Steve Rattner pleads that Detroit must be saved:
America is just as much about aiding those less fortunate as it is about personal responsibility. Government does this in so many ways; why shouldn’t it help Detroit rebuild itself?
Many call for scaling back the city to fit realistic population projections. While logical, the potential for downsizing Detroit is limited because the city’s population didn’t flee from just one neighborhood; the departures were scattered, requiring Detroit to deliver services across a geographic area the size of Philadelphia, with less than half the population. Further cuts will surely come, but in some key areas, like public safety and blight removal, Detroit needs to spend more, not less.
That necessitates large-scale reductions in its liabilities, which total as much as $18 billion. By comparison, the country’s second largest municipal bankruptcy — that of Jefferson County, Ala., which is slightly smaller than Detroit in population — involves $4 billion of liabilities.
Detroit faces greater challenges than the automakers because the structure of its obligations is quite different from those of General Motors and Chrysler.
Detroit owes approximately $5.3 billion on debt that has first call on all water and sewer revenues, which means the holders of that debt have to the right to take as much of the water and sewer fees (after operating expenses) as are needed to service the debt.
The bulk of its obligations are to the grossly underfunded pension plans and for retiree health care costs — nearly half of the city’s total liabilities. The city has suggested that it cut these by 90 percent. Although retirees don’t have a lot of legal rights in the bankruptcy process, it is difficult to imagine — on either a human or a political level — an exit from bankruptcy that would include reductions of this magnitude.
The first duty to help lies with the state: Gov. Rick Snyder has made clear that Detroit’s success is key to Michigan’s success.
I’m not from Detroit. I didn’t grow up in Detroit. I don’t know a great deal about the city’s history. My plan would be very different from Mr. Rattner’s. It would be based on three principles:
- Don’t save the city.
- Do save the people.
- Spread the pain around.
The very first thing that needs to happen is that both the city of Detroit and the state of Michigan and citizens’ groups in both places need to stop trying to save Detroit. Reduce Detroit’s operating costs by redrawing Detroit’s city borders, condemning large portions through eminent domain, and razing the present structures in the large abandoned portions. Give unemployed Detroit residents jobs doing the work. What I have in mind is a Detroit that’s half to a third its present size. I couldn’t begin to draw the map. I think that should be left to people from Detroit and Michigan.
Sow the condemned area with native plants. Return most of it to green space.
Provide assistance to the people in the condemned areas so they’ll have somewhere to go and the wherewithal to go there.
Reduce the city’s workforce to be commensurate with a city of 700,000 people.
Convert the pension plan of the present public employees to a defined contribution plan. Make the contributions even if that requires state help.
Cap present public pensions. Pick a nice, round number, say, $100,000. That wouldn’t affect many people but it would be a start. Pick a number.
Reduce the pension benefits for current city retirees according to a formula that takes into account age, length of service, how much they are receiving, and whether they’re eligible for Social Security. It should be kept in mind that most retired public school teachers aren’t eligible for Social Security. Cutting a 70 year old retired teacher’s pension by 90% will throw him or her into penury. That’s not justice nor will it be a learning experience.
Mr. Rattner is wrong in completely absolving city workers from blame. They voted for years of fraud, corruption, and mismanagement and they should bear at least some of the costs of that. But let’s temper justice with mercy.
That’s a quick hipshot outline. I’m sure that more knowledgeable people can come up with a better, more detailed plan. But think about the premises of any rescue plan. Are we saving an outline on a map or people?