A History of Blight in Rockford, IL

This morning, the Rockford Register Star published a feature by reporter Chuck Sweeny on how the west side of Rockford was purposefully engineered to be the blighted side of town.  It's a short, interesting read that gives some prospective, if nothing else, from a long-time resident.  I can't speak to any points that he brings up or whether they are entirely factual or not - I live in a nearby metropolitan area but am rarely over there.  However, I think we all need a periodic "reality check" from our residents about what they perceive is going on, and here's an excellent opportunity.

On Detroit, Emergency Managers and Dillon's Law

This past week, the State of Michigan formally announced that it would be seeking to appoint an emergency financial manager to takeover the City of Detroit, the 18th largest city in the US.  According to the New York Times, Detroit has roughly $14 billion in existing long-term liabilities.  The City has terrible, self-admitted liquidity problems, and all the symptoms of insolvency are present including revenue shortfalls ($326.6 million in FY 11/12 according to the City's CAFR), rapidly downgraded credit ratings and ballooning short-term debt (as a result of the shortfalls). A full history of the City's agreements and activities related to managing its solvency over the last few years is available in the Management Discussion & Analysis portion of its previous CAFR.

So, in short, Detroit is in dire straights.  With all major credit agencies now rating Detroit below investment grade, the City's ability to issue any more debt is significantly compromised.  Their efforts to control costs including 10% wage cuts, freezing of benefits and pay increases and various actions to outsource certain functions and reorganize debt seem to have aided slightly, but they have not been dramatic enough to demonstrate solvency to either the State or the credit agencies.  Therefore, Michigan has proposed invoking its controversial ability to assign an emergency manager to take over the city's operations and unilaterally make decisions to improve the city's finances.  Detroit seems to be somewhat ambivalent toward the whole thing. Much of Detroit's community isn't but is begrudgingly accepting it.

Michigan's authority to assign an emergency manager falls under the broad category of "Dillon's Law," which establishes municipalities as "creatures" of the State.  In simpler terms, it means the State is the boss and municipalities only have the powers given to them.  In some respects, it's a logical arrangement and makes complete sense.  After all, the State is the superior government and has a responsibility to ensure accountability.  In some instances, however, the arrangement leads to unnecessary burdens or extremely unfavorable terms on both parties.  This is, always has been and always will be a delicate balancing act.

In Detroit's case, the emergency manager situation seems somewhat necessary.  The city no longer has the ability to independently get itself out of the situation, and without some sort of guarantee of solvency, default is the only option.  An emergency manager can help prevent that.

However, the Detroit Free Press, amongst others, does make some valid points including the fact that it ignores regional issues and drastically reduces the ability of residents to use their democratic rights.  However, I think Michael Stampfler, the former emergency manager of Pontiac, MI, says it best, ""For a community to actually succeed, the Legislature needs to do more than send someone to work to balance the books and leave as fast as possible."  Balancing the books is a core necessity, and I don't think anybody can dispute that.  The problem though is that in doing so, an emergency manager, whether or not intentionally, sidesteps civil engagement and, perhaps just as gravely, can entirely dismantle an organization without leaving any easy method of putting it back together.  Then, as soon as the books are balanced, they leave without necessarily giving the organization the tools to succeed.  That's simply not sustainable.

So, I don't disagree with the Free Press's points in their editorial today.  I think their calls for transparency and cooperation are excellent, but they have to realize that the manager won't be able to make services better and fix Detroit's problems overnight.  Long-term problems require long-term solutions, and the manager is really phase one of a restructuring that Detroit needs to do together, as a community. Anything else will likely fail.

Simultaneously, the State of Michigan needs to stop such heavy-handed interpretation of Dillon's Law.  While the state is technically correct and certainly has an overriding interest in the success of its urban communities (better communities mean a better Michigan in more ways than one), they need to take the old economist adage, "Who feeds Paris?" to heart.  Just as Paris is fed through an extremely complex series of transaction, Detroit and Michigan become successful through micro and macro transactions and exchanges beyond simple fiscal solvency.  An emergency manager must preserve as well as salvage.  I urge Lansing to reconsider their approach and help cities pull themselves up with the aid of and not the commands of an emergency manager.