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Policy: Budgets & Deficits

Two ways Detroit can think outside the box to get out of bankrupcty

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Op-Eds,Labor unions,Detroit,Michigan,Budgets and Deficits,Detroit Bankruptcy

It took more than 40 years of decline for Detroit to hit rock bottom and it may take even longer to fix the city.

But Detroit's historic bankruptcy is not just a city problem, because its effects will reverberate throughout the national economy when Michigan and federal taxpayers foot the bill at a time when working Americans are already taxed to the max.

Detroit is $19 billion in debt, has an operating deficit of $390 million and runs a daily shortfall. Despite losing more than half its population since 1960, its union-controlled city bureaucracy remains its largest employer and has not shrunk with the loss of its people and tax base.

Its unemployment rate (currently 16.3 percent) has “fallen” recently but only because its population is bolting, leaving fewer people behind to be jobless.

The municipal bond market has slid downward since Detroit’s bankruptcy was announced in July, with Michigan bond sales at lowest levels in a decade.

The wobbly stance of Michigan's Republican Gov. Rick Snyder on whether the state will honor Detroit’s general obligation municipal bonds of $530 million has given the bond market and American mayors serious financial jitters.

In any bankruptcy, a debtor must look to all assets to satisfy creditors — and in the case of Detroit, to survive. Privatization and divestiture are moral and financial obligations and the only choices for immediate cash infusion.

Detroit must turn its infrastructure spending into revenue sources using all available options.

Detroit’s Institute of Art and its Historical Museum are bulging with assets valued, conservatively, between $2 and $4 billion. Selling these assets would cover most of Detroit’s current $3.5 billion in unfunded pension liabilities for its retired public sector union members.

Belle Isle Park comprises 985-acres on the Detroit River and is an uncultivated asset currently draining the city budget. With four marinas and two golf courses already in place, it could be sold to developers to create a mixed-use hot spot of retail, residential and office space — and jobs.

Creating a Belle Isle enterprise zone free of the taxation (Detroit has the highest property tax rates in the country), union demands (Michigan is now a right-to-work state) and outrageous regulations that have heretofore squashed Detroit’s small businesses would bring hundreds of millions into city coffers right away and turn it from expenditure to revenue source.

In any effort to sell assets for both immediate profit and future tax revenue, Detroit has an unusual ally — its churches.

Detroit’s Greater Grace Temple profitably operates a golf course it bought from the city in 2007. A foundation affiliated with the Hartford Baptist Church purchased distressed land at bargain prices which it leases to Home Depot and several fast food chains.

Another local church trains entrepreneurs and has invested in office space and a senior citizen complex. Several churches have management companies that turned abandoned property into retail stores and apartment homes.

With their non-profit status and position in the community, not only could Detroit's churches serve as perfect intermediaries for job-creating individual developers, philanthropies and corporate investors, but they are the best hope to revitalize neighborhoods and address social problems that have contributed heavily to the city’s extraordinary decline.

In Detroit, only 9 percent of households with children are headed by married adults, and 70 percent of births are to single mothers. It has the highest rate of poverty and violent crime of any U.S city over 200,000 people.

Manufacturing decline and rampant union and government corruption in Detroit destroyed this once proud city. It will only survive by harnessing corruption-resistant assets — starting with existing property and its faith community.

Kerri Toloczko is a senior fellow at the Frontiers of Freedom.
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