A very uncomfortable chair

Rod Meloni discusses what's behind Detroit's possible bond issue

By Rod Meloni - Reporter, CFP ®
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DETROIT - It used to be one big consideration a candidate needed to get past in deciding to run for Detroit City Council was about whether you wanted your name attached to the political freak show.

Today it's not about the freak show; it's about the horror show that is the city's finances. Being broke is very uncomfortable and few among us don't know the sensation. But sitting in a City Council table chair today became about as uncomfortable as anyone could imagine. This morning Deputy Mayor Kirk Lewis and City Chief Operating Officer Chris Brown brought their financial advisors to the council session. They came asking City Council to approve a $137 million dollar bond issue.

In English, the mayor's staff wants City Council to break out the credit card to keep the city of Detroit's cash flow solid enough to make it to the end of the fiscal year which is June 30th. It's much like paying off one credit card payment using another credit card with more room. As it stood today, the City of Detroit will run out of cash sometime in April. It has a $19 million debt payment due on Sunday April 1st.

As with any transaction of this size, there are strings attached. This $137 million credit card swipe was originally attached to the so-called consent agreement/financial stabilization plan the State and City and State are negotiating for Detroit's turn around. The Mayor's office wanted the vote taken immediately, to make certain it can get the full $137 million. Lewis warned if the council waited another day it would lose out on that $19 million that's due this weekend. This is when the realization kicked in for those at the council table they are in one very tough spot. Up until now the decisions they were making were in large measure the mayor's responsibility. But this time they are being asked to move, without all the i's dotted and t's crossed, they aren't getting the days or weeks of legal research done they are used to. One member said it took hours to even understand the deal as constructed. Council member Ken Cockrel said this is the most significant vote on finances he has ever had before him and believes it will have lasting significance for at least a generation.

The Rev. Andre Spivey admitted he hadn't thought of it that way and now worries about what this might mean to his seven and nine year old sons [whom he wants to stay in Detroit] when they get older. "Will they have to pay off debt I voted for" he wondered. Council members Brenda Jones and Kwame Kenyatta felt like this was the work of the state, "putting a gun to our heads" forcing a vote on a bond sale without the document its time do … the consent agreement. No council member, not even Gary Brown who has wanted a bolder approach to budget cutting for months, felt comfortable with this late-breaking, harried arrangement. The discomfort in their chairs so palpable they could only agree to postpone their decision until another council session at 4 p.m.

Complicating matters is Mayor Dave Bing's absence. He is recovering from intestinal surgery. Deputy Mayor Kirk Lewis is filling for the Mayor in the consent agreement negotiations. He did a press briefing just after council ended its session. He told us he is heading over the Treasurer's office in New Center to try and move all of this forward. He said it is the State that wants the $137 million bond issue tie-barred to the consent agreement. He would not say whether he thought it was a good idea. He did say he is going to speak with the Treasurer to try and have the tie-bar removed as a way to get council to agree to the deal. He also said the State is willing to bend on a lot of items in the consent agreement, including allowing City Council and the Mayor's office keep their autonomy and, in fact, give council more power than it has now and seeks to elevate the mayor's powers under Public Act 4 [the emergency manager law] that would allow him to impose contract terms on the city's unions after their deals expire at the end of June.

State Treasurer Andy Dillon has said he believes it's the work rules within the labor contracts that are the biggest impediment to a balanced budget. Lewis says the city would rather operate outside of Public Act 4 which means not getting involved with imposing union contracts at any time.

That brings us to a troubling question. Considering where Governor Rick Snyder started in his consent agreement which was not an emergency manager but a Financial Advisory Board that acted more like a board of emergency managers with super ceding power; Snyder wanted to assure the city's leaders he is serious they change their ways. He wants to make certain they do now what they have not displayed an ability to do in many years, balance a budget and live within its means.

The City seems to keep winning what it wants here; which is leaving the status quo in place. The Governor has not taken a firm stand as of yet. There is one issue looming out there that it appears the Governor will make his line in the sand. Many on council from firebrand JoAnn Watson to the much softer spoken Saunteel Jenkins want the State of Michigan to open up its checkbook and give the City the money it needs to bounce back. Every time I have asked the Governor's office if that is in the cards I am referred to the Speaker of the House and the Senate Majority leader. It has been made clear the Michigan Legislature is in no mood to bail out the City of Detroit.

This all takes us to the afternoon council session, vote up or down? Lose 19 million and put off the vote? Vote not and run out of cash? Vote yes "with a gun to our heads" as council members Brenda Jones and Kwame Kenyatta suggested was happening? Borrow more money and raising debt payments to help pull the city out of its immediate financial problems? Yes to the last. By a 6-3 margin they voted yes, the city will sell its bonds and pay more for the right to do so. Because the city council was so adamant on the subject, the state agreed not to tie bar the bond sale to the consent agreement. In effect it means no payless paydays for city employees this year.

This was no easy decision, today no easy day. This is the council acknowledging there are few good choices and it will no longer be business as usual in the City of Detroit. The stark reality here is this one vote may end up easy compared to the possible trouble headed council and the city's way. The consent agreement or the financial stability plan is going to be brutal, many jobs will be cut, pay will be reduced and there still remains the thorny issue of paying for all of the city's pension obligations. It truly is an uncomfortable chair at the council table, and getting more so by the day. Next up; a completed consent agreement by week's end [so we are told to expect] and a fight over whether the state will have to pony up cash as part of Detroit's turn around plan. Council is all but demanding that, the state legislature not so certain. These fights are far from over.

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