Howes: City Hall needs business discipline
Detroit's "fresh start" from bankruptcy is barely halfway there.
Like hometown automakers who proved worth saving with their performance of the past five years, the largest American city to negotiate Chapter 9 cannot be considered anywhere close to fixed until its elected political leaders prove they can govern effectively enough to restructure the city's broken operations.
That won't be easy. Improving delivery of basic services to long-suffering residents is a work in progress. EMS response times are improving, but not yet consistently enough. The city's sprawling water and sewerage department requires massive reinvestment. Equipment for police and fire badly needs upgrading.
The city's IT systems remain fundamentally broken, its chief information officer testified during the bankruptcy trial. Sworn officers continue to process payroll, albeit fewer than when Emergency Manager Kevyn Orr arrived at City Hall. The city's bus system, despite improved operations, continues to be subsidized by taxpayers.
All of that, and lots more, requires time, money and far better management to realize improvement justifying the sacrifice and $140 million-plus in professional fees billed to the city and its taxpayers. More than anything, it requires strong leadership from Mayor Mike Duggan and City Council — not detours into the petty dysfunction of the past.
Using Chapter 9 to shed $7 billion in debt, to reinvest $1.4 billion in city services over the next decade, to renegotiate labor contracts and pension fund investment assumptions are critically important accomplishments of bankruptcy. But they will prove insufficient if basic operations of the city are not forced — by disciplined leadership — to emulate common practices.
"We were shocked to see how poorly situated every department was to do basic services," says a consultant whose firm helped assess city operations before and during the bankruptcy case. "If this was a business, I'm confident it would be liquidated."
Detroit was neither. Still, the largest American city ever to go bankrupt will require recurring doses of business principles to maintain its financial discipline and execute an operational restructuring devised by outside experts — not the mayor and not council.
Conventional wisdom the past 11 months maintains a new kind of leadership is running City Hall; that it understands and values business investment and enthusiasm; that its willingness to work with Republicans in Lansing, and Gov. Rick Snyder in particular, is rooted in common sense and a drive to get things done.
There's a mayor whose resume of public service and private-sector restructuring is unlike any to hold the office in at least 50 years. He's demonstrated a knack for negotiating savvy deals on downtown development and a regional water authority while avoiding the traps that tended to ensnare his predecessors.
There's a council whose president, Brenda Jones, generally acts and sounds unlike the Brenda Jones of previous turns on council. Its majority membership represents districts of the city for the first time since World War I, theoretically creating a trail of accountability unknown to Keystone Kop Kouncils circa Kwame Kilpatrick.
Is the conventional wisdom right? Depends two primary factors: first, how long the macro economy (and, by implication, the auto sector) continues to expand and business continues to invest in Detroit. And, second, what the city's elected leaders and their managers inside the city bureaucracy do about restructuring over the coming months and years, not what they say.
Rhetoric unconnected to fiscal reality, a hallmark of the run-up to bankruptcy, would be among the first signals the city is sliding back toward what insolvency experts call "Chapter 18." A repeat of the brutal process would confirm failure of the worst kind and culminate in an uglier outcome.
Another warning sign: fresh borrowing to cover operational expenses. Detroit's debt proved so unbearable because its revenue collapsed precipitously; taxpayers shirked their obligations, an incompetent bureaucracy mostly failed to collect revenue due, and recession and population flight exacerbated declining property values.
The state's Financial Review Commission — aided by Richard Ravitch, a special adviser best known for his role in New York City's 1975 financial rescue — is intended to be an early warning system should Detroit begin to lose its way. The more Duggan & Co. do their respective jobs as advertised, the less Ravitch and FRC will be inclined to meddle in city affairs.
This is a unique opportunity in the modern history of Detroit, a court-assisted reckoning to ease a crushing debt load, to jettison ancillary assets, to identify what's broken — and how to chart a path back to respectability. It must be earned.
Daniel Howes' column runs Tuesdays, Thursdays and Fridays and can be found at detroitnews.com/staff/27151.