February 11, 2014 at 1:00 am

Daniel Howes

Detroit redefined in bankruptcy talks

Brandy Baker / The Detroit News)

As mediation talks move into high gear in the largest municipal bankruptcy in American history, traditional assumptions of what constitutes Detroit are being challenged in ways this city hasn’t seen in more than two generations.

Assets turned liabilities for the cash-strapped city — the Detroit Institute of Arts and the Water and Sewerage Department, to name two — are on track to be independent or regionalized. Belle Isle, the gem in the Detroit River, now is a state park. New leadership in City Hall is redoubling efforts to deliver the kind of basic services a major city should.

But none of it is leaving Detroit.

Instead, the Mother of All Municipal Workouts is angling to retain Detroit’s civic cornerstones even as associated management and financial burdens are outsourced to entities with critical interests in their continued success. That’s a win-win for the city and for the region.

Here’s how: The plan to extricate the DIA from city ownership in exchange for $820 million to supplement underfunded city pensions would convey the museum and its city-owned collection to a nonprofit charitable trust. But it also would keep the museum on Woodward Avenue, according to a draft Plan of Adjustment circulating among creditors.

Detroit retains the museum and what it represents without the burden of ownership. The collection is shielded from the predations of creditors, and the DIA is guaranteed to never again be targeted in the financial stress of a municipal government it did not elect and cannot control.

On Belle Isle, the state Department of Natural Resources manages the historic park, engineers capital improvements and saves the city an estimated $6 million a year in maintenance costs it cannot afford and management it could not muster.

Detroit keeps Belle Isle, users are charged for access just like users of any other state park, and the architectural gem sitting astride an international border gets the upgrade it deserves. Mayor Mike Duggan may think the city could have done the job itself, and he may be right under his leadership, but the past suggests otherwise.

The city’s water department is a sprawling, under-capitalized system serving more than four million residents of southeast Michigan. It employs too many, invests too little in maintenance, and could generate nearly $2 billion in lease payments over the next 40 years, according a proposal outlined in the city’s adjustment plan.

Suburban counties who would dominate a proposed Great Lakes Water Authority may object to paying $47 million a year over the next 40 years. They may complain that too little information is forthcoming from the city. But the proposed deal, still under negotiation, would achieve three inter-dependent goals:

It would give a majority of the system’s users representation on a governing board. Second, it would reduce surplus employment and increase spending on deferred maintenance. Finally, the city would retain ownership of the underlying asset even as its ratepayers theoretically benefit from improvements to the system.

For all the fear and loathing associated with the state takeover of the city under Public Act 436 and Emergency Manager Kevyn Orr, the evidence suggests a concerted effort is under way to leverage Detroit liabilities associated with city assets into assets that generate revenue for Detroit — just like they would if managed properly.

Mostly they weren’t. The city outsourced management of the DIA, but retained ownership of a collection imperiled by bankruptcy. Be it the water department or fire department, Belle Isle or tax collection, the police department or planning and development, deeply politicized processes and bureaucratic inertia combined to block basic oversight or reinvestment.

But sell them to the highest bidder, a risk in bankruptcy? Not happening, at least not yet. The emergency manager, working for Gov. Rick Snyder in a re-election year, is demonstrating a bias for local solutions that improve management performance while (in most cases) retaining Detroit’s bedrock ownership interests.

Orr may threaten to sell the water department to private equity investors, but the preferred solution is regional. He may say the DIA’s art is in play and its most valuable pieces may be vulnerable to creditors, but he endorses the efforts to shield it by raising money from foundations, the state and the DIA itself. He may muscle unions and pension funds in mediation, but he’s using the court to squeeze banks and Wall Street even more.

He may be empowered to cancel salaries for elected officials and to overrule local decision-making, but he has demonstrated hesitance to do either. His boss may be a Republican, but the decision to use bankruptcy to revitalize Detroit may help to re-establish the center of Michigan’s Democratic Party power — in Detroit.

So much for traditional assumptions.

daniel.howes@detroitnews.com
(313) 222-2106
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays.