DETROIT – In the dark days of 2008 and 2009, General Motors' CEO Rick Wagoner infamously said GM could never go into bankruptcy.
He refused to put it there because he feared no one would ever buy a new car from a bankrupt car company.
We now know he was incorrect. We also now know he lived in a perpetual state of denial. When every economist, analyst and turn-around expert said, and told him, the horse was already out of the barn, that bankruptcy was inevitable, he just could not or would not believe there was a need to pull the trigger. It ultimately cost him his job when the President's Automotive Task Force could not believe he did not see the obvious.
Fast forward to 2011.
Listen to the powers that be in the city of Detroit. They will tell you it is possible to solve the current fiscal crisis that they can avoid an emergency [financial] manager by cutting lots of jobs, privatizing the bus system, cutting health care, asking the unions for concessions they are clearly unwilling to make.
The state treasurer, Andy Dillon, has the job of reviewing the city's finances if it sets off the trip wires like missing payroll. He came to Detroit last week and said he sees City Council and the mayor working as well together on fixing the problem as he has ever seen. He believes they can avoid an emergency manager.
Since last spring, Michigan Gov. Rick Snyder said he did not want an emergency manager, he wants a Consent Decree. That is the intermediate step. It gives the mayor more power to deal with financial issues, keeps City Council in place and moves the ball forward a bit. They all look and sound like Rick Wagoner.
The city's finances, its debt load, its legacy costs, [pension and health care] it's overspending -- $100 million a year than it takes in -- sounds suspiciously like pre-bankruptcy General Motors. There's a reason.
The city of Detroit is built on exactly the same business model as old GM. It worked in the 1950s and 1960s and started unraveling in the 1970s and it's been a long, slow slog into the depths of financial despair.
So, if GM had to be forced into bankruptcy, why would anyone believe the city of Detroit is somehow different?
I write this sitting in a City Council meeting called during its usual Thanksgiving recess where council members know they must act, feel compelled to act and then bicker over whether what they do here even will make any difference. Every person in this room knows their job hangs in the balance and still members can't even agree on what they can do to prevent the arrival of an emergency manager. It is no surprise really, this body and this city have long believed, like GM, Detroit is too big to fail.
Many believe if there are enough protests or cries of loud crowds filled with city union workers it will strike fear into Lansing's politicians. That worked once upon a time. No more. All of this is moving deck chairs on the Titanic.
Here is the fact of the matter.
The city will likely run out of cash in February.
Cities considered healthy usually have a cash hoard of roughly 10 percent of operating budget which is roughly $100 million.
The city is overspending by $100 million a year, it has NO cash hoard at all. It is broke.
In fact, because if the city goes into default on some bond debt, it will have to pay $200 million it does not have.
In the end, this city is so broke it can't even afford to go into bankruptcy!
Just like GM, the horse is out of the barn and it has been for a long time. We are watching the ultimate demise of a once great American city. For all of the flailing around of the mayor and council, for all of the gnashing of teeth, an emergency manager is coming. It's just a political calculation whether it happens sooner or later because it is ultimately the governor's decision.
I would like to conclude this blog with a quote from a piece I wrote last spring after visiting with Joe Harris. He is now the emergency manager of tiny Benton Harbor, Mich. It is Detroit in microcosm. He used to be Detroit's chief financial officer and auditor general. He is extremely well acquainted with what ails the city, tried to fix it in his previous life and City Council and the mayor prevented him from doing so. He believes it is inevitable an EM will be appointed in Detroit. And while he claims he is not lobbying for the job; everyone at the City County building believes he is the likely emergency manager.
I wrote then, and more firmly believe now the city of Detroit should be prepared. As I said then: "Beware the bean counter with a long memory".
He or someone like him is on the way.