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How close is Detroit to having an emergency manager?

How close is Detroit to having an emergency manager?

DETROIT -- Michigan Gov. Rick Snyder says Detroit is running out of time. This week, he urged the city's elected leaders to come together and sign a consent agreement.

Such an accord would give them the ability to slash the budget, eliminate thousands of workers and whole departments, and impose tough new contracts on municipal unions.

"I want to see people working together in a positive way," said the governor, whose favorite phrase is "relentless positive action."

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In case anyone missed the point, he added: "I don't want [Detroit] to end up with an emergency manager." It was clear, however, that he believes this is precisely what will happen otherwise.

But Mayor Dave Bing rejected that, saying outside intervention isn't needed. "The mayor has outlined a plan … and that process needs an opportunity to succeed," Mr. Bing's spokesman said.

So what's the truth?

Joe Harris, the emergency manager in Benton Harbor, Mich., ought to have a good grasp of Detroit's situation. A longtime certified public accountant in private practice, Mr. Harris, a natty man who favors bow ties, served as Detroit's auditor general for 10 years, until 2005.

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He returned to public service as Detroit's chief financial officer for the nine months in 2008-09 during which Ken Cockrel served as interim mayor. Given where the city now stands, does Mr. Harris see any way Detroit can stave off an emergency manager?

"Frankly, no," he said last weekend. After quick further thought, he added: "Actually, there is a way, and that's for the mayor and council and unions to get together and make some Draconian cuts to labor contracts." Even that alone won't get the city through, he noted.

"The mayor needs to understand that he cannot maintain the same public safety force," Mr. Harris said.

So far, Mayor Bing has rejected council's proposal to lay off 500 uniformed firefighters and police officers, saying he doesn't want to put the public at risk. Mr. Harris understands that, but thinks there's no choice.

He thinks it's the politicians who put the city at risk. And not just the current crop, by any means.

"You have to start with a plan" to fix the city's long-term problems, he said. "Of the last four mayors, not one has presented a visible plan," he added.

When Mr. Bing ran for mayor, he said he would appoint a team of experts to analyze the city's problems and straighten out its finances. But those he appointed lacked knowledge.

"I am sure they were all good people who were respected in their fields," Mr. Harris said, "but they didn't know anything."

And despite Mayor Bing's background in business, Mr. Harris said: "He didn't know anything either. His next plan was to sit down with his department heads and put their heads together to solve the problems."

But those folks had no experience outside the closed and irrational world of Detroit government.

"Actually, I predicted there would have been an emergency financial manager before this," Mr. Harris said. "They lasted a lot longer than I predicted, "but not for the right reason.

The city borrowed another quarter-billion dollars, he notes. Instead of spending that money on reforms, it continued the same bad spending habits as before.

When even a layman looks at the city finances in detail, it is hard not to be shocked. Most media attention has focused on the city's current budget deficit, which is more than $200 million and growing by $400,000 a day.

But the real problem is decades of bad behavior. According to a report from the nonprofit, nonpartisan Citizens' Research Council, Detroit irresponsibly issued "pension obligation certificates" during Kwame Kilpatrick's time as mayor to make sure pension systems would stay fully funded.

That added $1.5 billion in principal debt, on which Detroit needs to make a $191.8 million payment every year.

Additionally, the report said, Detroit has at least $5 billion in other "unfunded accrued liabilities for other post-employment benefits."

That situation seems likely to get worse, Mr. Harris noted: "More people are still retiring than dying."

Nor does the bleeding stop there. The city owes billions more in other funds.

Property tax collections have plummeted with housing values. The city estimates that half of all residents fail to pay municipal income taxes, but Detroit lacks the employees to go after them.

The city could run out of cash in April.

Despite speculation to that effect, bankruptcy isn't an option, Mr. Harris said. Current law says only an emergency manager can propose that -- and the governor has the power to reject the recommendation.

So even if Detroit were to adopt "best practices" from now on, how can a largely impoverished city of 700,000 people hope to pay off all the long-term obligations that previous generations accrued?

"The tragedy is that they've maxed out their credit," Mr. Harris said, adding that "this is a great time to borrow money" because interest rates are so low.

Mr. Harris held out one glimmer of hope: If the city adopts a regime of rigorous fiscal austerity and commits itself to behaving responsibly, it might reassure credit markets about Detroit.

"Then maybe, maybe the city could borrow some of it, and repackage their debt" into something manageable, Mr. Harris said.

But what does he think the odds are of that? Or the odds of Detroit somehow avoiding an emergency manager?

He paused for a long moment, before he turned back to work on the latest round of cuts in Benton Harbor.

He said: "Just say I wouldn't bet the ranch on it."

Jack Lessenberry, a member of the journalism faculty at Wayne State University in Detroit and The Blade's ombudsman, writes on issues and people in Michigan.

Contact him at: omblade@aol.com

First Published December 9, 2011, 5:00 a.m.

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