Grand Illusion By Shea Howell

Thinking for ourselves

Grand Illusion

By Shea Howell

November 18, 2014


shea25As the back-slapping and self congratulations of the corporate elite fades, the reality of the Detroit bankruptcy decision is settling in. The Grand Bargain is unraveling as a Grand Illusion.

 The illusions are embedded in the bankruptcy itself. Judge Steven Rhodes wrote in his opinion accepting the Snyder/Orr/Jones Day Plan of Adjustment, “There is really no choice here. There was no viable alternatives.”

 This is the Grand Illusion. From the very beginning there were alternatives.

 Illusion #1: bankruptcy was the only alternative. The financial emergency was contrived. It was a hyped with an inflated debt. Sources as varied as the Wall Street Journal and Demos questioned the estimates. Demos argued that linking municipal bankruptcies to debt was misguided. They wrote:

“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 … 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. Not only is the $18 billion outstanding debt figure irrelevant to Detroit’s bankruptcy, it is also misleading and inflated.”


Had the state of Michigan met a small part of its Revenue Sharing obligations, this cash shortfall could have been managed. Instead we are paying lawyers and consultants about this much for dismantling the city.

 Illusion #2  the city must sell the Water Department. Everyone from the Governor to the Mayor claimed there were only two choices, regionalization or privatization. But at the Bankruptcy and Beyond Conference sponsored by the Haas Institute and Damon Keith Center a third idea emerged, linking the Water Department to the pension funds. This would have protected pensions and generated income. In an April release they explained:

“The city[O1]  has explored only two options regarding the utilities: form a Great Lakes Regional Authority or pursue privatization by selecting one of 41 proposals submitted by major corporations.

 A better solution exists. The Detroit Water and Sewerage Department should be transferred to an entity that directly benefits the city that established it.

 It’s no surprise that corporations are jumping at the chance to profit from the city’s massive utility infrastructure. The water and sewer systems provide a reliable revenue stream, with operating margins of 22% and 20% respectively. While they carry an outstanding debt of $5.74 billion, together they have brought a 20% return at roughly $550 million every year.

 Imagine what that cash flow could do for the city’s schools, parks system, or fire and police departments. Imagine the benefits to taxpayers.”

 Grand Illusion #3 is that democracy has been restored. In reality, all serious budget decisions are in the hands of a commission, largely appointed by the governor. Judge Rhodes made it clear that he and the corporate elite are suspicious of any elected officials who might influence how tax dollars are spent.

 The biggest illusion of all, throughout this closed door bargaining of elites over the spoils of the city has been the belief that the corporate elite can solve our problems. They disdain democracy, the people and public, political processes. Had there been open, robust democratic discussion of what we face, better alternatives would have emerged.

 The corporate elite argues there are no alternatives because they cannot imagine a different way forward. They can only protect their own interests. Yet time and again, people, engaged in open discussion of values and principles, invent new answers to old problems.

 As the Grand Bargain appears to be no bargain and based in bad ideas, it will be the imagination of people struggling openly to create better lives that will revive our city. The idea that answers can be found in closed rooms, filled with the very people who created the problems in the first place, is a Grand Illusion.









 [O1]Or: Emergency Manager Kevyn Orr