Detroit’s response to bankruptcy: Sell no assets; build new $450 million hockey rink

detroit hockey

Worth every penny.

For decades, Detroit’s Democrat politicians have steered the city towards an inevitable crash that finally arrived in June 2013, when the city officially declared Chapter 9 bankruptcy and Kevyn Orr was federally appointed as an emergency manager, an act that turned Detroit Mayor Dave Bing into a figurehead as politically powerful as Queen Elizabeth.

Recently, Emergency Manager Kevyn Orr released a 134-page report on Detroit, which partly explains how the city piled up $20 billion in unpayable debt. A huge part of the blame goes to the pension and retiree health benefits for city workers. In 2012, that ate up more than 38 percent of the city’s revenue; money that should have paid for public services.

According to Orr’s report, the effectiveness of Detroit’s police force is “extremely low”. The city’s rate of violent crime is five times the national average; the average fire station is 80 years old; and the number of city parks has dried up, from 317 to 107 in the past five years.

So who is getting all these dollars that could be keeping the city healthy?  Detroit has 47 public employee unions, from organized crossing guards to the Association of Professional Construction Inspectors. Their contracts with the city allowed employees to move up the food chain from job to job based solely on seniority, “without regard to merit, relevant qualifications or experience,” the report says.

These over-the-top benefits are the legacy of Detroit’s mostly Democratic politicians, including former mayor Kwame Kilpatrick, who faces more than 20 years in prison on bribery and extortion charges related to rigging city contracts.

For this and many other reasons, Detroit is caught in a death spiral of depopulation, which leads to reduced revenue, which leads to atrophied services, which leads to depopulation. Since 1950, Detroit has withered from 1.9 million residents to 700,000 today, and only a minority of the survivors earn enough to pay taxes.

Clearly, the time for drastic action is long overdue. Today, Orr has a plan to restructure the city’s debt and direct $1.25 billion in savings over 10 years toward rebuilding the badly wounded city.
More importantly, Orr has the ability to make tough decisions whether the mayor and city council like them or not. The Michigan law under which Gov. Rick Snyder (R) appointed Orr gives him the authority him to do whatever it takes, from ripping up union contracts to blowing the whistle on alleged pension fund malfeasance.

Besides the Chapter 9 bankruptcy, Orr even looked at selling works of art in the Detroit Institute of Arts, including paintings by Caravaggio, Matisse, Monet and Van Gogh. He hired Christie’s Appraisals, Inc., to estimate the value of the city’s art collection.

But Orr’s boss, Rick Snyder, says there is currently no plan to sell any artwork.  He explained the appraisal is just part of the bankruptcy process. “Essentially, part of the fiduciary responsibility of going through this process is you need to appraise the assets of the city,” he said recently.

With a Going Out Of Business Sale on Van Goghs off the table, what other possibilities are out there? Thinking way out of the box, how about spending $450 million for a new downtown rink for the Red Wings that will replace the old Joe Louis Arena?

After all, the Arena was built in 1979, and in 2009, the Red Wings said they wouldn’t sign another 30-year lease with the city for the facility. Shortly afterwards, the Red Wings started working with Detroit officials to build a new stadium downtown. But now that Detroit is deep in Chapter 9, you’d think the idea of spending $450 million on a new arena would be off the table.

Obviously, you don’t know Detroit.  On July 24, 2013, the Michigan Strategic Fund approved the plan to issue up to $450 million in bonds to finance the new arena. Some of that $450 million would also be used to help build up the area around the yet-to-be-built arena as well.

When Governor Snyder was asked how he could possibly justify this expense, he defended the use of state-issued bonds, saying Detroit needs the tax dollars and jobs. The arena project “should increase the tax base of the city longer term, and should increase the employment opportunities for Detroiters,” he said. “So this should create a better environment for Detroit long-term, and that will be better for all of us.” The expectation is for the 18,000-seat arena to be constructed by 2017.

Of course, it will take more than taxing the salaries of a construction crew and the concession stand workers in the new stadium to earn this money back. Supporters of this plan have an even weaker argument. They claim that the money doesn’t come from the same city that declared bankruptcy, or at least from the same department. The arena will be owned by the Detroit Downtown Development Authority, which is designed to take taxes and revitalize the neighborhood with new building. It has a completely different account than the city’s general fund.

That leads to straight to another huge problem that has caused untold harm to many American cities: the multi-billion dollar misuse of redevelopment agency funds. But that’s a discussion for another day. For now, I’ll conclude by pointing out that one of the most culpable architects of Detroit’s desperate attempts to renew itself is a Republican.


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