Can Detroit be Saved?

Story first appeared in The New York Times.

DETROIT — Other cities and towns have teetered at the edge of financial disaster lately, but Detroit, the capital of America’s auto industry and once the nation’s fourth-largest city, has just become the most striking test case for a key question: Can a city that has fallen so far be saved?

A giant plot of land — 139 square miles — with only half the residents it once had, Detroit has watched in recent years as tax revenues have slipped too low to support its costs, its debts have swelled to a stunning $12 billion, and, this spring, its money nearly ran out. Now, after months of wrangling over how and when and whether the State of Michigan should intervene to stem the hemorrhaging finances, officials here said that a historic deal, approved Wednesday, granting the state oversight powers puts Detroit on a path to recovery at last.

The deal, which creates an advisory board to oversee financial decisions, spared the city from fates that many viewed as far worse: a complete takeover by a state-appointed manager, bankruptcy or default. But Detroit’s problems are far from over, and the new deal by no means assures success.

The financial woes of this city, now dependent on a tax base of just 713,000 residents (amounting to what is now only the 18th most populous city in the nation) are huge and fundamental — too sizable, some critics say, to be solved by monitors. Oversight agreements tried in other places have taken many years in some cases, and results have been mixed.

And, unlike full state takeovers that some cities have unhappily undergone, these sorts of deals require a high degree of political compromise and getting along, those who have worked on them elsewhere say. Detroit is still bitterly polarized over whether state involvement is needed at all.

Around Detroit, residents tell of a city where streetlights fail, buses run late and no one can be sure when the police will turn up. While some business owners and young entrepreneurs tell of a renaissance of private industry in the city, the poor level of municipal services has created a deep-down pessimism about the notion that things will change now.

States have long used a range of methods to step in when municipalities have fallen into trouble, and some have worked. In the 1970s, a financial control board helped pull New York City from the edge. But the powers — and results — of such boards and appointed receivers vary widely, and some experts expressed doubt that Michigan’s oversight of Detroit would go far enough.

Under a so-called consent agreement, approved reluctantly this week by divided Detroit leaders, a nine-member financial advisory board will be appointed to guide the city, which will be required to report any budget shortfalls swiftly and to hire a program management director to help oversee reforms. The agreement also will reopen union contract talks, and permit sharp cuts.  It also considers the possibility of privatizing some city services and consolidating departments — powers that union leaders, who had been negotiating separate concessions with city leaders in recent months, object to furiously. And the deal cleared the way for refinancing of debt to solve the city’s imminent cash crisis.

Though many residents objected to the agreement as a seizure of city control, the Governor could have chosen a more sweeping step under Michigan law and called for an emergency manager to take over many of the powers of the local officials, as well as the ability to throw out existing labor contracts. Detroit leaders loudly opposed that plan, as the Governor, who has been widely criticized over his use elsewhere in the state of the emergency manager law, which is now the target of a repeal effort.

The political pressure not to send in an emergency manager grew intense in months of debate here. Some saw the question through a prism of race, arguing that it would amount to a white takeover of the state’s largest city, where 82 percent of residents are black. Others called it a union-busting maneuver by Lansing, the Republican-held capital.

But the governor’s spokeswoman, said that the Governor had always preferred some alternative to a full takeover.

Yet some critics wondered whether the city might be too far gone for anything short of the powers of an emergency manager, whether an advisory board would be willing to go far enough to fundamentally change the city.

Those who have worked within such oversight arrangements in other states offer a mixed picture of how well they work, in part because much rests in the individual details of the troubled city’s supervision deal and how much (or little) power an oversight body is granted. John F. Street, the former mayor of Philadelphia, said an oversight board there that began in the 1990s mostly proved to be useful.

The  managing director of an independent advisory firm, Public Financial Management, who works on such arrangements in states like Pennsylvania, said that the boards were rarely instant fixes, and can take years for cities to emerge from. They also require a high level of collaboration and consensus-building, he said, under sometimes tense political conditions. In the case of Detroit, feelings seemed  to have reached a boil for some already — even before the new board has been named.

For more local and Michigan related news, visit the Michigan Business News blog.
For more national and worldwide business related news, visit the Peak News Room blog.