Thursday, November 27, 2014

Detroit croons financial woes

7/22/2013

Municipalities — locally and across the country — are sweating the big and small expenses as they prepare budgets for the coming fiscal year. Besides revenue from various taxes, fees and other funding sources, budgets typically include operational expenses for the day-to-day expenses, including employee benefits, and a capital expense budget for such significant infrastructure expenses as streets, sidewalks, sewer treatment plants and water supply.

City managers, among many other duties, must be good fiscal managers who know how to prioritize spending and not overspend. Sadly, those aren’t things that occurred in Detroit. The city filed for bankruptcy last week based on $18.5 billion in outstanding debt. This is the largest-ever municipal filing of bankruptcy. While some believe the bankruptcy filing was a last resort, others are fighting it and say the move is unconstitutional.

Municipalities — locally and across the country — are sweating the big and small expenses as they prepare budgets for the coming fiscal year. Besides revenue from various taxes, fees and other funding sources, budgets typically include operational expenses for the day-to-day expenses, including employee benefits, and a capital expense budget for such significant infrastructure expenses as streets, sidewalks, sewer treatment plants and water supply.

City managers, among many other duties, must be good fiscal managers who know how to prioritize spending and not overspend. Sadly, those aren’t things that occurred in Detroit. The city filed for bankruptcy last week based on $18.5 billion in outstanding debt. This is the largest-ever municipal filing of bankruptcy. While some believe the bankruptcy filing was a last resort, others are fighting it and say the move is unconstitutional.

Michigan’s governor, Rick Snyder, said the filing was more than 60 years in the making, according to a report in the Detroit Free Press.

“Snyder said the decision to file for bankruptcy was based on the unmistakable conclusion there was no other option for a city that had reached the end of the line. Detroit, he said, was done in by decades of residential and business flight to the suburbs resulting in a loss of tax revenue, loss of its manufacturing base, chronic overspending and mismanagement and corrupt leadership, all reaching a climax as the economic meltdown and the national housing crisis hit,” as reported in USA Today.

This filing is symbolic of a community that relied too heavily on one industry — automotive — to support its apparent overspending habits. If the city had a more diversified economy, it might not have been hurt as badly by the crumbling occurring in the U.S. auto industry. Today Detroit residents have high unemployment — 18 percent — as well as population decreased by more than 60 percent to about 700,000 people; neighborhood blight, vacant buildings and inadequate city services. Now crime — including murder — is at unheard-of levels and getting worse with excessively long response times from public safety officers.

Detroit, of course, isn’t alone in its bankruptcy filing. In the past three years, Central Falls, R.I., Boise County, Idaho, Jefferson County, Ala., Harrisburg, Pa., Stockton, Calif., and Vallejo, Calif. each filed for bankruptcy too, amounting to $4.4 billion in deficits. In many of those bankruptcies, former municipal employees, also known as pensioners, are taking the hardest hit from not receiving full benefits. A person can only imagine being one of more than 21,000 retirees receiving less than half of their promised benefits.

At times like these, we all should appreciate those city and county leaders who understand the importance of being fiscally responsible, maintaining an adequate contingency fund and not spending more than is absolutely necessary to provide services that otherwise are unavailable in the public sector. To do otherwise sets the stage for other municipalities to face a similar fate as Detroit.

 

Jeanny Sharp,

editor and publisher

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