Michigan Governor Rick Snyder has said once again that he would prefer a consent decree to an emergency manager as the state’s starting point for solving Detroit’s financial crisis. “The best answer is a consent agreement,” Snyder told Reuters Monday. “That’s where I’ve been for a long time.”
Snyder’s financial review team is expected to make its recommendation on a plan of action for the state’s largest and most important city by the end of next month.
Its choices are two: Recommend a consent decree under which the mayor and the city council would be obligated to follow a financial plan largely dictated to them by the state, but where at least local officials would remain in charge of its implementation, or recommend that he appoint an emergency manager who would have broad power to throw out elected leaders, terminate union contracts, sell city assets and consolidate services with neighboring municipalities.
Detroit City Council President Charles Pugh, who along with President Pro Tem Gary Brown is currently meeting with Snyder’s team, confirmed that it is “leaning toward a consent agreement.”
Of greatest concern to Snyder are the city’s unfunded long term debt obligations—estimated to be at least $10 billion. “Detroit has been in a financial crisis for decades,” Snyder has said. “We need a structural solution to the problem.”
The bulk of the $10 billion problem can be traced to legacy costs associated with union pension and health care obligations.
The Citizens Research Council of Michigan estimates that in addition to the city’s short-term cash flow problem (it is expected to run out of cash by April), it owes $1.5 billion on bonds it has issued to keep its pension systems funded, and $5 billion in other unfunded liabilities for retirement benefits for city workers.
Mayor Bing is currently attempting to extract pension and health care concessions from 48 city unions that represent everyone from police and firemen to trash collectors. If he succeeds, it will go a long way to providing the structural solution Snyder wants. The financial review team has given Bing until the end of the month to do so.
If the mayor can’t get it done, the state will have no choice but to intervene. But it would appoint an EM only as a last resort.
Depending on how it is structured, the timing is right for a consent agreement that would give the state, the mayor and City Council the power to extract the necessary concessions without having to appoint an EM.
That’s because under the terms of a consent decree, the unions’ right to bargain collectively would be suspended. Most current union contracts expire in June. If the term of the decree is longer than four months (and it certainly would be) the city can make a “take it or leave it” offer to union employees who, if they decide to leave it, can be replaced by someone willing to take it.
Or as the world socialist website put it, a consent decree would give “the mayor and City Council sweeping powers to slash city services and impose concessions on city workers.”
Avoiding the inevitable political fallout that would result from a state takeover is no doubt top-of-mind for Snyder.
Similarly, the mayor and council don’t want to face the consequences of having it happen on their watch.
Mayor Bing has a few more days to strike a deal with the unions.
If the unions can’t get on board, the mayor and council will need to decide what to do with the hand they’ve been dealt, and a consent agreement with the state will increasingly look like the only plausible alternative.