Crain's Detroit, July 17, 2014
Flint may be Michigan’s second city to plunge into bankruptcy unless retirees accept cuts in health benefits that threaten to unravel a balanced budget, Emergency Manager Darnell Earley said.
“If Flint were to go to bankruptcy, that would highlight that this legacy-cost problem has to be addressed more globally,” said Eric Scorsone, a Michigan State University economist. “Flint’s at the forefront, but a lot of cities are on the same train, and that train is headed for the cliff.”
The specter intensifies the conflict over finances in the city of 100,000, which twice has been under state control. Like Detroit, which a year ago this week filed the largest U.S. municipal bankruptcy, Flint has struggled with loss of population, jobs and revenue. The birthplace of General Motors Co. has only half its population of 1960.
“If we have no ability to mitigate the cost of retiree health care, that’s going to make it very difficult for the city to remain financially stable over the next few years,” Earley said in an interview at City Hall. Without changes, retiree pension and health expenses would consume 32 percent of the $55 million general fund.
As Detroit draws worldwide attention for its record $18 billion bankruptcy, Flint demonstrates the plight of U.S. cities where unfunded post-retirement costs rival or exceed pension liabilities. In Michigan alone in 2011, municipalities had nearly $13 billion in health-care liabilities for retirees, compared with about $3 billion for pensions. Flint is among 17 cities and school districts under some form of state control.
More than 80,000 Flint-area residents were employed by GM in 1978. Now, that number is about 7,500, according to a 2011 report by Michigan State University. In the past two years, the municipal workforce has been cut 20 percent and employees have taken a 20 percent pay cut.
A federal judge gave city officials a reprieve June 30 when he allowed changes in retiree health coverage that he had stopped in March 2013. While no trial date has been set for the lawsuit challenging the cuts, U.S District Judge Arthur Tarnow in Detroit said that without relief, Flint may have to cut public safety and can’t issue bonds to cover the cost because it has no credit rating.
The battle over Flint’s finances drags on as its downtown shows signs of revival with restaurants and businesses lining its red-brick main street, anchored by the University of Michigan-Flint campus.
“This is one bright star out of a lot of negatives,” said police Officer Tom Snyder, who patrols the district alone weekdays on a three-wheeled standup vehicle. Two officers are stationed downtown during evenings.
Yet there’s talk of eliminating the police presence to cut costs, a bad idea for the hub of the economic revival, Snyder said.
“It’s very important to support that,” he said.
Without retiree health-care changes, the police force was to be trimmed by 36 officers to 115, and the fire department cut by 19 positions, to 75, under the city’s two-year budget. Those reductions would occur despite a five-year tax increase for public safety that voters approved in 2012.
Blaming retirees is unfair, said U.S. Rep. Dan Kildee, a Flint-area Democrat who founded the Center for Community Progress, a Washington, D.C.-based advocate for urban revitalization. More culpable, he said, are shrinking local revenue and the state’s cumulative $54.9 million reduction in aid to the city since 2003, according to the Michigan Municipal League.