Nov 16, 2011 12:41 AM GMT
Am just waiting for someone to claim that the problem with Detroit is that they don't tax the wealthy enough.
A closely guarded report on Detroit's finances paints an alarming picture of a city that will run out of cash by April unless officials make immediate, painful reductions that will cut deeply in to public services.
The report, obtained by the Free Press, outlines some drastic scenarios that illustrate how steep those cuts must be for the city to stay afloat.
For example, if the city laid off 2,200 employees -- a third of its workforce -- the city still would run out of cash by July.
No one has said the city is considering that as an option, but it demonstrates the severity of the financial crisis.
Mayor Dave Bing and the City Council have said the solution lies in getting major concessions from reluctant labor unions and reducing the city's skyrocketing costs for retirees.
Bing is planning a public address Wednesday regarding the financial crisis.
"Mayor Bing inherited a city in fiscal, operational and ethical crisis," his spokesman Dan Lijana said Monday. "Rather than continuing business as usual and sweeping problems under the rug, Mayor Bing has taken on the tough issues and had an honest dialogue with Detroit about our fiscal challenges."
The problems are so severe and immediate, restructuring experts said, that the state may have no choice but to appoint an emergency manager with the authority to gut union contracts, sell assets, restructure the government and end nonessential services.
"At the point where Detroit is, they need an emergency manager," said Pontiac's emergency manager Louis Schimmel, who also took over the shrinking budgets of Hamtramck and Ecorse years ago. "What are they going to do when they run out of cash?"
Council President Charles Pugh, who opposes an emergency manager, said the city can solve its own problem.
"We have to make cuts that some are going to see as draconian, and it will be some tough medicine to take," he said. "No department is a sacred cow, including the police department, even though public safety remains our priority."
Unions have refused to consider the mayor's proposal to accept more than $100 million in health care and other cuts, saying they've suffered enough by absorbing 10% pay cuts since 2009.
"The city should have cut a third of the workplace and increased health care premiums a long time ago," said Marcus Hudson, a local expert on restructuring businesses and municipalities. "The real problems are structural. The city cannot afford what it's currently paying in pension and health care costs."
Since 2008, health insurance costs for Detroit employees and retirees have jumped 62% to $186 million a year, city records show. During the same period, the city's contribution to pensions increased from $50 million to $120 million.
Couple that with plummeting property taxes -- down $52.5 million since 2006 to $226.5 million -- and the city is in dire shape, the report shows.
The mayor's office has declined to release the $1.7-million report, prepared by Ernst & Young, which the city hired to review its finances.
Despite gestures from Bing that budget problems were under control earlier this year, the report tells a different story.
"The city continued to believe Detroit was going to stabilize, despite the downward trends," Hudson said.
Those issues -- reducing the long-term, structural costs of employee and retiree benefits by Monday -- are the centerpiece of Bing's last-ditch effort to avoid insolvency and ward off a state takeover.
But it won't be easy.
"The mayor is not going to settle contracts by the end of November," said John Riehl, president of the American Federation of State, County and Municipal Employees Local 207, one of the city's largest unions. "We feel like we've already given enough."
Geralyn Lasher, a spokeswoman for Gov. Rick Snyder, said she doesn't know the specifics of what Bing plans to talk about Wednesday, but Snyder is committed to working with Bing and the city to prevent the need for appointment of an emergency manager.
"He's committed to really making sure Detroit survives," Lasher said of Snyder. "We can't have a successful state without a successful Detroit."