Posted on

Rev. Ross: Let Detroiters rebuild the city

RevRoss564x198

March 3, 2014 at 1:00 am

Rev. Ross: Let Detroiters rebuild the city

LANDThe Detroit City Council recently granted Olympia Development of Michigan almost $3 million worth of public land and hundreds of millions of public dollars to erect a hockey arena and pursue other developments in Detroit’s Cass Corridor. The argument behind putting public money and resources into private sports complexes and the like is that municipalities will recoup the money from tax revenue and revitalization. But careful study of these deals reveals otherwise.

Research from 1984 by Forest College economist Robert Baade right up to 2012 by the investment bank UBS (Batter Up: Public Sector Support for Professional Sports Facilities) shows that cities generally don’t benefit from such deals. To quote the UBS study: “Unfortunately, independent academic research studies consistently conclude that new stadiums and arenas have no measurable effect on the level of real income or employment in the metropolitan areas in which they are located.”

In spite of UBS’s findings, there is one way such deals can benefit someone other than the developer. The only times taxpayers see tangible benefits from bankrolling billionaire sports franchise owners is when the community demands and gets community benefit agreements, which are contracts signed by developers. The Staples Center in Los Angeles and the CONSOL Energy Center in Pittsburgh are examples of such projects benefiting the cities involved through community benefit agreements. Both cities were in better financial shape than Detroit is today, and both still found it necessary to protect themselves financially.

Even though the City Council accepted Olympia’s handshake and promise to do right by Detroiters this time, there is an ordinance before the council that would guarantee community benefit agreements for such projects in the future. Just as Olympia would never sublet work to another firm without a contract, it is only fair that the city have an equally enforceable agreement for hundreds of millions of public dollars.

If Detroiters don’t value the city’s assets and integrity, developers never will. Indeed, the bankruptcy has created a fire sale mentality where everything is supposed to be had on the cheap. City Council must take steps make sure the city gets a fair deal with developers:

■ Developers sign legal contracts to abide by the terms of the community benefit agreement.

■ Community oversight boards to ensure transparency.

■ Developers hold public hearings on projects with adequate notice.

■ Rent control and other protections for residents in the case of rising property values.

■ Projects should train and employ city residents.

These are some of the broad outlines of how the city must conduct business to keep residents from getting the short end of the stick.

In a just world, billionaires would fund their own projects. It is particularly unjust that corporations come to an entity as short on resources as the city of Detroit and demand resources to fund privately owned development.

The least City Council can do is pass an ordinance to protect the city and its residents by leveling the playing field for Detroiters.

The Rev. Joan C. Ross is director of the North End Woodward Community Coalition and executive director of the Greater Woodward Community Development Corp.

From The Detroit News: http://www.detroitnews.com/article/20140303/OPINION01/303030001#ixzz2uu7J9xLv

Posted on

Action Alert: City Council Evening Meeting Monday March 3rd

City Council discussion of ordinance to establish Community Advisory Councils

Monday March 3rd 3pm
Coleman A. Young Municipal Center,
13th Floor – 2 Woodward Ave, Detroit

If you want to see a Community Advisory Council (CAC) established in your district, please attend this City Council meeting and voice your opinion by giving public comment at this session.
View the Current draft version of the CAC ordinance here. https://docs.google.com/file/d/0BzH9McDOCGeveV9JMDIzQV90ZG8/edit

TAKE ACTION – Tell the City Council to pass the enabling CAC ordinance as quickly as possible to allow the timely establishment of CACs.

Additionally let council members know that the ordinance should include the following:

Establish a filing deadline that allows potential candidates to run directly in the November 2014 general election.
Allow the concurrent collection of petition signatures to establish each CAC and the filing petitions for CAC candidates to run in the election.
Enable CACs to receive basic administrative support from the City in order that they can comply with Open Meetings and Freedom of Information Requirements.
City Council should establish the procedure whereby the Youth and Senior Representatives (2 seats) on the CAC are appointed by the 5 elected CAC members using an open and transparent nomination process.

If you cannot be at City Council on Monday, you may also submit your comments by email to City Council members directly (contact info is below) or send them to Aaron Goodman aarongoodman@cdad-online.org (CDAD staff) by noon on March 3rd and we will forward those on to the City Council.

More information on CACs:
When the new Detroit City Charter was approved in 2011, one of the most anticipated changes was the creation of city council districts and having seven city council members elected to represent those districts. With the election of a new district-based City Council in 2013, Detroiters now have raised expectations of greater accountability and responsiveness from their elected officials and city government.

There is a lesser known provision in the charter that will play a critical role in fulfilling our expectations of the new council and further raise the bar for resident engagement with local policy issues and elected officials. This is the establishment of Community Advisory Councils (CACs), which are elected citizen boards in each of the seven council districts. CACs will be an important tool to promote meaningful community engagement in city government decision-making and encourage communication and accountability between residents and their City Council member.

Each CAC will consist of five residents elected from their district and one youth resident (age 13 -17) and one resident “selected as representing senior issues,” for a total of seven members of the CAC for each district. The youth and senior positions will be selected in a process yet to be determined by City Council. CAC members will serve four years terms, except for the youth member who will serve for one year.

CACs are mandated by the City Charter, yet there is more work to be done by both Detroit residents and the City Council to bring this important tool into existence. City Council is currently considering an ordinance that is required to establish CACs in each district.

Once the ordinance is adopted, each district that wants a CAC must submit petitions signed by 10% of the number of voters in the last election, and interested candidates must file to run in the next election. If a CAC is not established in your district in time for candidates to run in the 2014 general election, the next opportunity to elect a CAC will not be until November 2016.

2014CouncilContactSM

 

2014 DETROIT CITY COUNCIL CONTACT INFO
Brenda Jones, Council President, At Large
313.224.1245 – bjones_mb@detroitmi.gov
Saunteel Jenkins, At Large
313.224.4248 – councilmemberjenkins@detroitmi.gov
James Tate, District 1
313.224.1027 – councilmembertate@detroitmi.gov
George Cushingberry, Jr., District 2
313.224.4535 – cushingberryg@detroitmi.gov
Scott Benson, District 3
313.224.1198 – bensons@detroitmi.gov
Andre Spivey, District 4
313.224.4841 – CouncilmanSpivey@detroitmi.gov
Mary Sheffield, District 5
313.224.4505 – sheffieldm@detroitmi.gov
Raquel Castaneda-Lopez, District 6
313.224.2450 – castaneda-lopezr@detroitmi.gov
Gabe Leland, District 7
313.224.2151 – lelandg@detroitmi.gov
LEARN MORE, DOWNLOAD, PRINT & SHARE RESOURCES from UNITINGDETROITERS.ORG

Posted on

VIDEO: WSU professor Peter Hammer on Detroit Future City plan

from: http://www.mlive.com/news/detroit/index.ssf/2014/02/wayne_state_professor_calls_de.html

DETROIT, MI — A Wayne State University professor sees Detroit’s long-term urban planning blueprint as destructive and plans a Feb. 25 presentation to explain why he views it as a “deathblow” to the the city.

The 347-page Detroit Future City strategic framework was revealed in 2013 after years of planning spurred by former Mayor Dave Bing. And new Mayor Mike Duggan’s development chief has called the document his “Bible.”

The plan’s implementation office is scheduled to open a new location in a Feb. 20 announcement of top priorities and a new branding plan.

But law professor Peter Hammer a few days later plans to present his case against the framework, which he said will “re-organize Detroit out of existence.”

Hammer is director of the Damon Keith Center for Civil Rights at Wayne State University Law School.

 

Thanks to Shane Bernardo for the live stream!

MLIVE.com announcing the event:
http://www.mlive.com/news/detroit/index.ssf/2014/02/wayne_state_professor_calls_de.html

Read and download the “Framework”
http://detroitfuturecity.com/framework/

Posted on

District 1 Alert – City Council Evening Meeting – Tues Feb 18, 7pm

Detroit People’s Platform District 1 Alert
DistrictOneHeader
District 1 Platform Members and allies are encouraged to attend Tuesday, February 18 at Leland Missionary Baptist Church, 22420 Fenkell (@ Lamphere) at 7pm. Map: http://goo.gl/maps/zwuf4

All nine council members are scheduled to attend this evening community meeting.

Update: On February 4th, City Council approved the transfer of city land to Olympia Development of Michigan (ODM). The land transfer will make way for construction on the new $650 million dollar project that uses $450 million in public funds. The city council voted to give away the land for this project, 39 city lots, for one dollar, without enforceable community benefits or community oversight.

Platform members and allies able to attend are encouraged to thank council members Jones, Castaneda-Lopez and Tate who voted ‘no’ for standing with their community. Members and allies are also encouraged to ask council members Jenkins, Sheffield, Benson, Cushingberry, Leland, and Spivey, who voted ‘yes’ to explain their vote and demand they support community benefits that are enforceable and include community oversight.

City-Wide Platform Members receiving this, please share with those from District 1 in your networks. Thank You!

District1CouncilMeet

Posted on

Update: Hockey Arena/Catalyst Project: City council approves land transfer

Inline image 1

 

City council approves land transfer for new arena without enforceable community benefits or oversight.


Detroit, February 5, 2014. People’s Platform Hockey Arena / Catalyst Project Update.
Many Detroiters are disgusted but not surprised that the transfer of city land to Olympia Development of Michigan (ODM) was approved yesterday by the city council. The land transfer will make way for construction on the new $650 million dollar project that uses $450 million in public funds. Yesterday, the city council voted to give away the land for this project, 39 city lots, for one dollar.

The council members voting ‘yes’ on the land transfer were Jenkins, Sheffield, Benson, Cushingberry, Leland, and Spivey while ‘no’ votes came from Jones, Castaneda-Lopez and Tate.

Some of the votes from the newly seated council were surprising, especially in the face of intense community dissent. Dissenters questioned the wisdom of giving away so many public dollars to build a second [or new] hockey arena for the Detroit Red Wings as the city reels from bankruptcy, the foreclosure crisis, and deep cuts to social services that effect all Detroiters, and residents of the region.

Tate’s ‘no’ vote was unexpected but inconsequential. In his explanation, the council member went out of his way to define his dissent as being due to the lack of commitment to create post-construction jobs and not due to the call from community for oversight.

Council new-comer and Detroit’s first Latina council member, Raquel Castaneda-Lopez, was very engaged, hosting multiple meetings, gathering community input and negotiating with OMD, the Downtown Development Authority (DDA) and the Detroit Economic Growth Corporation.

The ongoing struggle over enforceable community benefits with oversight will carry beyond this decision on the arena. Last year, the Community Benefits Agreement Policy Group presented city council with a draft community benefits agreement ordinance that will benefit Detroiters city-wide and set a precedent for equitable development.

Platform Member Follow-up
People’s Platform members and allies are encouraged to call and thank council members Jones, Castaneda-Lopez and Tate who voted ‘no’ for standing with their community. Members and allies are also encouraged to contact council members who voted to approve the deal yesterday, ask them to explain their vote and reiterate the need for community benefits that are enforceable and include community oversight.

2014 DETROIT CITY COUNCIL CONTACT INFO
(updated Feb 5, 2014)

Brenda Jones, Council President, At Large
313.224.1245 – bjones_mb@detroitmi.gov

Saunteel Jenkins, At Large
313.224.4248 – councilmemberjenkins@detroitmi.gov

James Tate, District 1
313.224.1027 – councilmembertate@detroitmi.gov

George Cushingberry, Jr., District 2
313.224.4535 – cushingberryg@detroitmi.gov

Scott Benson, District 3
313.224.1198 – bensons@detroitmi.gov

Andre Spivey, District 4
313.224.4841 – CouncilmanSpivey@detroitmi.gov

Mary Sheffield, District 5
313.224.4505 – sheffieldm@detroitmi.gov

Raquel Castaneda-Lopez, District 6
313.224.2450 – castaneda-lopezr@detroitmi.gov

Gabe Leland, District 7
313.224.2151 – lelandg@detroitmi.gov

LEARN MORE, DOWNLOAD, PRINT & SHARE RESOURCES from http://unitingdetroiters.org

draftarenainfographicSM
Posted on

Update: City council approves land transfer for new arena

Inline image 1

 

City council approves land transfer for new arena without enforceable community benefits or oversight.


Detroit, February 5, 2014. People’s Platform Hockey Arena / Catalyst Project Update.
Many Detroiters are disgusted but not surprised that the transfer of city land to Olympia Development of Michigan (ODM) was approved yesterday by the city council. The land transfer will make way for construction on the new $650 million dollar project that uses $450 million in public funds. Yesterday, the city council voted to give away the land for this project, 39 city lots, for one dollar.

The council members voting ‘yes’ on the land transfer were Jenkins, Sheffield, Benson, Cushingberry, Leland, and Spivey while ‘no’ votes came from Jones, Castaneda-Lopez and Tate.

Some of the votes from the newly seated council were surprising, especially in the face of intense community dissent. Dissenters questioned the wisdom of giving away so many public dollars to build a second [or new] hockey arena for the Detroit Red Wings as the city reels from bankruptcy, the foreclosure crisis, and deep cuts to social services that effect all Detroiters, and residents of the region.

Tate’s ‘no’ vote was unexpected but inconsequential. In his explanation, the council member went out of his way to define his dissent as being due to the lack of commitment to create post-construction jobs and not due to the call from community for oversight.

Council new-comer and Detroit’s first Latina council member, Raquel Castaneda-Lopez, was very engaged, hosting multiple meetings, gathering community input and negotiating with OMD, the Downtown Development Authority (DDA) and the Detroit Economic Growth Corporation.

The ongoing struggle over enforceable community benefits with oversight will carry beyond this decision on the arena. Last year, the Community Benefits Agreement Policy Group presented city council with a draft community benefits agreement ordinance that will benefit Detroiters city-wide and set a precedent for equitable development.

Platform Member Follow-up
People’s Platform members and allies are encouraged to call and thank council members Jones, Castaneda-Lopez and Tate who voted ‘no’ for standing with their community. Members and allies are also encouraged to contact council members who voted to approve the deal yesterday, ask them to explain their vote and reiterate the need for community benefits that are enforceable and include community oversight.

2014 DETROIT CITY COUNCIL CONTACT INFO
(updated Feb 5, 2014)

Brenda Jones, Council President, At Large
313.224.1245 – bjones_mb@detroitmi.gov

Saunteel Jenkins, At Large
313.224.4248 – councilmemberjenkins@detroitmi.gov

James Tate, District 1
313.224.1027 – councilmembertate@detroitmi.gov

George Cushingberry, Jr., District 2
313.224.4535 – cushingberryg@detroitmi.gov

Scott Benson, District 3
313.224.1198 – bensons@detroitmi.gov

Andre Spivey, District 4
313.224.4841 – CouncilmanSpivey@detroitmi.gov

Mary Sheffield, District 5
313.224.4505 – sheffieldm@detroitmi.gov

Raquel Castaneda-Lopez, District 6
313.224.2450 – castaneda-lopezr@detroitmi.gov

Gabe Leland, District 7
313.224.2151 – lelandg@detroitmi.gov

LEARN MORE, DOWNLOAD, PRINT & SHARE RESOURCES from http://unitingdetroiters.org

draftarenainfographicSM
Posted on

URGENT ACTION ALERT! Hockey Arena/ Catalyst Project

finalarenacba

PEOPLE’S PLATFORM – URGENT ACTION ALERT!

Hockey Arena/ Catalyst Project

We need 1000 Detroiters to make a telephone call for fairness and justice.

UPDATE: On Tuesday February 4, 2014 at 10am Detroit City Council will hear public comments and vote on the Land Transfer for the Hockey Arena / Catalyst Project.

WE’RE FOR EQUITABLE DEVELOPMENT THAT BENEFITS ALL DETROITERS , WE’RE FOR GOOD JOBS FOR DETROITERS AND WE’RE FOR ENFORCEABLE BENEFITS WITH REPRESENTATIVE COMMUNITY OVERSIGHT.

ACTION: Call Council and demand that they refuse to approve the transfer of public land for the so-called “Catalyst” Development Project without an enforceable community benefits agreement with representative community oversight to ensure community benefits are realized.

Make sure that the jobs and other community benefits Illitch/ Olympia Development of Michigan (ODM) promised are actually delivered!

STRATEGY: Use the new district map to contact your district Council Member, call both ‘at large’ city-wide Council Members Jones and Jenkins. Also consider calling Council Members Castaneda-Lopez and Leland whose votes are important around this issue.

We’re NOT
anti-development!
We’re FOR
equitable
development

2014 DETROIT CITY COUNCIL CONTACT INFO
Brenda Jones, Council President, At Large
313.224.1245bjones_mb@detroitmi.gov

Saunteel Jenkins, At Large
313.224.4248councilmemberjenkins@detroitmi.gov

James Tate, District 1
313.224.1027councilmembertate@detroitmi.gov

George Cushingberry, Jr., District 2
313.224.4535cushingberryg@detroitmi.gov

Scott Benson, District 3
313.224.1198bensons@detroitmi.gov

Andre Spivey, District 4
313.224.4841CouncilmanSpivey@detroitmi.gov

Mary Sheffield, District 5
313.224.4505sheffieldm@detroitmi.gov

Raquel Castaneda-Lopez, District 6
313.224.2450castaneda-lopez@detroitmi.gov

Gabe Leland, District 7
313.224.2151lelandg@detroitmi.gov

LEARN MORE, DOWNLOAD, PRINT & SHARE RESOURCES from UNITINGDETROITERS.ORG

draftarenainfographicSM

 

Posted on

People’s Platform Action Alert: Council Hearing on a NEW ARENA and Detroit Development Authority expansion

newPPlogo
People’s Platform Call to Action

Thursday, December 19th 2013

 

Tomorrow, Friday December 20th at 9am Detroit City Council will meet to hear public comments and vote on the expansion of the Downtown Development Authority.

The expansion of the DDA, across I-75 and into the long contested land between Downtown and “Midtown”, will facilitate, authorize and make way for the construction of a new hockey arena and, according to recent reports, the state supported demolition of Joe Louis Arena.

City Council has delayed their vote until the last business day of the calendar year waiting for the DDA and the developer, Olympia Development, to present the Concession Agreement (executive summary attached) which they agreed upon and presented to Council last Friday, December 13th.

We encourage citizen participation in this decision and request that Detroiters contact City Council members, attend the public hearing if possible, and

1.) demand that Council oppose the expansion of the DDA, and

2.) that if it is approved, they amend the Concession Management Agreement between the DDA and Olympia Development to include a Community Steering Committee that truly reflects community. NOT the committee structure recommended by the Corridor Alliance group.

Members and supporters of the People’s Platform will be meeting at 8:30 AM in the hallway outside of Council chambers on the 13th Floor of the Coleman A. Young Municipal Center to organize before the hearing starts at 9:00 AM. If you are unable to join us in person we encourage you to contact council by email or phone to express your opinion. Council Member contact info is below.

Suggested Talking Points:

  • In the same month that a federal judge has determined that Detroit is eligible for bankruptcy, the proposal for this development, which uses $300 million in public funding encourages separate and unequal development that benefits only the developer and not the community and flies in the face of pensioners and others impacted by the bankruptcy.
  • This project will negatively impact current residents and businesses by making the downtown and midtown areas more difficult to navigate for the vast majority of Detroiters, cutting off access needed services, like the DMC for example.
  • The Ilitches already own acres of blighted property WITHIN the existing DDA that could be utilized and put to use for this project.
If Council Members vote in support of the DDA expansion:
If council elects to approve the expansion of the DDA, we ask that they amend the Concession Management Agreement to include and empower a Community Steering Committee with an alternate structure to the one proposed by the Corridor Alliance. While the work of the Corridor Alliance strives to address the concerns of the community and brings many resources through its partnerships it does not represent the voice of many Detroiters who refuse to accept this project as a “done deal”. The Corridor Alliance’s letter to Council President Jenkins is attached. CA_Council_December 12
The proposed Corridor Alliance Community Steering Committee does not truly reflect the residents and businesses in and around the catalyst area, only serves to authorize and condone this project, only benefits a few well organized and well intentioned individuals and continues to set a precedent for community benefit that does not benefit those directly impacted by development.
If the proposal for a Community Steering Committee is included in the Concession Management Agreement by City Council we encourage an alternate structure for the committee, This alternate proposal will more adequately reflect a greater diversity of input and will include community members from District 6 and District 5, both areas that will be impacted by this development.Proposed Alternate Community Steering Committee Membership
The Community Steering Committee shall consist of ten members to be selected as follows:
2 members designated by City Council Member Raquel Castaneda-Lopez for District 6
2 members designated by City Council Member Mary Sheffield for District 5
2 members designated by existing and active community groups, WRD6 and the Detroit People’s Platform Leadership Caucus
2 members designated by the Corridors Alliance
1 member designated by Doing Development Differently in Detroit
1 member designated by the Developer

The Corridor Alliance proposed membership:
(from their letter to Council President Jenkins)

The Community Steering Committee shall consist of ten (10) individual members to be selected as follows: the Council Member for District 6 shall have the right to designate three (3) members, the Corridors Alliance shall have the right to designate four (4) members, the board of Directors of Doing Development Differently in Metro Detroit (D4) shall have the right to designate two (2) members, and the Developer shall have the right to designate one (1) member.  ref: CA_Council_December 12

 

Call/email City Council
Council President Saunteel Jenkins, (313) 224-4248 (office), E-mail: councilmemberjenkins@detroitmi.gov
Council President Pro Tem André L. Spivey, (313) 224-4841 (office), E-mail: CouncilmanSpivey@detroitmi.gov
Council Member Kenneth V. Cockrel, Jr, (313) 224-4505 (office), E-mail: Kenneth.Cockrel@detroitmi.gov
Council Member Brenda Jones, (313) 224-1245 (office), E-mail: bjones_mb@detroitmi.gov
Council Member James Tate, (313) 224-1027 (office), E-mail: councilmembertate@detroitmi.gov
Council Member JoAnn Watson, (313) 224-4535 (office), E-mail: WatsonJ@detroitmi.gov

Posted on

Transit Truth – Saturday, Dec 14th, 11:30am – 2:30pm, MSU Detroit Center

TransitTruthSM

The Michigan Roundtable for Diversity and Inclusion is pleased to present the first of three public events that focus on Transit, Criminal Justice and Housing.

Every bus rider as a story

Transit Truth
To bring about or develop a high performing and accessible transit future for our city and region we must recognize both the history and the reality of transit in Detroit.

We are issuing a call to those who care about this transit future to join us as we share our Transit Truths. The event will feature testimony from a variety of perspectives including bus riders, transit advocates, and policy makers.

Our goal is to share and listen to ideas and possibilities that promote a just and equitable transit system for all. By telling our stories and listening we grow our power and will influence our transit future.

Please join with us Saturday December 14th from 11:30 am until 2:30 pm at the MSU Detroit Center, 3408 Woodward, just south of MLK/Mack.  A light lunch will be provided.

Presented by
The Michigan Roundtable for Diversity and Inclusion

Supported by
Detroit People’s Platform

MOSES – Metropolitain Organizing Strategy Enabling Strength

NEWCC – North End Woodward Community Coalition

Uprooting Racism Planting Justice

Posted on

DEMOS Report on Bankruptcy – Media Roundup

DETROIT — In their push for bankruptcy, Emergency Manager Kevyn Orr and other public figures are incorrectly looking at Detroit’s long-term debt—figures generated using aggressive and in some cases inaccurate assumptions—to the detriment of solving the City’s immediate cash-flow crisis and its long-term structural challenges, according to a report released Wednesday by Demos.

Detroit Local Coverage

http://www.deadlinedetroit.com/articles/7298/report_challenges_kevyn_orr_s_version_of_why_detroit_went_belly-up

http://www.detroitnews.com/article/20131120/METRO01/311200082/Report-Detroit-s-collapse-caused-more-by-declining-revenue-than-legacy-costs

http://www.freep.com/article/20131120/NEWS01/311200115/detroit-bankruptcy-debt-revenue-sharing-cuts

http://www.crainsdetroit.com/article/20131120/NEWS/131129981/report-detroits-pension-fund-liabilities-not-to-blame-for-bankruptcy#

http://www.huffingtonpost.com/2013/11/20/detroit-bankruptcy-wall-street-demos-_n_4310023.html?utm_hp_ref=business

National – Global Coverage

http://www.theguardian.com/world/2013/nov/20/detroit-accused-exaggerating-18bn-debts

http://www.salon.com/2013/11/20/how_wall_street_not_pensioners_wrecked_detroit/

http://www.usatoday.com/story/news/nation/2013/11/20/detroit-bankruptcy-debt-state-revenue-sharing-cuts/3652057/

http://www.benefitspro.com/2013/11/20/pension-debt-did-not-cause-detroit-bankruptcy-repo

http://www.msnbc.com/all/detroits-estimated-debt-inaccurate

http://rhrealitycheck.org/article/2013/11/20/detroit-workers-deserve-better-than-bankruptcy/

The Detroit Bankruptcy

November 20, 2013

|

The City of Detroit’s bankruptcy was driven by a severe decline in revenues (and, importantly, not an increase in obligations to fund pensions). Depopulation and long-term unemployment caused Detroit’s property and income tax revenues to plummet. The state of Michigan exacerbated the problems by slashing revenue it shared with the city. The city’s overall expenses have declined over the last five years, although its financial expenses have increased. In addition, Wall Street sold risky financial instruments to the city, which now threaten the resolution of this crisis. To return Detroit to long-term fiscal health, the city must increase revenue and extract itself from the financial transactions that threaten to drain its budget even further.

The Shortfall

Detroit’s emergency manager, Kevyn Orr, asserts that the city is bankrupt because it has $18 billion in long-term debt. However, that figure is irrelevant to analysis of Detroit’s insolvency and bankruptcy filing, highly inflated and, in large part, simply inaccurate. In reality, the city needs to address its cash flow shortfall, which the emergency manager pegs at only $198 million, although that number too may be inflated because it is based on extraordinarily aggressive assumptions of the contributions the city needs to make to its pension funds.

Cash flow crisis.

In a corporate bankruptcy, the judge takes stock of a company’s total assets and liabilities because the company can be liquidated and all its assets sold to pay down its debts. However, municipal bankruptcies are inherently different because they do not contemplate the liquidation of a city. Municipal bankruptcies are about cash flow—a city’s ability to match revenue against expenses so that it can pay its bills. Under Chapter 9 of the United States Bankruptcy Code, a municipality is eligible to file bankruptcy when it is unable to pay its debts as they come due.

This means that Detroit is bankrupt not because of its outstanding debt, but because it is no longer bringing in enough revenue to cover its immediate expenses. According to the city’s bankruptcy filing, the emergency manager projects a $198 million annual cash flow shortfall for fiscal year (FY) 2014 (though, as explained below, the portion of this amount that is related to pension fund contributions is an estimate that requires deeper analysis). To get out of bankruptcy, the city needs to address this annual shortfall—whether it is $198 million or a smaller number—not its total outstanding long-term debt.

Total outstanding debt. 

Not only is the $18 billion outstanding debt figure irrelevant to Detroit’s bankruptcy, it is also misleading and inflated. There are several reasons, including the following examples:

  • The emergency manager includes $5.8 billion of the Water and Sewerage Department’s debt as a liability of the city, even though the Water and Sewerage Department serves more than 3 million people all across southeastern Michigan, an area far larger than just the city of Detroit, which has just 714,000 residents. This debt is not a liability of the city’s general fund; and, even if it were, only a fraction of it would allocable to the city.
  • The emergency manager’s assertion that the city’s pension funds have a $3.5 billion shortfall is an estimate, very different from the certain liability of a financial debt, based on calculations that use extreme assumptions that depart from most cities’ and states’ general practice.

To pinpoint the causes of Detroit’s bankruptcy, it is necessary to identify the reasons for the city’s cash flow shortfall, which are best understood through an analysis of the city’s revenue and expenses.

Revenue

Detroit has been in a state of decline for several decades. The city’s population has fallen from a high mark of nearly 2 million residents in 1950 to just 714,000 in 2010. This long-term decline has also taken a toll on the city’s revenue base, causing both property and income tax revenues to shrink as homeowners and jobs have left the city. Altogether, Detroit’s revenues have decreased by more than 20 percent since FY 2008, declining by $257.7 million.

Tax revenue.

Because of the Great Recession, this gradual decline in revenue became a massive leak. Detroit was hit particularly hard by both the foreclosure and unemployment crises. The number of employed Detroit residents fell by 53 percent from 2000 through 2012, but half of that decline occurred in a single year, 2008, as the recession took hold.

During the recession, property values declined substantially, eating into the city’s property tax base. The recession has cut deeply into key property and income tax revenue and fee revenue from utilities owned and operated by the city.

State revenue sharing.

The state of Michigan has exacerbated Detroit’s revenue crisis by slashing $67 million in state revenue sharing with the city. About $24 million dollars of these cuts were due to revenues shared  pursuant to the Michigan State Constitution, allocated among cities and towns based on population. Detroit’s allocation was reduced because of population loss in the 2010 census. However, the remaining $42.8 million (64 percent of the total state cuts) were due to statutory revenue sharing and were at the discretion of the state Legislature. By cutting revenue sharing with the city, the state effectively reduced its own budget challenges on the backs of the taxpayers of Detroit (and other cities). These cuts account for nearly a third of the city’s revenue losses between FY 2011 and FY 2013, coming on the heels of the revenue losses from the Great Recession and tipping the city into the cash flow crisis that it is now experiencing. Furthermore, the Legislature placed strict limits on the city’s ability to raise revenue itself to offset these losses.

Corporate subsidies.

The city has provided significant tax subsidies to a large number of enterprises as incentives to engage in development projects in downtown Detroit. In some years, the city handed out as much as $20 million to private interests. To the extent that the development would have occurred without these tax subsidies, or with less subsidies, the program was a burden on city revenues at a time when it was particularly damaging. In any event, the subsidies that have not yet been received should be treated as obligations of the city, in the same category as debt service and funding of future employee benefits, subject to readjustment to help resolve the cash flow crisis to the extent revenue is not increased to cover the demands on cash.

Expenses

Contrary to widely held belief, Detroit does not have a spending problem. Since the onset of the Great Recession, the city’s total expenses have actually decreased by $356.3 million, driven by a 38 percent reduction ($419.1 million in absolute terms) in operating expenses, although its financial expenses have gone up.

Operating expenses. 

Between FY 2008 and FY 2013, the city drastically cut operating expenses by $419.1 million. This was accomplished in large part by laying off more than 2,350 workers, cutting worker pay, and reducing future healthcare and future benefit accruals for workers. The city reduced salary expenses by 30 percent between FY 2008 and FY 2013. Total operating expenses have been reduced by nearly 38 percent during that same time.

Legacy expenses.

The city’s “legacy expenses” increased by $62.8 million between FY 2008 and FY 2013. These legacy expenses include the city’s debt service and financial expenses as well estimates of its future liability for healthcare and pension benefits it pays to retirees. A close look at the city’s legacy expenses reveals that this $62.8 million increase was driven heavily by the city’s complex financial deals, not retiree benefits.

  • The city’s financial expenses increased by $38.5 million between FY 2008 and FY 2013, accounting for more than 60 percent of the total increase in legacy expenses.
  • The city’s pension contribution expenses remained relatively flat, rising only $2 million during this time. The city’s contribution might have been larger if it had had more money, but increases in the actual contributions it did make did not contribute materially to the cash flow crisis.
  • The city’s healthcare contribution expenses increased by $24.3 million. This constitutes an increase of 3.25 percent, per year, which is less than the nationwide annual increase in healthcare costs of 4 percent.

The city’s pension contributions in particular did not play a role in pushing it into bankruptcy because they did not contribute materially to the increase in the city’s legacy expenses that added to the cash flow shortfall. While the city’s healthcare contributions did increase, this was largely because of rising healthcare costs nationally, not because the city’s benefits were too generous. In fact, a comparative analysis of Detroit’s retiree benefits shows that its pension and healthcare benefits are in line with those of other comparable cities.

Financial deals.

Detroit’s financial expenses have increased significantly, and that is a direct result of the complex financial deals Wall Street banks urged on the city over the last several years, even though its precarious cash flow position meant these deals posed a great threat to the city. The biggest contributing factor to the increase in Detroit’s legacy expenses is a series of complex deals it entered into in 2005 and 2006 to assume $1.6 billion in debt. Instead of issuing plain vanilla general obligation bonds, the city financed the debt using certificates of participation (COPs), which is a financial structure that municipalities often use to get around debt restrictions. Eight hundred million dollars of these COPs carried a variable interest rate, which the city synthetically converted to a fixed rate using interest rate swaps.

These swaps carried hidden risks, and these risks increased after the Federal Reserve drove down interest rates to near zero in response to the financial crisis. The deals included provisions that would allow the banks to terminate the swaps under specified conditions and collect termination payments, which would entitle the banks to immediate payment of all projected future value of the swaps to the bank counterparties. Such conditions included a credit rating downgrade of the city to a level below “investment grade,” appointment of an emergency manager to run the city and failure of the city to make timely payments. Projected future value balloons in low, short-term rate conditions. This is because the difference between the fixed swap payments made by the city and the floating swap payments projected to be paid by the banks increases. Because all of these events have occurred, the banks are now demanding upwards of $250-350 million in swap termination payments.

These swap deals were particularly ill-suited for a city like Detroit, which had been hovering on the edge of a credit rating downgrade for years. Because the risk of a credit downgrade below “investment grade” was so great, the likelihood of a termination was imprudently high. The banks and insurance companies were in a far better position to understand the magnitude of these risks and they had at least an ethical duty to forbear from providing the swaps under such precarious circumstances. The law recognizes special duties that sophisticated financial institutions owe to special entities like cities in providing complex financial products.  A strong case can be made that the banks that sold these swaps may have breached their ethical, and possibly legal, obligations to the city in executing these deals.

Conclusion

Detroit’s bankruptcy is, at its core, a cash flow problem caused by its inability to bring in enough revenue to pay its bills. While emergency manager Kevyn Orr has focused on cutting retiree benefits and reducing the city’s long-term liabilities to address the crisis, an analysis of the city’s finances reveals that his efforts are inappropriate and, in important ways, not rooted in fact. Detroit’s bankruptcy was primarily caused by a severe decline in revenue and exacerbated by complicated Wall Street deals that put its ability to pay its expenses at greater risk. To address the city’s cash flow shortfall and get it out of bankruptcy, the emergency manager should focus on increasing revenue and extricating the city from these toxic financial deals. Here are some recommendations for doing that:

  • The emergency manager, ideally in collaboration with the state, needs to increase revenue by $198 million annually to bridge Detroit’s budget gap until structural programs can be put in place and the city can benefit from increased general economic improvement. This includes enlisting state involvement on an emergency basis and restoring discretionary state revenue sharing to pre-crisis levels. The shortfall amount can be reduced as FY 2014 proceeds by factors such as improved collection of unpaid taxes (which has yielded modest results to date).
  • The emergency manager should drop his proposal to move city workers to a defined contribution pension plan and abrogate vested pension benefits. The city’s pension fund contributions did not cause the crisis.  Reducing benefits runs counter to the long-term goal of structurally improving city services. Moreover, converting to a defined contribution plan at just the moment when new active employees will be added as services are improved (a goal of the emergency manager) would adversely affect the financial dynamics of the pension fund for existing retirees and other beneficiaries who have already vested under the defined benefit system. Over time, the new active employees will rebalance a fund that is currently top-heavy with retirees and will improve the long-term investment horizon of the plan, to the benefit of city cash flow.
  • The emergency manager should drop any plans to privatize or otherwise monetize the Water and Sewerage Department, since the asserted benefits of such a plan are not likely to be realized and, even if they were, would have no net effect on the current cash flow crisis. The sale price of the system or components represents an investment by a buyer that must be repaid by system revenues, the same as bonds issued against those revenues. If the sale price is applied to retire existing bonds, the effects balance out. If they are not used to retire bonds, it is just like issuing new debt, which presumably the system could do without selling off parts of itself. The plan calls for an annual payment to the city, but this payment is from user fee revenues net of operational expenses and debt service (and return on equity investment if true privatization is used), a financial structure that is parallel to the current system.
  • The emergency manager’s plan to pay the swap termination fees outside of the bankruptcy process should be abandoned. The bank counterparties should be made to bear the consequences of the original swap transaction, and they should be pushed to forego their projected profit (the measure of the termination payment), given the large profits they have already earned as a result of the unusually low interest rates that resulted from the financial crash. The emergency manager should also press for prorated rebates on the premiums for insurance on the swaps. And, if necessary, the state should be enlisted to guarantee the city’s swaps to avoid payment of termination fees. The termination fees will become smaller as interest rates rise over time, which they are likely to do.
  • The emergency manager should negotiate directly with the holders of the pension financing certificates of participation, apart from other unsecured creditors. The circumstances of the COPs issue are unique. Unless these circumstances are shown to have benign explanations that are not currently available generally to the public, the leverage that the emergency manager has over this negotiation is high.
  • The emergency manager should reclaim tax subsidies and other expenditures to incentivize investment in the downtown area. These tax subsidies should be treated similarly to the city’s other financial obligations. The residents of Detroit have already suffered as a result of the crisis, as have the public employees. The recipients of tax expenditures should share in the sacrifice as well.

Once Detroit gets through this immediate crisis, the city’s elected officials, hopefully working collaboratively with the state Legislature and the governor, can turn their attention to post-crisis, structural programs that would grow the city’s tax base and allow it to return to prosperity over time.

Download the full report