Wednesday, March 21, 2012

Greetings From the Third World: Detroit

"Detroit Mayor David Bing is begging Gov. Rick Snyder for a bailout. He warns that the city won't be able to pay its bills come May without state aid. The Republican governor has agreed to throw a lifeline to the underwater city. Trouble is, there's no free cash attached.

On Tuesday the governor floated a "consent agreement" that would turn city operations over to a nine-member financial advisory board and give them the power to renegotiate and nullify collective bargaining agreements, which are the city's biggest cost drivers. Mr. Bing, however, blasted the proposal for forfeiting "the electoral rights of the citizens of Detroit guaranteed by the democratic process." He also claimed it "circumvents the role and power of the City Council as the legislative body, waives the ability of elected officials to contest any aspect of the agreement, and dismisses the unprecedented effort and concessions made by the City's labor unions to avoid an economic catastrophe."

Mr. Bing may want to reconsider his objections. Employee benefits now make up about half of the city's general funds. Health costs have soared by more than 60% since 2008, while the city's pension bill has quadrupled to $200 million. That also happens to be approximately the size of the city's budget deficit. The only way the city will ever get a handle on its budget is by nullifying and renegotiating its collective bargaining agreements.

To be sure, it would be much better for Mr. Bing and the city council to do the messy work than an unaccountable board of bureaucrats. But neither the mayor nor the city council want to break their promises to the unions. Instead, they're hoping that the state will provide the city with $100 million to $200 million to tide it over until the unions make some concessions and revenues rebound. The prospects for the former are dim since the city has lost 25% of its population in the last decade. Plus, its high crime rate and diminishing public services make it an unattractive place to live and do business. The prospects for the latter are even grayer since the unions have no incentive to come to the table unless politicians threaten them with a big stick like bankruptcy.

The governor wants to help Detroit avoid bankruptcy since a municipal default on the magnitude of Motown's would hurt Michigan's credit rating. Nonetheless, if city leaders are intent on spurning the governor's overtures, allowing Detroit to fail may be the only way to revive it." - Allysia Finley, The Wall Street Journal, Political Diary, 03/14/2012

1 comment:

  1. The one who puts the money into the jukebox gets to choose the song. Governor Snyder is correct.