating currency and declining standard of living - as well as the fact that such a system is designed by the same smart guys who caused the current problems....well, that's why your not a politician.

  • ^||

    +1000

  • Paul Krugman||

    The only mistake Detroit can make is not printing enough money.

  • Paul||

    Detroit Mayor Dave Bing, a former guard for the Pistons and a businessman who can barely raise his voice to a whisper when dealing with the city’s public unions, has found his inner lion against the Republican governor’s plan.

    Wasn't there an episode of the wire that ran this exact same storyline?

  • ||

    Every shitty Democrat city has the same storyline with the state capital. "Please bail us out, we can't stop wasting money. The suburbs owe us for some reason."

  • Incredulous||

    I live in Ann Arbor.

    Outside of Detroit, Michigan is very much alive and well - despite the union mafia's political influence. Unionized industries (namely the auto sector) are in decline and other sectors are filling the void.

    There's no perfect outcome for Detroit. There should be NO BAILOUT for Detroit. That would be the worst possible outcome. It would be theft from other citizens and would just keep a bloated corpse on life support.

    Let Detroit fail. Bankruptcy would allow a wholesale cleanup of the toxic waste dump and Detroit might actually become a healthy city again.

  • Auric Demonocles||

    Any good brewpubs that I should check out in the Ann Arbor or Novi areas?

  • Bingo||

    Ashley's in Ann Arbor is awesome. It's not a brewpub but it has a shitload of beers from all over the world and great atmosphere.

  • EDG reppin' LBC||

    Dear God, Auric be careful during your journey to that state up North.

    Fuck Michigan.

  • ||

    There is a statewide effort to convince Snyder to do... nothing. Every year Detroit loses more population and hence has less clout in the state legislature. One more census should put West Michigan more dominate and Grand Rapids as the largest Michigan city and the consrvative Dutchmen will set the tone for the state. The private sector union influence will be gone and we can work on pulling the teeth of the public sector unions which will allow for reductions in the state's huge welfare programs and state income tax rates.

    Give it 25 more yeaars and the state may well be cleansed of the liberal devastation wrought on it.

  • ||

    Thanks for the infos Harvard. :-)

    A bit off-topic, I spotted this article from the following blog who mentionned can Latinos save Detroit?
    http://beinglatino.wordpress.c.....e-detroit/

    I couldn't resist to think if Coleman A. Young might spin in his grave? ;-)

  • ||

    Cities grow by annexing territory that is generally not already part of another city. Can the process work in reverse? As Detroit loses the ability to provide all of the services to the entire land area under its jurisdiction, why not have the state remove those areas from Detroit's official jurisdiction and then allow the functioning suburban cities to annex them so that these areas may become productive again? Sort of like a company going bankrupt and other companies buying up the poorly used assets and putting them to better use.

  • H man||

    Yes but in a company the poorly used assets don't get a vote. I'm not sure if I would want to annex the voters of Detroit.

  • ||

    What voters? I thought I heard a while back that Detroit had one of the highest abandoned house rates in the nation and did have the lowest average home price at somewhere around $10k per house.

    The parts being revoked by the state would be near the edges of the city so that the neighboring "functional" city could then petition to annex these areas.

  • ||

    That reminds me of a thread posted on April 2011 then I read on City-Data forums about the Grosse Pointe area annexing a part of Detroit close to them.
    http://www.city-data.com/forum.....troit.html

  • ||

    [so that the neighboring "functional" city could then petition to annex these areas.]

    Yeah, I can see Dearborn slobbering over the possible anexation of west Detroit.

  • ||

    The process is called "detatchment" and is usually petitioned by the citizenry to return the geographic parcel to the township. I assume the township MUST accept the parcle but couldn't be required to provide services such as water/sewer unless they were provided to other residents of the township.

  • Arthur J. Rodriguez||

    My tourist slogan for Detroit.

    Detroit. America's Haiti.

  • Red Rocks Rockin||

    Maybe they can name the No-Man's Land between the suburbs and inner Detroit the "Coleman Young Wildlife Preserve" and actually get federal funding.

  • AlgerHiss||

    Bing is no different than that punk/thug Coleman Young.

    Only a moron would go anywhere near that Hell-hole.

    How's that People Mover doin'? Tell us again it's cost-per-passenger-mile?

  • shrike||

    A.B.U.

  • ||

    I have to agree. Anything But Unions!

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online

  • Video Game Nation: How gaming is making America freer – and more fun.
  • Matt Welch: How the left turned against free speech.
  • Nothing Left to Cut? Congress can’t live within their means.
  • And much more.

SUBSCRIBE

advertisement