Howes: Detroit’s fiscal discipline sets tone for county

Daniel Howes
The Detroit News

Pushback has its privileges.

Mayor Mike Duggan’s readiness to challenge professional fees associated with Detroit’s historic bankruptcy is paying dividends. The city expects to borrow $30 million less than anticipated as it moves to refinance $275 million in exit financing currently held by Barclay’s.

“It’s hugely helpful,” Dave Massaron, the mayor’s deputy chief of staff, said in an interview Wednesday. “For those years the debt service is reduced in principal and interest, you have that much more you can provide in services.”

That’s not all. As part of its expected refinancing in the municipal bond market (the same market that experts predicted would spurn Detroit’s post-Chapter 9 borrowing efforts), the city also plans to restructure repayment schedules to eliminate what would have been larger payments in future years.

The result is likely to be more financial certainty in a town that has long struggled to produce realistic and disciplined budgets; more dollars to support delivery of basic services; and an improved financial profile that could be reflected in credit ratings upgrades, perhaps as early as this week.

That’s in Detroit, little more than six months after completing the largest municipal bankruptcy in American history. That’s in record time and in a largely consensual proceeding that, for the first time in a very long time, also produced collective bargaining agreements with all the city’s unions.

This kind of financial savvy should not be celebrated so much as expected in post-bankruptcy Detroit. If the city’s political leadership, and everyday Detroiters, learn anything from its long financial slide culminating in humbling bankruptcy, it should be that responsible and realistic management are now minimum requirements at City Hall.

Delivering consistently has its benefits. It builds confidence from business leaders who provide tax-paying jobs and occupy real estate. It tells lenders Detroit is a credit-worthy risk worth taking. It shows residents and skeptics alike that the pain and uncertainty of financial chaos is producing results.

A few members of City Council should take note. Should the city’s credit ratings get a bump in coming weeks, it’ll be because the city is borrowing less, refinancing what it has and making real progress on its restructuring — not because council threatened to torpedo the Water and Sewerage Department budget, imperiling the nascent Great Lakes Water Authority.

An epic bankruptcy notwithstanding, populism remains a familiar political reflex around the council table. Telling constituents what they want to hear, instead of the reality they need to know, does no one any favors. Nor does it change the fact that Detroit’s turnaround, and the discipline it requires, didn’t end with the Chapter 9 case. They’re just beginning.

Are you listening Wayne County, chiefly the county commission and the voters who put them there? Executive Warren Evans and his team clearly are, now that Gov. Rick Snyder has affirmed their request to declare a financial emergency in the state’s largest county.

But that’s just the start. In the coming days, the Democrat-controlled commission will be required under state law to pick a proverbial poison to remedy its financial predicament — and that’s likely to be a consent agreement obligating the county to execute a difficult restructuring its employees and unions are not keen to embrace.

They have little choice and arguably fewer friends than Detroit did in the throes of bankruptcy and beyond. Foundations are not likely to pledge cash to bolster the county’s underfunded pension funds. State legislators are more likely to amend the emergency manager law to make it apply more neatly to counties than they are to pledge taxpayer dollars to any rescue effort.

“Chronic financial crises will only grow worse, and the possible solutions will be far more difficult, if the crisis is not addressed immediately,” Snyder said in the statement declaring the county’s financial emergency. “Restoring Wayne County to a secure financial foundation will ensure residents will continue to get the services they need.”

It won’t be easy. A state Financial Review Team found Wayne County borrowed against expected tax revenue to meet cash-flow needs in each of the past six years. It presided over an implosion in its primary pension fund, now just 45.1 percent funded with liabilities totaling $910.5 million, down from a funding level of 94.8 percent with liabilities of $49.6 million in 2004

The county’s credit ratings are abysmal; two of the three major ratings agencies classify county debt as “junk,” or speculative grade. The review cited by the governor also found the county increased general fund spending by $50 million since 2007, even as property-tax revenue plunged $155.7 million.

Sound familiar? It should to anyone who paid attention to Detroit’s slide into Chapter 9. The same result is not as likely for the county, but one thing is: the really hard choices for its county commissioners start right now. The game playing is over.

(313) 222-2106

Daniel Howes’ column runs Tuesdays, Thursdays and Fridays and can be found at