Government by court order

City of Detroit

First, a ruling by Ingham County Circuit Judge William Collette barred the Detroit financial review team from signing a consent agreement.

Later, a ruling by the Michigan Court of Appeals allowed the deal to be negotiated as prescribed by a deadline under Public Act 4, the state’s emergency manager law. The court, however, maintained superintending control.

More than likely, this won’t be the last time the courts will be asked to delay or expedite a fix for Detroit’s fiscal crisis. But what’s wrong with Detroit will be solved by major surgery to services, not by court order.

Opponents of the EM law don’t care that Detroit is in a race against the budgetary clock. Even as the review team was poised to make a recommendation to Gov. Rick Snyder, petitions were being counted that conceivable would suspend Public Act 4 pending a statewide vote in November to reverse the legislation.

The Snyder administration has taken the position that suspension of the new law will revive the previous emergency financial manager law under which the city may have to function. But that action could may also trigger another legal challenge as opponents try to avert any form of receivership.

One thing for sure:  The status quo won’t prevail.

Mayor Dave Bing’s corrupted version of a consent decree put forth by the governor keeps Detroit on course for fiscal shock therapy. The mayor would have the state approve a multi-million dollar bailout package complete with authorizations for income and corporate tax increases and debt restructuring.

Detroit, though, is in no position to continue taxing everything in sight. And it makes no sense to heap more onerous taxes on a shrinking pool of low-income people or city businesses. That would only exacerbate Detroit’s significant population decline and drops in corporate, property and income tax revenue.

Nothing could have a worse impact on city’s economic growth or to the city’s real estate values, which have been in free fall for the past several decades as the city’s combined tax rate, rose to among the nation’s highest.

This fiscal jig is taking place even as Detroit is running out of time and easy choices. Moody’s Investors Service, for example, just issued two downgrades to the city’s general obligation limited and unlimited tax debt.

Fitch Ratings followed suit with downgrades to the city’s unlimited tax and pension obligations. The Fitch report said if an EM is appointed, Detroit may have to come up with an immediate pension payment equal to up to a third of its fiscal 2012 general fund budget. Detroit may not have enough future revenue coming in to repay its debts.

Reducing the budget obligations may be easier than improving the city’s operations. Detroit is plagued by a series of snafus and foul-ups beyond compare. Correcting management deficiencies will require the kind of radical surgery of which the Bing administration and City Council are unfamiliar.

Neither the mayor nor the council has shown much enthusiasm for seriously addressing fiscal discipline problems. And the council, which is supposed to provide fundamental oversight, has demonstrated all the wisdom of a potted plant in carrying out its fiduciary responsibilities.

The combination of managerial ineptness and the bond downgrades have essentially set the stage for a consent agreement or emergency manager. Both provide ample opportunity for legal action and court decisions that could lead to a protracted process to financial solvency.

We can only hope that the judiciary will show more constraint than activism before intruding into the executive domain, particularly if such action circumvents the authority of the governor. That would put Detroit more at risk of becoming a judicial enclave where policy is dictated and government controlled by court order.

In that case, a bankruptcy court will be what’s needed to force the city to deal realistically with its problems.

 

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