Howes: No let-up allowed in Detroit’s financial fitness

Daniel Howes
The Detroit News

The hard part for Detroit comes after Tuesday’s election.

Four years ago, a new mayor stepped into a City Hall he mostly did not control — a Washington lawyer-turned-emergency manager did, backed by state law, the federal bankruptcy code and a governor deeply invested in the massive municipal restructuring he ordered.

Not anymore. Kevyn Orr long ago returned to his law firm, Jones Day. Gov. Rick Snyder is poised to start his final year in office. And the city led by Mayor Mike Duggan is preparing to exit the financial oversight mandated by the city’s court-approved “plan of adjustment.”

It would be a golden opportunity for the next mayor and a reconstituted City Council to demonstrate their ability to manage Detroit’s books without minders installed by Lansing. But it’s not without risks — the biggest being the assumption that tight financial management can be maintained without the discipline imposed by outsiders.

No one understands that challenge better than Duggan, former CEO of Detroit Medical Center, and the city’s chief financial officer, John Hill. Failure to deliver balanced budgets, to grow revenue through tax collection and rising property values, to renegotiate existing debt in anticipation of new pension obligations starting in 2024 could all trigger renewed oversight by the Financial Review Board.

Avoiding those outside shackles, deeply offensive to many Detroiters and the city’s political class, depends on two things: hard-nosed financial management grounded in reality and, second, a buoyant economy that continues to fuel reinvestment downtown, Midtown and the neighborhoods.

Dreamers, loudmouths and political opportunists need not apply. As unpopular as bankruptcy’s intervention in the city’s political processes may have been, the simple fact is that it earned Detroit a second chance at reinvention it otherwise would have been unable to achieve.

That’s historic reality in this town. Sweeping, systemic change doesn’t occur without precipitating financial crises that leave institutions and their leaders nowhere else to turn. Think General Motors Corp. and Chrysler Group LLC in 2009, their bankruptcies and brutal restructurings followed four years later by one at City Hall.

What emerged in each of the three cases are stronger, arguably smarter, organizations. They tightly manage their money and external conditions as they are, not as they want them to be. And that’s rebuilding credibility with the financial markets and credit ratings agencies each need.

In a ratings upgrade issued last month, Moody’s Investors Service credited “the very conservative fiscal approach of Detroit’s current administration as well as the city’s current economic performance, which is strong considering its historic contraction.”

The risks, Moody’s said, would be a slowing or stalled economy that shrinks municipal revenue, spending of financial reserves that could be used to address emerging credit challenges, and growth in debt or pension obligations that raises fixed costs.

Sound familiar? Like the hometown automakers, the city still has to prove to its residents, to business, to the bond market and to credit ratings agencies that the ignominy of bankruptcy and the discipline it imposed are changing Detroit’s governing ways.

The margins for error are thin. Income tax collections are rising, slightly. So are the city’s taxable value, residential real estate and percentage of owner-occupied homes, projected to reach 74 percent next year — all of which are reasons why City Hall cannot loosen financial controls it’s worked so hard to improve.

Maintaining fiscal fitness, to borrow a favorite phrase of Ford Motor Co. CEO Jim Hackett, is vastly preferable to the alternative Detroiters know all too well: short-term politicking disconnected from the hard numbers and rigorous forecasting needed to run a city the size of Detroit.

The reinvention of Detroit is a process, not a destination. Billions in private-sector investment are transforming downtown and Midtown after decades of disinvestment and talent flight. A burgeoning tech sector is starting to root in an iconic industrial city America gave up for dead.

Streetlights are burning again. The QLine is rolling along Woodward, financed mostly with private dollars from corporate donors and foundations. The Ilitch family’s $1.2 billion District Detroit development, anchored by Little Caesars Arena, is connecting Foxtown with Midtown.

All of it, and more, promises to bring more taxpaying jobs, to generate more enthusiasm, to change the national narrative by better ensuring that Detroit’s second chance isn’t squandered by the re-emergence of a dysfunctional political culture mired in the past.


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Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.