06 January 2015

Detroit's Fresh Start Weighed Down

I keep breaking my mental promise to move on from writing about Detroit's Chapter 9 municipal bankruptcy. Go here to read one of my more recent posts where I expressed concern that notwithstanding confirmation of its plan of adjustment, Detroit was by no means out of the woods of financial distress. My concern in that post primarily focused on the problem of pension overhang, in other words, the need to pay pensions to retired employees from an ever-smaller population (and tax) base.

This editorial in the Detroit Free Press makes the same point on a larger scale:
Of the $1.7 billion that Detroit's post-bankruptcy plan is expected to generate, only about $900 million comes from restructuring the city's debts. About $483 million comes from projected new revenues, $358 million from cost saving
In other words, Detroit's plan was confirmed "on the come," that is, based on projections of the future. It is impossible, of course, not to take into account future streams of revenue when reorganizing the debts of an ongoing entity like a city. Can Detroit pull it off?
"It's very fragile," said Sheila Cockrel, a 16-year veteran of the Detroit City Council who is now the president of Crossroads Consulting. "It's too early to tell if the revenue plan is going to be able to come to fruition, but you've got to start somewhere."
Well yes, you do have to start somewhere but count me among the skeptics of whether the citizens (and organized interests) in Detroit have the political will to make it happen. (Read here for some earlier thoughts about Detroit's "political problem.") 

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