Traverse City Record-Eagle

Archive: Thursday

February 28, 2013

Phil Power: Detroit can learn from GM

By Phil Power

Same song … second verse.

That’s my reaction to the news that the state team charged with reviewing Detroit’s financial condition has unanimously concluded that a financial emergency exists in the city.

To quote them exactly: “… a financial emergency exists because no satisfactory plan exists within the City of Detroit to resolve a severe financial problem.”

That’s putting it mildly. The city’s cash shortfall is likely to hit $100 million by June. The deficit accumulated since 2005 mounts up to nearly a billion dollars. Detroit’s unfunded long-term debt (mostly pension and other retirement benefits) is about $14 billion.

That comes to around $20,000 per city resident.

When General Motors went into bankruptcy in 2009, it had a staggering debt-to-asset ratio of 20 to 1. That meant for every dollar of assets GM had, the automaker owed $20 in debt.

Detroit’s debt-to-asset radio? It’s now 33 to 1.

Virtually everybody thinks the stage is now set for Gov. Snyder to appoint an emergency financial manager. He technically has as long as 30 days after the declaration of financial emergency to make up his mind, but as State Treasurer Andy Dillon noted, the city is bleeding cash and doesn’t have much time.

The situation looked much the same back on April 4, 2012, when the Detroit City Council voted 5-4 to adopt a consent decree with the state that provided Lansing with “the lightest possible touch” to get the city to sort out its financial problems.

The goal was to avoid a (then) dreaded emergency manager.

At that time, I wrote, “under the consent agreement as written, there is an awful lot of diffusion of power. … The long record of bad blood between Mayor Dave Bing and the City Council doesn’t encourage optimism that reaching agreement on anything will be easy.

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