Kirk Lewis is warming to his mayor gig. In perhaps the most financially consequential week Detroit has seen in two generations, the guy playing stand-in for ailing Mayor Dave Bing says any “consent agreement” with the state to stabilize the city’s miserable finances needs to be accompanied by “cash.” Really?
Just asking, but where would that “cash” come from? There is no state-funded Troubled Asset Relief Program, the congressionally funded wad that President Barack Obama’s auto task force used to finance the lifelines and eventually bankruptcies of General Motors Corp. and Chrysler LLC. State revenue sharing for cities has been cut across the board. Republicans controlling the state House and Senate in Lansing aren’t rushing to cut checks. And just how would the governor of Michigan sell a bailout to taxpayers as a precondition of City Council and the mayor’s office agreeing to a financial workout that is far more inevitable and far less negotiable than city officials are willing to concede publicly? Answer: He wouldn’t.
Second question: Just what leverage do the mayor’s office and council possess that empowers them to dictate terms? A quick skim through the Detroit Financial Review Team’s final report offers plenty of evidence that this council and this mayor, not to mention their predecessors, have been driving the city off the proverbial cliff for years. Chronic budget deficits; unrealistic deficit elimination plans, when there were any at all; mounting debt, including debt issues (like the $137 million package approved Tuesday) to finance operations; plunging bond ratings; botched interest-rate swap transactions; deepening cash-flow crises; difficulty making scheduled pension payments; overly optimistic assessments of expected savings from “historic” union concessions; and on and on and on.
Third question: With a record like that, a record that has grown worse under Bing’s leadership, why should the governor have any confidence the same people who presided over the decline and lead the city through such financially fraught times? He shouldn’t. But the fact that he continues to placate Detroit sensitivities, including appropriating their preferred wording of “Financial Stability Agreement” lest they be seen conceding to the legally defined “Consent Agreement,” tells you everything about the (tiresome) power politics at play here.
Finally, what other options do council and the mayor’s office have? Chapter 9 bankruptcy would be expensive, unforgiving and protracted. City officials cannot unilaterally increase income and corporate tax rates; they can’t wish away pension obligations, bond payments or payroll schedules; they can’t demand — much as they might like to — that the federal government repeat its auto bailout for the city, a political prospect that has “no way” written all over it.
Lewis, acting as mayor while the real thing is recuperating in Henry Ford Hospital, said Tuesday that “you cannot do a turnaround without money.” He’s right, as anyone who understands bankruptcy (see GM and Chrysler) or out-of-court corporate turnarounds (see Ford Motor Co.) or municipal workouts over the years in major American cities. But whatever cash might flow Detroit’s way as part of a restructuring won’t be unconditional — can’t be unconditional — with the city’s track record … and because the cash would have to come from the Legislature. It’s that simple