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News and Issues in Urban America

Better Finances Without State Takeover

Having the Detroitís city government get its finances in order is a great idea.  Doing so via an Emergency Financial Manager is a horrible one.

Of the cities who have had an EFM, only Hamtramck has emerged. Under the EFM law, cities and school districts in the poorest areas of the state lose their democratic rights.  This assault on democracy in Michigan started with Proposal A in 1994.  Under the law, state taxes shifted from income tax and locally collected property tax (both were lowered) to the state controlled sales tax (which was increased).  Revenue that would have been controlled by counties is now distributed by the state. One of the consequences of this law is that it took school control from the local school district to the state and opened up charter school funding. Just as importantly, the state takeover has led to the current EFM crisis.

Because the state controls the purse that was once controlled by local government, when the state gets in trouble, the state reduce the amount of funding to schools and local governments.  So the local entities have less money and the state blames them for poor management.  And while there has been poor financial management in some cases, the poorest example of financial management has been the state.  The state has setup a system where it can reduce funding to a local government and then, even owing money to that local government, can then go in and take over the local government and its finances. 

The EFM law is open ended; the state can takeover a local government and does not have a timetable for when it will return control to the locally elected officials.  Letís call this what it really is, a giant power grab and a union busting tactic. 

Instead of this short term thinking, cities need to be able to work through their finances and the state should help with long term planning and contribute what the cities are owed.  The state must admit its culpability in setting up the cities for failure.

Mayor Bing has failed to manage this situation and is complicit with the Governorís staff in creating the crisis.  He blames the past 25 years or so of city management, though he has now been in charge for two of those years. During the budget debate in 2011, City Council members wanted bigger cuts to the budget. The mayor refused and said further cuts were unnecessary.  Just a few months later, he was warning that an EFM was an imminent possibility. What changed in those few months?  If he was right about the EFM, then he was wrong about the budget. He has shown himself to be either an incompetent financial manager or less than truthful about the budget.  Another option is that he has wanted the powers of an EFM all along in order to break the unions.

The city does not need an EFM to get its financial house in order, but it does need to set priorities and put together a realistic budget. There also needs to be long term planning that has been sorely missing for years.  Each time the city hits a financial crisis, citizens are told that we will have more cuts to police, fire, and transit services.  But these are the core of what city government needs to produce.  The city has many other departments. The mayor needs to reorganize city government and eliminate duplicated efforts.  Detroit has one of the largest law departments in the country, but that has remained relatively untouched. There are multiple planning and development departments. The city gives money to the DEGC, whose major success has been tearing down buildings.

While the EFM law should go away, if there is going to be an EFM, the role needs to be better defined: 1) It must be short term.  The exit for the EFM needs to be scheduled before ever taking over. There must be an end. The Detroit Public Schools have had an EFM for the better part of a decade and there is no end in site.  2) The EFM must also have specific objectives. Is the objective to balance the books regardless of the loss of essential services? Or is the objective to ensure that the local entity has essential services while developing a long term plan ensuring that there is a plan to ensure the funding of those services for years to come?  3) The EFM or anyone working for the EFM should not be allowed to take money from outside sources or anything that creates a conflict of interest. Robert Bobb took hundredís of thousands of dollars from charter school supporters who were in competition with very schools he was supposed to be championing. The EFMís loyalty must be to the city or school district alone (not even the stateís interests should take precedence).  

This is all if there is going to be an EFM.  However, there should not be one. It would be better to have the democratically elected representatives responsible for the changes that need to take place.  But that would require the state being consistent with revenue sharing and not balancing its own books on the backs of the cities and school districts.

The purpose of this web site is to:

    • Celebrate cities
    • Share a vision of how to create great cities
    • Discuss how urbanism is vital to our country's success
    • Apply urbanism to my favorite city, Detroit, Michigan.

There is plenty to read about on this site, just click the links on the left, and come back often because more will be added soon.

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