February 26, 2024

Economix Blog: Making the Case for Detroit’s Future

It’s far too early to say Detroit is on the way back; its property values are still falling and its debt is still rated as speculative. But as he approaches the midpoint of a four-year term, Mayor Dave Bing is pointing to signs that the city’s breathtaking decline may have bottomed out.

Mayor Dave Bing earlier this year.Paul Sancya/Associated PressMayor Dave Bing earlier this year.

A few big companies, like Blue Cross Blue Shield of Michigan, General Motors and Quicken Loans, have agreed to move several thousand employees downtown, and more are expected to follow. Whole Foods and two new supermarket chains are setting up shop, so the new workers can get food nearby. There is not enough housing for them yet in Detroit’s ravaged inner neighborhoods, but building-permit issuing is up.

City income-tax revenue also appears to be creeping up this year, after several years of decline. And while property tax revenue is still sinking, along with property values, the decline has slowed, according to data released by Mayor Bing on Thursday.

He was in New York City to address the Municipal Analysts Group of New York, an organization whose members assess the likelihood that states and local governments can pay their debts. The mayor attracted a capacity crowd because Detroit’s problems are extreme, and previous administrations had a history of delaying and withholding data that analysts required, prompting them to downgrade its credit.

Currently, Detroit is the only major American city whose credit is below investment grade. It also has several derivatives contracts that call for it to make cash payments to counterparties if its rating falls further. The payments would range into the hundreds of millions of dollars and Detroit does not have that much available cash.

Mr. Bing said he had not come to New York to push for a higher credit rating. And if he wanted to dazzle the analysts with lists of achievements, he did not show it.

For seemingly every silver lining he cited, he could also name a cloud. Crime statistics had fallen under his administration — all except for homicide, which rose this year. Labor talks have started this month, with the prospect of savings — but there are 48 unions to deal with. There are those thousands of new workers for downtown Detroit, but the challenge of housing them.

“We don’t want to fool ourselves into thinking we have crossed any threshold,” Mayor Bing said. Detroit’s problems are so large that it will take longer than four years to fix them, he said, adding, “People are asking me already, are you going to run again? And I want to make clear, right here, yes, I am.”

Mr. Bing, a former basketball star with the Detroit Pistons who later built an auto-parts manufacturing business, became mayor by winning a special election in May 2009, to complete the term of the previous mayor, Kwame M. Kilpatrick. Mr. Kilpatrick was forced to leave office during a scandal over his romantic relationship with his chief of staff, pleaded guilty to obstruction of justice and served four months in the Wayne County jail.

“I inherited a $330 million accumulated deficit,” Mr. Bing told the analysts. “Needless to say, we were bankrupt.”

Residents disheartened by Mr. Kilpatrick’s failings seemed to see Mr. Bing as an outsider who might bring change, and re-elected him in a regular election that November.

Not long after he began a full term, data from the Census Bureau showed the city was living through a collapse of historic proportions: It had lost 25 percent of its population over the previous decade, more than any other American city above 100,000 people, aside from New Orleans, which lost 29 percent after Hurricane Katrina in 2005.

Those who left were generally those with the means to move, the mayor said. Those who remained were generally the poorest, and the least able to pay all the bills left over from better times.

Detroit's pension costs are expected to rise sharply in the 2011 fiscal year.Source: Mayor Dave Bing, Presentation to Municipal Analysts Group of New YorkDetroit’s pension costs are expected to rise sharply in the 2011 fiscal year.

The biggest bill is for the retirement benefits Detroit promised city workers back when the bargaining successes of the United Auto Workers set the scale for other local workers. Those promises must be kept, but the tax base that was supposed to support them has been decimated. The city work force is shrinking too. Currently, for every dollar Detroit spends on its payroll, it spends an additional $1.08 on pensions and health care, Mr. Bing said.

Mr. Bing said he thought public employees’ unions might be willing to make concessions because they saw the U.A.W. do so during the recent federally-led reorganizations in Chapter 11 of General Motors and Chrysler.

Michigan does not generally permit its cities to file for bankruptcy under Chapter 9. But it does allow for the appointment of an emergency financial manager, whose powers to renegotiate labor contracts were expanded this year.

“I don’t want an emergency financial manager to be called in,” Mr. Bing said. “However, it is an option.”

Article source: http://feeds.nytimes.com/click.phdo?i=0756b369b4d237564a1c8910f05177fa

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