Rochester Hills Official Asks: What is the Solution for Detroit?

The following guest opinion article was submitted by Ravi Yalamanchi, a Rochester Hills City Council member and resident of the city.

Detroit is in the news everyday for crime, Kwame Kilpatrick or financial challenges. Ironically all three are connected in some respect.

Detroit financial challenges started in early 70’s as more people and businesses started to move out into the suburbs. In the past four decades there has never been responsible management of the schools or the city. One thing that stayed constant in the past four decades is poor, failed and corrupt leadership at the Council, School Board and Mayor’s office. Both Detroit Public Schools and City government have been bloated for decades with high costs to the taxpayer. While revenue continued to drop the expenses continued to increase and there was never a business approach to the financial operations of either the School District or the city. It is a shame that more elected leaders abused and were part of the corrupt system and only a few really cared about the city, such as Mayor Bing. The Unions contributed to the failed status as much as the politicians.

Detroit every year receives about $300 million in federal funds for Housing, Transportation, Head Start, Work Force Investment, community policing, weatherization and other programs. Between fiscal years 2008 - 2011 Detroit received over $1.2 billion in federal funds. Businesses and foundations have invested $100’s of millions in Detroit with more commitments for the future. With so much funding coming into the city besides to its own revenue from property taxes and income taxes why does the city continue to fail year after year?

If you take a drive through Detroit in part of the city you see deteriorated neighborhoods, abandoned buildings, crumpling roads and infrastructure. Home ownership has dropped to historic lows of 53.8% with more properties under rental. A high percent of landlords live outside of Detroit. Detroit has high property tax rates of $68.19 for every $1,000. For a home assessed at $50,000 taxes will be $3,410 and for a similar home in Rochester Hills taxes are $1,667.

According to the Detroit Financial Review Team, Detroit faces more than $14 billion in liability. How much would the residents have to be taxed to cover the deficit and how much more to stay afloat? The Economic Characteristics of Detroit, per the American Community Survey of the U.S. Census Bureau:

• The labor force is 54.2% and 45.7% are not in labor force;
• 45.5% of the households have income below $25,000;
• 31.5% receive social security;
• 34.5% depend on food stamps;
• Mean Social Security Income is $14,096 and mean retirement income is $18.535;
• Per capita income is $15,261;
• 31.1% of the families live below the poverty level.

With low house values, low income households, low employment labor force and high property taxes, such staggering data clearly indicate the economic challenges of the city.

No Emergency Manager or Emergency Financial Manager can fix Detroit without making radical changes to every part and function of the City Government. The audit reports have consistently reported significant deficiencies in internal control and material weaknesses. Year after year the city ran huge deficits. The cleanup of the city should not be just at the periphery but an overhaul of the entire city government. The financial review by the Governor’s team has been dragged on for more than two years. It is politics that keeps dragging the issue and making it much worse every month. Detroit should stop and the Governor should not allow more borrowing.

It is imperative Detroit become a viable city. Detroit has a lot of community assets, such as nonprofits, health and educational institutions, foundations, businesses that are committed, and residents who believe in their city.

But none of this will matter if the city’s financial condition is not cleaned up.

Because every decision by the Emergency Manager will be blocked and dragged on by the city council the Governor should put the city into a structured bankruptcy. Bankruptcy will help to re-structure and re-organize the city government, eliminate waste, close out departments that are not of value, privatize management of grants through nonprofits, and re-structure the pensions and health liabilities. The bankruptcy should not be forced for a short duration. It should be given at least three to five years or until Detroit can be financially viable for the long duration.

Along with Detroit, Flint, Pontiac, Benton Harbor and any city or school district that has created an unmanageable financial condition should be subjected to bankruptcy. This is the only option if we want to see these cities become viable and preserve the urban fabric.