Detroit: Restructured or Ravaged?

Against the Current, No. 164, May/June 2013

Dianne Feeley

APPOINTED BY MICHIGAN Governor Rick Snyder (R), Kevyn Orr became Emergency Manager (EM) over the city of Detroit this March 28. The media repeat that he has 18 months to “turn the city around,” but it’s unclear whether anyone believes that’s possible. Orr himself has described his mission as “the Olympics of restructuring” (see

Over a year ago, State Treasurer Andy Dillon (D), Mayor Dave Bing and City Clerk Janice Winfrey had signed a Financial Stability Agreement that established a Financial Advisory Board. It hired a Chief Financial Officer to supervise all of the city’s financial activities and a Program Management Director to initiate “reforms.”

This was billed as an alternative to having Snyder appoint an EM. But the apparatus did not diminish the city’s $15 billion debt nor increase property tax collection, which now stands at 43% of what is owed. High property taxes, combined with declining property values and a shrinking base, are part of the city’s financial straitjacket.

Some things did happen, ominous signs of things to come: The city privatized management of the bus system, and outsourced its Health and Wellness and Human Services departments. While cutting city workers’ wages 10%, it instituted a freeze on pension credits and raised city workers’ health care contribution from 10% to 30%.

After citizens gathered enough signatures to put Michigan’s Emergency Manager law, Public Act 4, on the ballot, the law was suspended and voted down in November 2012.

But the lame-duck legislature — while also ramming through Right to Work legislation — was ready with a new version, Public Act 436, this time with the state picking up the tab for the Emergency Manager’s salary. (The fact that it has an appropriation attached means that the law cannot be challenged through the referendum process.)

A suit challenging Public Act 436 was immediately filed in U.S. District Court. It asks for an injunction to stop the law, which infringes on citizen voting rights, violates collective bargaining rights and the equal protection clause of the U.S. Constitution.

Who’s the Manager?

Kevyn Orr is a specialist in bankruptcy law and was a partner in Jones Day, which represents half of the Fortune 500 companies and many of the country’s largest banks. Is it coincidental that Jones Day has been retained to serve as the city’s restructuring counsel? Snyder, Orr and Bing don’t see any conflict with hiring a law firm that represents major banks and bondholders to negotiate Detroit’s long-term debt with these very same banks.

Orr is known for his role in guiding Chrysler through bankruptcy procedures. As an EM he will earn $275,000 a year. His incidental expenses will be “privately raised,” according to State Treasurer Dillon.

The same banks that are foreclosing on homes in Detroit — leaving them unoccupied and exposed to being stripped down to their bones — have issued bonds to plug the city’s budget holes. When Mayor Kwame Kilpatrick borrowed $1.4 billion to meet pension obligations, UBS charged $46.4 million in fees. A year later the city paid $61.8 million, including insurance premiums, to have UBS sell bonds of $948.5 million.

By encouraging city officials to borrow at variable rather than fixed rates, banks have increased the amount of money the city owes by $350 million. They also jacked up their fees when Moody’s Investors Service cut the city’s ratings, which now stand at Caa1, the third lowest.

The corporate media obediently echo the claim that Detroit must “live within our means.” But what does that mean for a city whose neighborhoods have been starved to pay for downtown’s revival? When the plants that shut down have left behind more than 70 toxic waste dumps? When public transportation is spotty, at best? When only 27 out of every 100 Detroiters between the ages of 18-64 has a job?

In comparing Detroit’s working population with Philadelphia (35 per 100) or Atlanta (73 per 100), it’s obvious that the number one problem in Detroit is residents’ inability to find work, and particularly at higher-paying wages.

Two and a half times more people from the suburbs have jobs in the city than its residents, including many higher-paying ones. Yet companies like Detroit Edison/DTE Energy don’t deduct these employees’ non-resident city income taxes,  so each year the city loses this revenue — DTE alone has failed to collect $15 million in non-resident taxes. Yet when Snyder was asked if he could facilitate a law to redress this crisis, he hemmed and hawed.

Robbing Votes, Pillaging Services

Instead of job creation, we are faced with outsourcing departments and transferring the city’s assets to regional authorities. In the process, the new agencies will have fewer workers. One report outlines how the 150-year Detroit Water and Sewerage Department, serving two million customers throughout the region, should outsource most of its functions, get rid of four out of five workers, and hire contract workers to slash its total work force by 63%.

As for the Public Lighting Department, a report outlines how it could turn over its customer base to Detroit Edison/DTE. Over the last 50 years the company has been opposing any upgrading of PLD’s plants.

Detroiters would be expected to pay for the upgrading and consolidation of the street lights though another bond, while the number of street lights would be cut almost 50%. “Distressed areas” of the city would take (naturally!) the biggest hit.

While Governor Snyder says he’s helping Detroit by appointing an Emergency Manager — disenfranchising Detroiters of their vote in a city that is 85% African American and 5% Latino — the hollowness of that claim can be seen in how the state returns its revenue sharing. Since the 1930s Depression, the state collects most taxes and rebates the funds to local and county governments. But over the last 15 years, to cover the state’s own fiscal mess, the legislature has slashed Detroit’s share by 46%.

The restructuring under the 2012 Consent Agreement and the 2013 appointment of Orr as Emergency Manager will only deepen Detroiters’ problems. Demonstrations, usually led by Rev. Charles Williams of the National Action Network or by AFSCME Council 25 — representing city workers — have signaled resistance. In reality, the strength of that resistance will fundamentally determine how far the ravages of “restructuring” ultimately go.

May/June 2013, ATC 164