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Howes: Hard work follows Detroit bankruptcy success

From The Detroit News

By Daniel Howes

Dec. 10, 2015

One year after its epic bankruptcy concluded, Detroit is a city on the mend.

Government is operating better, delivering quicker response times for police, fire and EMS. Streetlight replacement is running ahead of schedule. All-important revenue collection is exceeding conservative estimates detailed in the city’s Plan of Adjustment approved more than a year ago by U.S. Bankruptcy Judge Steven Rhodes.

Business investment in projects large and small is continuing, totaling more than $3.4 billion since January 2013, according to a “State of the Region” report released Wednesday by the Detroit Regional Chamber — a dollars and cents rebuttal that suggests a great American city was given up for dead prematurely.

The bankruptcy succeeded, precisely where learned skeptics were certain it would fail. Compromise forged in federal mediation proved wrong the predictions of long battles between management and labor, Republicans and Democrats, Lansing and Detroit, setting a standard that is proving difficult to perpetuate.

It worked, helped by the muscle of federal court. Instead of confrontations with labor, the city’s unions agreed to new five-year contracts. Instead of deep cuts to the pensions of retirees and the sale of city-owned art, foundations, the state, corporations and donors to the Detroit Institute of Arts marshaled $816 million in a “grand bargain” that bolstered pensions and protected the museum’s rich holdings.

The end of the largest municipal bankruptcy in American history, finished a year ago today, is not an end at all. It’s the beginning of a long, complicated and likely contentious journey that is not guaranteed by the imprimatur of a federal judge, or shedding $7 billion in debt, or spending nearly $200 million on professional fees, or booking $1.35 billion in new revenue the city expects to spend on basic services over the next nine years.

Detroit is one year into a long process of self-redemption, more next-generation reinvention than nostalgic comeback. It will require as much leadership and teamwork, and as much compromise, as the negotiations that culminated in a consensual bankruptcy deal few thought possible at the outset.

“Time was the enemy,” Chief U.S. District Judge Gerald Rosen, the case’s top federal mediator, said in a rare interview. “Can you imagine where we’d be if we were still litigating the number of issues that could be litigated? Capital was circling, and now a lot of that capital has landed.”

More is coming. The Ilitch family’s development, including a new arena for the Red Wings, promises to transform a 45-block area north of the Fox Theatre and west of Woodward into the city’s newest entertainment district. The M-1 rail project is moving ahead, soon to be followed with the realization of “destination retail” for the lower Woodward corridor.

The real estate spree of mortgage impresario Dan Gilbert, chairman of Quicken Loans Inc., continues to drive enthusiasm to be part of a downtown revitalization slowly creeping into other areas of the city like Corktown, Midtown — but not, yet, enough of the city’s neighborhoods.

There, change is coming more slowly than in downtown. Police officers will receive deserved raises under a plan announced last month by Mayor Mike Duggan, but violent crime rates remain stubbornly high. Blight removal, totaling 3,834 structures so far this year, is underway, but in a city with more than 70,000 abandoned structures, it’s not moving fast enough for many folks.

Twice the Duggan administration cut residential property taxes, but Detroit’s levy remains the highest in the state. Restructuring of the city’s finance and information technology operations, crucial to shrewd cash management, is underway, but hiring for key vacancies on the city payroll is only just beginning.

The city’s school system, Detroit Public Schools, remains a statewide embarrassment. Absent the clarifying discipline of a Chapter 9 filing, Detroit’s kids will continue to be caught between the posturing of union leaders and their political allies and state officials who see the problem, share blame for it but cannot reach anything approaching a solution.

Without one, Detroit’s post-bankruptcy revival will be hampered. Duggan, a pragmatic problem-solver, says his tenure should be judged by whether the city’s population goes up or down. Failing schools and the prospect of more to come aren’t likely to slow materially the exodus from DPS.

All of it, and more, depend on a forward economic momentum in the region and the nation that Duggan, City Council and enthusiastic business leaders cannot control. Without growth, the city’s restructuring plan, coming obligations to the city’s pension funds, the reinterpretation of Detroit itself could be imperiled.

“Detroit’s formidable challenge over the next decade remains accelerating current economic trends and generating new revenue to meet high fixed cost requirements,” Moody’s Investors Service, the credit rating agency, said in a report this month. “In the absence of substantial economic expansion and revenue growth, the requirement to resume funding pensions from general operations risks posing serious financial challenges for Detroit.”

The restructuring plan approved by Rhodes in November 2014, essentially the city’s financial road map, pegged the city’s annual pension expense in 2024 to be $111 million. But a new study prepared by Gabriel Roeder Smith & Co., long-time actuary for the city’s pension funds, says the cost could range as high as $195 million, or 28.7 percent of the city’s annual operating revenue.

The gap is substantial. Still, it’s one that can be influenced by market conditions, actuarial shifts and whether city leaders charged with executing a plan they did not create can bolster Detroit’s financial management — or not — more than its bankruptcy team envisioned.

“We’re more nimble,” said Bill Nowling, chief spokesman for Kevyn Orr, the former emergency manager who quarterbacked the bankruptcy team led by his former (and now current) colleagues at Jones Day. “This is a big city, a big city bureaucracy. It’s also a bit more realistic and rationalized now.”