Saving Detroit: New manager targets 'greatest turnaround' in US history
Michigan's governor has tabbed a bankruptcy lawyer to serve as the emergency manager for Detroit's financial crisis. He hopes to avoid bankruptcy, but wouldn't rule it out.
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“You’ve got the racial undertones, the union issues, the loss of political power, all of these things are intertwined; you can’t really sort them all out,” says Mr. Sikkema.Skip to next paragraph
The time frame for the emergency financial manager to make a turnaround is 18 months, which “is not enough time” to make a full recovery, although certain things are achievable, says Eric Scorsone, an economist at Michigan State University in East Lansing, who is also on Mayor Bing’s restructuring team.
What can Orr do?
Business leaders say they are anxious for an emergency financial manager to address glaring inefficiencies in the city's bureaucracy.
“The billing for [property] taxes has been sporadic at best,” says Sandy Baruah, president and CEO of the Detroit Regional Chamber of Commerce and a former US assistant secretary of Commerce under President George W. Bush. “Companies may be getting bills from the tax department that are legitimately owed, but it was news to them, or bills they haven’t received for years. This goes to a competency issue. ”
“The percentage of taxes owed but not collected by the city government, both by residents and companies, is phenomenally large," he adds. "Just the competency and efficiency in tax collection would go a long way to resolving at least some of the financial challenges.”
To be sure, the city needs cash, since it is expected to have only about $3 million by the end of June. Immediate options include cutting payroll, cutting vendor contracts, and privatizing unessential services. The idea would be to make the city government do less, but more effectively.
“The emergency financial manager has to figure out what are core services and what are non-core services and how do we balance these things,” says Mr. Scorsone of the restructuring team.
“I’d be looking at where can I show some success in terms of reconciling some level of service to the people of Detroit,” such as more street lights, expedited garbage pickup, and additional police on the streets,” says public policy analyst Sikkema. “Something that effects people everyday and makes them say, ‘Wait a minute, life is better than it was.’ ”
Any plan could face opposition from the city’s union leadership, leading to delays.
Another option would be bankruptcy, which could be used as leverage against the unions if they refuse to concede to certain changes, Scorsone says.
On Thursday, Orr said “everything is on the table,” and his expertise is in bankruptcy.
“It’s too early to say bankruptcy is likely, it’s certainly a possibility. We’ll see over the next few months if the situation gets bogged down in lawsuits and nobody wants to agree to anything,” Scorsone says.
Perhaps the greatest challenge is time. With 18 months to steer the city toward a path of financial recovery, Orr needs to show his merit, especially after a year or more of legal wrangling and insider deadlock at city hall.
The problem, after all, was more than a few years in the making, said Mayor Bing Thursday. “The financial crisis didn’t start four years ago, it was out of neglect over the last 40 and 50 years, and people who were in key positions did not make the tough decisions.”
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