Detroit’s dance on a fiscal cliff

City of Detroit

images-4With the outcome of the presidential beauty contest out of the way, and with Michigan voters’ repeal of the emergency manager law, Detroit must now get serious about preventing the city, teetering on a fiscal cliff, from tipping into the bankruptcy abyss. More and more, though, that seems the most viable option.

I suspect that the City Council, and perhaps Mayor Dave Bing, engaged in foot dragging in the hope that rejection of Proposal 1would give the city a reprieve from having to implement draconian reforms to bring runaway expenditures in line with dwindling revenues.

Reversal of the measure will surely generate a series of lawsuits from city employee unions challenging the wage and health care concessions that were imposed, and later put on hold pending the outcome of the vote.

The courts will probably decide whether defeat of Public Act 4 means the state automatically reverts to its predecessor, the weaker Public Act 72, which critics contend is no longer in play.

Although Moody’s Investor Service has called the defeat of the act a “credit negative” the council and the mayor no longer have a sense of urgency to comply with the 25 initiatives under the consent agreement, aka Financial Stability Agreement, signed under pressure from the state. Noncompliance doesn’t come with penalties outside of Gov. Rick Snyder opting to withhold revenue payments for the city’s bond indebtedness – or sending the city into bankruptcy.

It’s unclear whether the governor is willing to pull those triggers. But he risks other cash-strapped cities rising up in defiance if Detroit is let off the hook.

Far more important to Detroit’s growth is the general condition of the national economy, which is dangling on its own fiscal cliff.  Bing – and some members of the council – has suggested they want urban problems to be the focus of national politics in 2013. The prevailing attitude is to “hope” that the feds will “bail us out” of our mounting debt and spending binge. However, any aid pumped into Detroit will be artificial and irrelevant. Experience shows that government largesse only lock cities into more depressed conditions. When government handouts are converted into a substitute for their own operating budgets, the result is often a short-term boondoggle.

The real instruments of growth– nationally and locally — are through job providers — small companies that benefit most from government getting out of the way. Deals between federal, state  and local politicians will have little effect on whether these firms grow and prosper.

Unless the mayor and council get smart about conducting government’s business, and unless accompanied by major cuts and the transfer of expensive taxpayer-financed services like the health department, and eliminating or consolidating services the city can no longer afford to provide, Detroit will never arrest the longer-term fiscal slide that it faces. And Lansing may feel no obligation to help Detroit lift itself out of its fiscal morass. But city politicians have no history in effectively implementing lasting reforms.

The reason why city officials are reluctant to effectively transform government is political expediency. Next year is an election cycle in which many members of the council will be looking for a soft spot to land in a newly created council district – or running for mayor. Mounting a campaign against the governor’s “takeover” would be to their advantage. Such machinations, however, have significance beyond the city’s sputtering political machinery. It creates political instability, which explains why more and more grass roots Detroiters are angry and disheartened by shrinking city services and why job producers remain hesitant to reinvest heavily in the city’s recovery.

Time has run out for the Bing administration and the council to fix what’s wrong with Detroit left to their own devices. Elected officials in this city seem best equipped to be the caretakers of a dying city that perished from self-inflicted wounds.

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