The completion of the largest municipal bankruptcy case in American history brought answers to many questions about how Detroit would manage its finances and resolution to some decades-long debates. But the Detroit case also created a renewed focus on the state’s role in helping — or hurting — local governments’ ability to manage their finances.
What does it take for a city that has failed financially to get on the right track? What happens when the slate is wiped clean, yet the tax-base remains the same?
Former Detroit City Councilwoman Sheila Cockrel, now a lecturer with Wayne State University, and Tony Minghine, the chief operating officer of the Michigan Municipal League, join Detroit Today Host Stephen Henderson to help answer questions about Detroit’s future fiscal health and what effect the bankruptcy case is having on discussions about municipal financial management throughout Michigan.
Here are some highlights from their conversation:
Bankruptcy’s New Beginnings: Minghine says the bankruptcy provided a necessary “reset” for Detroit’s finances, but that doesn’t fix all the problems. “It was… an opportunity to start over with the eliminating a lot of those legacy debts which were so huge. At the same time, it doesn’t really change the underlying finance model that’s underneath. And that’s something that’s not just Detroit specific, but really statewide is something that people don’t really realize that we have a system that doesn’t really set communities up for success,” he says.
State-level issues: Cockrel says cities such as Detroit can do a lot to restructure, but those adjustments only go so far. She says ultimately the state should plan to help struggling communities beyond emergency management. “There’s a structural problem here in the state of Michigan for 50 years,” she says. “The strategy has been if you run into problems at the state level with your budget, take it - one way or another - down the line of the local units of government. Once you have that as your model, you’re literally setting up cities and townships and villages… literally and ultimately to fail.”
Tax revenue: Minghini says cities have had to adjust because of the Great Recession, and are working with budgets that would have been appropriate decades ago, but are not enough to meet today’s community needs as the costs of providing services continue to increase. “Seventy-five percent, roughly, of a city’s revenues are going to come from property taxes and revenue sharing from the state,” he says. “They have little or no control over either those. We have some of the most stringent property tax limitations in the country.”