Auditor: City May Go Broke

Lisa M. Collins, Detroit News, Oct. 14

With a dwindling tax base, a recalcitrant union work force, and pension and health care benefits it cannot afford, Detroit is running out of money and will not be able to pay its bills if major changes aren’t made, according to a report released Thursday by Detroit Auditor General Joe Harris.

“The truth is that Detroit’s treasury is hemorrhaging,” said Harris, whose 10-year term as an independent city auditor appointed by the City Council ends in November. “Insolvency is certain. The only question is the timing.”

Detroit Finance Director Sean Werdlow recently told the City Council that Detroit could run out of cash as early as December. That same day, Mayor Kwame Kilpatrick told the council that if the unions did not agree to contract concessions by Monday, he would announce layoffs.

The city is spending $15 million more a month than it brings in, Harris’ report says. Most of these costs are in salaries and benefits.

Insolvency would mean that Detroit would not be able to pay workers and contractors on time. If payroll, medical benefit or bond payments are late, the state government would have to consider appointing a financial manager to oversee the city’s finances, as Michigan has done in Hamtramck and Ecorse.

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“In Detroit, the problem is that it’s been so horribly mismanaged,” Schimmel said. “They always think the answer is money. The answer is not money. It’s changing the structure. You can liken it to what’s happening in the corporate world. In the ‘60s and ‘70s, companies were giving away health care benefits they couldn’t afford to pay and all kinds of other things. The cost was made up by the cost of the car. The employer said, ‘We are in our heyday; we can afford this stuff.’ And then China showed up, and India and everywhere else. And Delphi said, ‘The cost of labor is so expensive we can’t compete.’ The same thing is going to happen to cities.

“I predict in the coming years there will be a lot of Detroits. In Detroit, all the spending caught up with them.”

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