DETROIT – Anyone who has spent time recently within earshot of Detroit City Council member JoAnn Watson knows what's coming.
Her constant, broken record style, high decibel verbal drumbeat has been to decry the state of Michigan at every turn. She can and does 20 emotional minutes as if in a revival meeting on how Michigan reneged on a deal cut in 1997 between then Gov. John Engler and Detroit Mayor Dennis Archer. It gave the city roughly $270 million dollars a year in revenue sharing funds in exchange for reducing its city income tax rates. She points out that is roughly the number that would keep Detroit out of financial trouble for this year and prevent the need for an emergency manager.
She says any discussion of Detroit's inability to pay its bills would disappear if the state would simply pay its bills, like a quarter of a billion dollars owed to the citizens of Detroit. She even persuaded Mayor Dave Bing to make the same loud argument in his memorable afternoon news conference inside City Hall last month.
Local 4 started following the trail of this story last spring.
At the time, the treasurer's office said vehemently it owes the city of Detroit nothing. Its reasoning was because the original deal only addressed the then current revenue sharing formula and it stated in writing if revenue sharing legislation changed [which it did] the dtate money would run dry.
Which it did!
So, fast forward to Tuesday morning; no one saw this coming!
On the Inside Detroit radio show on WCHB-AM, hosted by the ever vigilant Mildred Gaddis, Michigan Treasurer Andy Dillon dropped a sizable bombshell. For the first time since taking office he admitted the state in fact does owe Detroit the money.
"The state failed to live up to that 10 year deal and if you add up the last revenue sharing it totals up to $224 million. So, we don't deny that deal was not kept; although Detroit, like all other cities across the state that received revenue sharing, that's statutory revenue sharing, did receive deductions beginning in about 2004."
Dillon said a lot there, yet what he did NOT say was whether the state felt any obligation to now pay back the money, or whether the state even had the wherewithal to do so. It's a carefully timed political move considering the governor has a State of the State address later this month. The belief around the city is he is likely to announce a budget surplus. Detroiters would certainly claim the first quarter of a billion as theirs and have done so loudly for more than a year. So, Dillon goes on Gaddis' show, a decidedly Detroit-centric venue, and throws residents a bone. One gets the feeling some of that money may find its way back at some future date. Whether only a small amount will get paid has been the rumor around City Hall for a while now and no one knows for sure what's at play here.
Still, as quickly as the Treasurer gave credence to one of the most hotly contested points against the emergency manager legislation in the city, he threw cold water on those raised hopes. He said, "$200 million, much of it would help the city get through this year, it won't solve the long term problems the city facing which is over $12 billion in liabilities that they have on their balance sheet."
To be fair, the city can fund roughly $10 billion of that debt, but it's the federally mandated pension funds going unfunded and that is Dillon's largest worry.
He told Gaddis, "So while that would be nice if would get us through this year and probably next year it won't solve the systemic structural problems the city has." Dillon made it clear he is deeply concerned about the pension problem, so much so he told Gaddis he believes the City will never be able to pay it off: "I think the review team will find it unsustainable and that to me is a big problem." What he is saying there is even an emergency manager can not solve that problem. No, it would take a Chapter 9 Municipal Bankruptcy filing. That, for a city blanching at an EM would amount to Armageddon. So there are huge problems still to be ironed out.
That takes us to what's happened over the holidays at Detroit City Hall. The mayor's office and the vity's union leaders have been negotiating, meeting almost daily. There is a self imposed gag order in place so no one is doing interviews. But Local 4 has learned through sources the unions are willing to give back 10 percent in pay and are willing to live with much lesser health care. The sticking point is giving back anything in the area of pensions. This is preventing the mayor from coming up with a plan that, if the state treasurer's office thought would solve the problem, could avoid an emergency manager. This is also why the treasurer has his review team already in place doing its deep dive into the City of Detroit's books. He worries a deal is unlikely
So, in the end it's all about the pensions, a crushing unfunded debt, and the one place where unions aren't willing to bend and where the federal government requires payment. So what will it be, a courageous last minute agreement that can save the city of Detroit, or a federal judge carving up what's left of the city's assets in Chapter 9?
These are very tough questions with very few good options or answers. This will be the ultimate test of the city's and the state's leadership.
The clock ticks as the money continues to run out.