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Wednesday, February 20, 2013

Momentum vs. impending emergency financial manager or bankruptcy for Detroit

It seems like the momentum surrounding the City has never been better. The investment. The enthusiasm. The energy. The new Hudson-Webber "7.2 SQ MI" report shared by the Free Press shows the evidence of progress in Midtown and Downtown: http://www.freep.com/assets/freep/pdf/C4201048218.PDF (this is an incredibly fascinating report and highly recommended read for those monitoring developments in the D)

It also seems like the City itself has never been worse. With the release of the Detroit Financial Review Team's findings, our suspicions have been confirmed. The City needs an Emergency Financial Manager or to go through bankruptcy.

Some observations on their findings (http://www.freep.com/assets/freep/pdf/C4201112219.PDF):
  • Detroit will be spending ~$700 m on retiree healthcare over the next five years...Vanguard bought the entire DMC for just $365 m in cash (plus assuming liabilities and promises of future investments)...couldn't Detroit have just bought a hospital for $100 m and offered its retirees free healthcare for much less than what it is paying per year right now?
  • Since 2006, Detroit's Revenues have exceeded Expenditures (though both have been declining) for a Current Surplus each year...what is resulting in deficits in the general fund are huge negatives in "Other Financing Sources"...I wonder if this is debt/interest payments?
DPS went through the Emergency Financial Manager route with Robert Bobb. He did a lot of good things, but I'm not sure he solved the underlying problems, and I certainly wouldn't call DPS a success story just yet. Rather, it sometimes seems like DPS is just being wound down almost, and schools are continually being closed. I'm not looking forward to a similar story with Detroit. An EFM in Detroit can't just look to fix Detroit finances by downsizing and cutting and cutting. That is important, but if Detroit is to have a future and not dissolve, the EFM also needs to work with Detroiters and look to growth and new opportunities.

Bankruptcy worked for GM and Chrysler. Detroit is probably a more complicated situation, but I wonder if this would be a better solution than an EFM. Or, as I have proposed before, someone can just buy the outstanding bonds (that should be going for pennies on the dollar) and just retire them...