Gov. Rick Snyder declares a financial emergency during a broadcast in Detroit, Friday, March 1.
Michigan governor Rick Snyder’s announcement Friday was a long time in coming: at the recommendation of a state financial review board that had been looking into the city’s finances since December, Snyder officially announced at a televised forum in Detroit that the city was officially in a state of financial emergency. He called the declaration “a sad day, that I wish would never have happened in this history of this city, but also a day of optimism and promise.” As soon as next week, the governor is expected to name an emergency financial manager for the city, who will assume broad administrative powers in a bid to save the city from total fiscal collapse.
But while the declaration didn’t surprise anyone who’d been paying attention to the Motor City’s misfortunes, it underscored how dire things had become over the course of Detroit’s decades-long decline — and left residents and officials divided over what should happen next.
Nobody questions how bad things have become. Basic city services — garbage removal, public transportation, streetlight repairs, emergency response — are slow or in some neighborhoods nonexistent. According to a December statement of the city’s finances, Detroit was running a $326 million cumulative deficit at the end of the 2012 fiscal year — a 40% increase over the $196.6 million deficit it had at the end of fiscal 2011.
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The financial review board, led by State Treasurer Andy Dillon, found last month that the city’s long-term liabilities exceeded $14 billion, with no plan in place to reduce the total. Thanks to a bureaucratic structure that severely hinders the changes that need to be made in order to fix the city’s finances and properly restore municipal services, a timely restructuring would”extremely difficult” the board said — and recommended the governor appoint an emergency manager to resolve the issues.
An emergency manager, who would report directly to the governor’s office, would have across-the-board authority to make drastic cuts in spending and renegotiate city contracts; he or she would also take up many of the controls normally entrusted to the mayor and city council. City officials can decide whether or not to keep the emergency manager in place after 18 months, but many — particularly Mayor Dave Bing and members of the City Council — oppose the move, saying it undermines the city’s democratically elected leadership.
“It is fundamentally against the rights of every American citizen,” said Rev. Wendell Anthony, president of the Detroit Branch of the NAACP and an influential community activist. “America was not founded on a dictatorship or an emergency manager. It was founded on the principal of the right of people to exercise their choice and vote for their own elected representative. Here that seems to have been swept away on the basis of an economic situation.”
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If an emergency manager is appointed, Detroit will become the largest city in the country to be placed under such controls. But it’s far from the first: several other Michigan municipalities, including Benton Harbor, Ecorse, Flint, Allen Park and Pontiac, have done so in recent years. The results so far have been mixed. Pontiac, a city of some 60,000 people about 30 minutes north of Detroit, had its first emergency manager appointed in 2009 and has seen two more since them. Massive cuts have been made to its budget and many services have been outsourced or privatized. The police department, for example, was dissolved in 2011, saving the city $2 million; law enforcement was reassigned to the county sheriff’s office. However, about $6 million more needs to be cut from the city’s budget, the Oakland Press reported.
Sherry Gay-Dagnogo, a Detroit public school educator who is running for State Representative, is one of those who are skeptical of what an emergency manager could do for Detroit, based on her experience with them in the city’s school system over the past two years. “It’s been a continuous uphill battle for governance structure that has done nothing to decrease the deficits, but increased it under [former public schools emergency manager] Robert Bobb and [current manager] Roy Roberts. It’s done very little to improve academic achievement,” she says. “It’s served as a tool to dismantle this district and to bring in the privatization of public education.”
Asks Gay-Dagnogo, “What tool will this magical emergency manager have to decrease the deficit and to help citizens gain better service?”
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It’s a good question. Indeed, some say that rather than rather than granting unprecedented executive powers to an outside authority, Detroit might be better served by entering Chapter 9 bankruptcy precisely because the city would not fall under state control. Stockton and San Bernardino, Calif., each with less than half of Detroit’s population, are the largest U.S. cities to file for bankruptcy to date. Vallejo, Calif., entered bankruptcy in 2008 and emerged from it in 2012. However, according to Michigan state law, bankruptcy can only be declared as a last resort — after a city has already been put under the control of an emergency financial manager.
Bankruptcy is also mostly used to help a city recover its balance sheets — not fix the underlying problems that a city like Detroit faces. And for Snyder, the cause of all the trouble boils down to one factor: population. “The underlying reason in my view as to how we got in this situation is the dramatic loss of population in Detroit since 1950,” the governor said in his announcement last week. The city, once the booming capital of postwar automobile production, was home to 1.8 million people as of the 1950 census. Today, that number is down to 713,000. A quarter of a million people have fled just in the past decade, leaving a massive hole in the city’s tax base. Meanwhile, Detroit is saddled with a city government and a bureaucracy designed to service a metropolis twice its current size. “Government hasn’t adjusted accordingly,” Snyder said.
Sandy Baruah, CEO of the 3,000-member Detroit Regional Chamber of Commerce, believes that Snyder is taking the steps that would finally bring Detroit some long-awaited solvency and that citizens have waited too long for it. “We need to address our challenges in rapid succession,” he said.”The savings that the City Council and the Mayor have been able to create have essentially been one-time savings, not long term structural reform.”
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Despite images of neighborhoods filled with abandoned homes and high crime areas prevalent in the media, areas in Detroit like Midtown, Downtown and the Riverfront are experiencing something of a resurgence. Home prices in Metro Detroit increased 14% last year — albeit up from some of the lowest in the nation. Baruah believes the emergency manager — who he says needs to be someone with corporate restructuring experience and who understands municipal finance — would be in the best position to make significant changes to the city’s financial infrastructure. “The path Detroit is on is positive from the business perspective. Businesses are investing, people are moving in,” says Baruah. “The last hurdle to economic growth is government stability and the government budget challenges.”
The mayor and City Council have until March 11 to appeal the decision, at which point a hearing will be held to present alternatives to the assignment of an emergency manger, which Snyder has the option of using as well, if he is convinced otherwise. But it may not make a difference: Snyder, who has said he has a person in mind for the position, is expexted to stay on course. “There’s been good things done by the mayor and city council over the last few months…but they haven’t been enough to solve the problem,” Snyder said Friday at Wayne State University. Critics, however, say that an agreement between the city and the state intended to make many of the cuts and savings needed to bring Detroit back to solvency is legally binding, and that Michigan actually owes Detroit $220 million in revenue sharing funds that can be used to shore up the city’s finances enough to obviate the need for an emergency manager. Community activists and elected officials, including City Councilwoman JoAnn Watson, have discussed suing the state.
Bing for his part, has issues of his own to deal with, including deciding whether or not he will run for another term this fall. “The Governor has made his decision, and it was his decision alone to make. While I respect it, I have said all along that I do not favor an Emergency Manager for the City of Detroit. I will look at the impact of the Governor’s decision as well as other options, to determine my next course of action,” said the mayor in a statement.