- Published on Wednesday, 09 July 2014 16:19
AS DETROIT works to emerge from bankruptcy following a court-supervised overhaul, another Michigan city with strong auto industry bonds could be on the brink of beginning the same process, the latest sign that the spate of municipal defaults may not have ended.
Flint, which was the birthplace of General Motors and once had 200,000 residents, also has suffered a spectacular drop in population and factory jobs and a corresponding rise in property abandonment, much like its insolvent big brother an hour’s drive south.
If a judge rules against Flint’s effort to cut its retiree health care benefits, the city is expected to join about a dozen cities or counties to seek court relief since the beginning of the recession.
“If we don’t get any relief in the courts ... we are headed over the same cliff as Detroit,” said Darnell Earley, the emergency manager appointed by Gov. Rick Snyder to manage Flint’s finances. “We can’t even sustain the budget we have if we have to put more money into health care” for city workers.
Before Detroit, the largest local government bankruptcy filing was in Jefferson County, Alabama in November 2011. The county emerged last year after reorganisation of its $4 billion in debt. Court proceedings continue for the California cities of Stockton, San Bernardino, and Mammoth Lakes, all of which filed in 2012.
The greatest threat of new cases may be in Michigan, where about a dozen cities, many of them small, and four school districts are under state control.
The state unemployment rate still is 7.3 per cent, and some entities remain saddled with underfunded pension plans.
That Flint might follow Detroit, which filed in July 2013, isn’t surprising given their shared circumstances. Both once were boomtowns brimming with auto jobs for collars white and blue. General Motors employed about 80,000 in the area in the early 1970s. Fewer than 8,000 GM jobs remain. The city’s population has fallen to just below 100,000.
The town is probably best known by many as the hometown of filmmaker Michael Moore, whose 1989 documentary “Roger and Me” chronicled in first-person, court-jester fashion the automaker’s retrenchment and the effect on the city.
Today the city is a mixed picture of hope and desolation.
Downtown bustles with people going to government offices, the growing University of Michigan branch campus and businesses along red-brick paved Saginaw Street, which features several striking iron arches that span the roadway and are replicas of those from a century ago.
But on the edge of the business district, overgrown lots and boarded-up buildings creep in, and empty houses outnumber occupied ones in some residential areas.
City officials say the city’s eroded tax base can no longer support generous public pensions and job benefits approved during good times.
Earley said Flint’s budget deficit is about US$12.9 million, and that the city will have to come up with US$5 million this fiscal year unless most retirees begin paying more for health benefits and foot higher deductibles and co-pays.
While the bankruptcy risk remains until the case ultimately is settled, the city received a temporary reprieve last week, when a federal judge allowed it to implement cuts for the current fiscal year budget. While city officials expressed relief, “the real fundamental, underlying question about the ability of a municipality to alter retiree health care benefits has not been answered,” said Gerald Ambrose, Earley’s financial adviser.
Leon Noack, 75, who retired in 1985 as assistant fire chief, said the city is dictating terms with little chance for negotiation.
“I feel sorry for the city that they’re in this bind, don’t get me wrong. I understand they need help. But the way they’re going about it is just not right,” said Noack, who said he lives on his US$2,200 a month pension.
In Detroit, workers and retirees are voting on a settlement offer before a federal judge reviews the city’s reorganisation plan this month.
Among cities in financial peril, “Flint is the obvious one (to watch) right now,” said Eric Scorsone, an economist at Michigan State University who has studied municipal insolvency.
Paul Herring, who produces public access programming including Flint City Council meetings, said cuts to local services and fee increases for water usage, for example, make it difficult for people to stay. City leaders, he said, “want to shrink Flint.”
Earley said he has no choice: “It was a lot easier when we had 200,000 people. Now, it’s not the same number of people, but it’s the same delivery systems. It’s just like any other cost passed on to consumers.”
Earley said Flint’s city workers can’t expect the kind of settlement Detroit workers were offered. Philanthropists kicked in $366 million and the state appropriated $195 million to keep the city from liquidating the collection of the Detroit Institute of Arts.
Flint doesn’t have that leverage.
“I don’t think they’re going to quite have the ‘grand bargain’ Detroit has,” Scorsone said. “Detroit’s got everyone’s attention. You’re not going to get that in Flint. ... It doesn’t carry the same resonance nationally.”