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The Detroit bankruptcy is news of huge concern to all our members—creating statewide questions regarding what it could mean for other Michigan communities. A panel of the state’s top municipal finance experts came to the closing session of the League’s 2013 Convention to discuss what the bankruptcy means not just for Detroit but for communities across the state. “I don’t see a successful Michigan without a successful Detroit,” said moderator Dayne Walling, who is currently serving his second term as mayor of the city of Flint. “With Michigan the reality is we’ve been in a public sector recession for many straight years and there’s no end in sight when you look at revenue pressures and rising costs. We’re playing a serious game of Press Your Luck with our cities’ futures,” said Walling. “Unless there’s serious reform we’re all going to continue to experience very difficult challenges…Not too many enterprises can succeed with less and less and less every year.” Here is a brief look at the panelists and what they had to say:
Is Detroit contagious? That was the question asked by Frank Shafroth, director of the Center for State and Local Leadership within the Center for Public Governance at George Mason University. There hasn’t been a harder time in the history of the US for municipal leaders. They are facing the greatest fiscal challenge in at least a century, he said. Investor perceptions and apprehensions can indeed impact the bond market for cities, he said. But cities also have the potential to collaborate and work together to face those challenges. Talking about the larger issues of fiscal stress was Dr. Eric Scorsone, a nationally recognized expert in municipal finance and administration who currently serves as an advisor to Detroit Emergency Manager Kevyn Orr. His area of expertise is related to financial emergencies and assessing financial health among public and nonprofit organizations.This is not just Detroit, Scorsone said: all our cities are facing the stress of stagnant or decreasing revenues and the rising fiscal pressures of unfunded liabilities such as employee health care and pensions. The bankruptcy is an unfortunate necessity, he said, and only the beginning of a very long process. He is optimistic, however, that there will be a brighter future ahead. One thing he would propose for Michigan communities is basing future revenues more on a lower but expanded sales tax that covers services (exempting some services like medical), rather than relying on city income taxes that are problematic with today’s highly mobile workforce.The shared fate of Michigan communities was again emphasized by Detroit City Council President Saunteel Jenkins. “We are all tied at the hip with this. It’s no longer cities competing against each other. We’re working together to compete on a world stage now,” said Jenkins. The main thing that inspires her for the future: the city’s people. Detroit has added close to 30,000 new jobs in the last 4-5 years, she said.
“A tale of two cities” was a core message from Gary A. Brown, Chief Operations Officer to the City of Detroit by Emergency Manager Kevyn Orr. His duties and responsibilities include the oversight, management and restructuring of multiple city agencies. Brown said when the bankruptcy became imminent, he didn’t know what to expect but he quickly saw that “Detroit didn’t fall off into the river.” It’s really municipal government that’s broken, he said: the business and corporate community are doing just fine. Detroit will indeed balance the sheet and resolve its legacy costs, he said. The larger fear is the city government won’t be restructured enough to adequately deliver services to avoid falling back into this same trap in another few years.No matter what, the credit implications can linger for some time and the Detroit bankruptcy itself will be a long process, said Jane Ridley, analytic manager and team leader for the State and Local Government Department’s Great Lakes group at Standard & Poor’s Ratings Service. Ridley talked about what the bankruptcy means from a market perspective on a national basis, and advised patience for the time ahead.
The best take-away lesson for other municipalities is to take steps to resolve similar issues before they reach this crisis point, said attorney Douglas C. Bernstein of Plunkett Cooney, who works in the areas of commercial litigation, commercial loan restructuring and documentation, creditors’ rights, commercial and municipal bankruptcy, receiverships and other banking-related litigation and appeals on behalf of national and regional lenders and special servicers. Bernstein said municipal leaders must bear in mind that there have only been 43 municipal bankruptcies since 1980 so there is not a lot of guidance and experience to rely on. If you’re facing a potential bankruptcy, he said, try to do everything you can outside of court because it is a long, uncertain process that is very, very expensive…and once you enter a court room, “all bets are off.”The session was a great opportunity for League members to ask questions and hear directly from the experts and some key players about a complex and lengthy process that should matter to all of us here in Michigan.
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