Thinking for ourselves
Plans of adjustment
By Shea Howell
Week 44 of the Occupation
February 4, 2013
Plans to adjust Detroit are underway. Soon, the confidential plan, forged behind closed doors, will be made public. The adjustments to move through bankruptcy sought by Emergency Manager Orr should be carefully studied. Orr has repeatedly shown he does not value the people of the city. He would rather protect the profits of the banks.
Now, we are depending on his belated efforts to hold banks accountable for their mis-deeds and double-dealings. It is impossible to imagine Orr championing the city. He endorses false notions of the financial crisis we face. Further, his reluctance to pursue banks has been matched by his refusal to demand the State legislature uphold its responsibilities.
1. This financial crisis is not about an $18 billion debt. The plan of adjustment should focus on the budget shortfall and ways to meet it.
Almost every mainstream media account of the bankruptcy begins with the phrase “Detroit’s $18 billion in debt.”
The amount of this debt is widely disputed and highly inflated. The high number is used to increase anxiety and cloud analysis of the real, but much more limited, problems facing us. Orr should stop using this as the starting point of his plan.
A recent report released by Demos, an independent think tank, concluded:
“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 import ways, not rooted in fact.”
“Detroit’s bankruptcy was primarily caused by a sever decline in revenue and exacerbated by complicated Wall Street deals that put its ability to pay it expenses at greater risk.”
2. Wall Street deals, not pensions, are the problem.
From 2008, with the collapse of the housing market, to 2013 the money owed by Detroit to Wall Street increased by $38.5 million. This increase, relating to fees and complex rate structures, accounts for more than 60 percent of the total increase in legacy expenses facing the city.
Over the same period of time, the city’s pension contribution expenses remained relatively flat, rising only $2 million.
Healthcare contributions expenses increased by $24.3 million, but this increase is just 3.25 percent per year. That is less than national annual increase in healthcare costs of 4 percent.
3. The State of Michigan intentionally created a cash crisis in Detroit. It is responsible to help resolve it.
Detroit has suffered from the broken promises of the Engler administration. Putting that aside, the current right wing, anti-Detroit state legislature intentionally passed laws to slash revenue sharing to the city.
Demos concluded that the State of Michigan has “exacerbated Detroit’s revenue crisis by slashing $67 million in state revenue sharing with the city.” While some of this was due to the mandates of the state Constitution linking revenue to population, most of the loss was orchestrated by the right-wing legislature. In fact, $42.8 million, or 64% of total state cuts, 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 taxpayers of Detroit and other cities,” Demos concluded.
While manipulating to put Emergency Manager legislation in place, Lansing law makers made cuts that account for nearly a third of the city’s revenue losses between FY 2011 and FY 2013. These discretionary cuts pushed us into the cash flow crisis that we are now experiencing.
4. Detroit does not have a spending problem.
Since 2008 city expenses have decreased by $356.3 million, including a 38 percent reduction in operating expenses. We laid-off 2350 workers, cut pay, and reduced benefits. The average person receiving a pension gets $19,000 a year.
Orr needs to adjust his thinking. He cannot represent the city by repeating the lies of those who want to destroy Detroit.