State Takeover of Detroit Finances Nears
On January 29 Bloomberg reported Bing Races to Beat Michigan Deadline for Union Detroit Deal
Democratic Mayor Dave Bing is racing to wrest concessions from 48 bargaining units to erase a $200 million deficit in the home of General Motors Co. and the cradle of the U.S. auto industry.
Otherwise, the city of 714,000 dominated by Democrats may face a Republican-appointed manager with authority to sell assets and nullify contracts. State Treasurer Andy Dillon has said Detroit will run out of cash by May, and called for concessions by early February.
This week, Bing began firing 1,000 of Detroit’s 11,300 employees. The mayor also proposes a 10 percent cut in payments to vendors and doubling the 1 percent tax on corporations.
Bing, 68, has said the city must trim annual employee benefit and pension costs, which have risen since 2001 to $35,000 per employee from $18,000.
“We are meeting, not daily but more than weekly, and there are sidebar conversations every day,” said Al Garrett, president of AFSCME Council 25, which represents about 3,000 employees. “I’m not sure an emergency manager would be any more Draconian than what the city itself is asking, but it’s a real possibility.”
Mayor Bing is taking his script straight from Greece where a deal has been “close” for days, weeks, and now months.
Today’s Bloomberg headline does not match the facts presented. Please consider Detroit Reaches Pact With City Unions to Avoid Takeover, Detroit News Says
Mayor Dave Bing and a majority of city employee unions have reached tentative agreement on concessions aimed at avoiding a state takeover.
“This agreement is the first meaningful step in achieving the necessary concessions and structural changes,” Bing, 68, said via Twitter.
The deal, but no details, was confirmed by Al Garrett, president of AFSCME Council 25. The agreement covers about 6,500 of the city’s about 11,000 employees, not including police and firefighters who have resisted a demand for a 10 percent wage cut, he said.
The city and unions must agree to concessions early this month to avoid state action, such as the appointment of an emergency manager with broad powers to cut spending, said state Treasurer Andy Dillon. Dillon is leading a review of city finances, after a preliminary review found it will run out of cash by May, and that it faces a $200 million operating deficit.
Deal Reached? Really? No, Not Really
According to mayor Bing we have an “agreement”, albeit an agreement with no details, and without covering police or firefighters. What kind of deal is that?
What’s Best for Detroit?
The best thing for Detroit would be if there is no deal, or the state rejects the deal.
Unions are the problem and the solution is to get rid of them entirely. That will not happen under Bing, but it could happen in a state takeover.
Bing is not interested in what’s best for Detroit taxpayers nor is he interested is what’s best for Detroit school children where shockingly only 25% graduate high schools. Rather, Bing is out to save as much of the status quo as he can, including his own job of course.
Detroit Schools Bankrupt
Flashback July 24,2009: The Wall Street Journal reports Detroit’s Schools Are Going Bankrupt, Too
Detroit is like many urban school districts—large, unwieldy and bureaucratic, with a powerful union that makes the system unable to adapt to changing circumstances and that until very recently had an indulgent political class that insulated it from reform. That insulation came in two forms. The first was neglect. Mayor Kwame Kilpatrick spent several years distracted by a scandal stemming from his affair with a staffer. He resigned last year, pleaded guilty to obstruction of justice, and was sentenced to four months in jail. Had he been an effective mayor, he might have also been a powerful advocate for students.
The other insulating force was a conscious decision to wall off Detroit from charter schools. In 1993, Michigan’s legislature made it difficult to create new charters in Detroit by declaring that only community colleges could authorize charters for primary and secondary schools in “First-Class Districts”—defined as those with more than 100,000 students. Detroit was the only First-Class District. In 2003 the state, under pressure from the Detroit Federation of Teachers, turned down a gift of $200 million from philanthropist Robert Thompson that would have established 15 charter schools in the city. Those charters are needed today.
The net result has been a school system that’s been coming apart as the teachers union has dug in its heels. In 2006, the union illegally went on strike, killing a plan to force teachers to take a pay cut to balance the system’s books.
Collective Bargaining has Morally and Fiscally Bankrupted Detroit Schools
Read that again. Under pressure from the Teachers’ Union, Detroit turned down $200 Million. That was in 2003 dollars. Wow. No doubt the union “did it for the kids“.
For more on the appalling behavior of Detroit’s teachers’ unions please see Detroit Public Schools (25% graduation rate) teachers unions opposing highly qualified volunteer teachers.
About the author: Mike “Mish” Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management. His top-rated global economics blog Mish’s Global Economic Trend Analysis offers insightful commentary every day of the week. He is also a contributing “professor” on Minyanville, a community site focused on economic and financial education. Every Thursday he does a podcast on HoweStreet and on an ad hoc basis he contributes to many other websites, including UnionWatch.