The emergency financial manager for Detroit has issued a report that says the city’s finances are in worse shape than nearly anyone suspected before Michigan Gov. Rick Snyder (R) appointed him to the job in March.
Snyder appointed corporate turnaround expert Kevyn Orr to be Detroit’s emergency financial manager. He is a lawyer in the Jones Day law firm in Washington, D.C. Among other assignments, he represented Detroit automaker Chrysler during the company’s bankruptcy and government rescue in 2009.
“No one should underestimate the severity of the financial crisis,” Orr said in a statement. “The path Detroit has followed for more than 40 years is unsustainable and only a complete restructuring of the city’s finances and operations will allow Detroit to regain its footing and return to a path of prosperity.”
As in many states and local governments, retirement costs have become a huge drain on finances. But the problems in Detroit are especially severe. Orr’s recently released report notes twice as many people are taking money out of the city’s pensions as there are paying in.
“The city’s operations have become dysfunctional and wasteful after years of budgetary restrictions, mismanagement, crippling operational practices and, in some cases, indifference or corruption,” he wrote. “Outdated policies, work practices, procedures and systems must be improved consistent with best practices of 21st-century government.”
After Snyder’s announcement that he had picked Orr to be Detroit’s emergency manager, civil rights leader Rev. Jesse Jackson and other civil rights and neighborhood activists called for mass protests and federal court action to block Orr from assuming the post.
“Chronic budget troubles have taken a significant toll on everyday life for citizens in the city. Detroiters deserve to feel safe when they walk down the street, to have their street lights on, to have the bus show up to take them to work,” Snyder said in his announcement that he would appoint an emergency manager. “Working together in partnership we can and will develop solutions to fix the city’s finances, stop the cycle of overspending and one-time fixes and collectively get Detroit on the path being a great city once again.”
‘Way to Work Together’
In a statement issued after the governor’s announcement, Mayor David Bing said, “There needs to be additional conversation with Lansing [the state capital] regarding their plan to move the City forward. We have always said that we need help from Lansing to implement our initiatives such as public safety, transportation, lighting and others. If, in fact, the appointment of an Emergency Financial Manager both stabilizes the City fiscally and supports our restructuring initiatives which improve the quality of life for our citizens, then I think there is a way for us to work together.”
In late February a six-member financial review team appointed by the governor unanimously concluded Detroit faces a severe financial emergency and has no plan to deal with it. The governor announced his determination to appoint an emergency financial manager for the city little more than one week later.
“Like Charlie Brown trying to kick that football, Gov. Snyder has gone the extra mile on multiple occassions to avoid having to appoint an emergency manager for Detroit, only to watch the dysfunctional City Council pull the ball away,” said Jack McHugh, senior legislative analyst for the Michigan-based Mackinac Center for Public Policy. “The only real alternative to an emergency manager for the city is federal bankruptcy court, which the governor really doesn’t want to see happen.”
Mayor Bing took issue with the financial review team’s conclusion the city has no plan in place to correct the city’s financial emergency.
“To the contrary, my administration has worked diligently to develop and implement a restructuring plan for the City of Detroit,” Bing said in a statement. “In fact, our plan was reviewed and accepted by all stakeholders, including the State and the Financial Advisory Board. We have the plan, but we face significant challenges executing it in a timely manner. We are hindered by several factors, including the City Charter, labor agreements, litigation, governmental structure, and a scarcity of financial and human resources.”
Damaged By Corruption
Detroit has been plagued by criminal violence and political corruption. The city is estimated to have long-term debt obligations of more than $14 billion as well as a short-term cashflow problem. The city has approximately 714,000 residents, less than half the number who lived there in the 1950s. Detroit’s population has dropped more than 25 percent since 2000.
During much of that decade the city government apparently was awash in political corruption. On March 11, former Detroit Mayor Kwame Kilpatrick and others, including Kilpatrick’s father Bernard Kilpatrick, were convicted on dozens of corruption charges. Guilty verdicts on 24 charges against the former mayor were handed down. They include racketeering, extortion, attempted extortion, bribery, mail fraud, wire fraud and filing false tax returns. Prosecutors said Kilpatrick during his tenure turned city government into a criminal enterprise and spent $840,000 more than he earned, much of it by diverting government grants and other taxpayer dollars to personal use.
Corruption allegations dogged Kilpatrick throughout his tenure as mayor, which lasted from 2002 to 2008, when he resigned after being convicted of perjury and obstruction of justice. He spent four months in jail and in 2010 was sentenced to 18 months to five years in prison for probation violations. The March guilty verdicts were to new charges.