Financial experts offer ideas on fixing Detroit

By Corey Williams

Associated Press

Published: Sunday, April 8 2012 10:25 a.m. MDT

Robert Inman is shown In a May 8, 2007 photo provided by Inman who is professor of Finance, Economics and Public Policy at the University of Pennsylvania's Wharton School. Inman says one of Detroit's first actions in reorganizing should be to cut its payroll in half. "Unions if you want jobs at all, you're going to have to buy into a transition package.”

Robert Inman, HO, Associated Press

DETROIT — The annual chore of putting together Detroit's city budget for the upcoming fiscal year will begin in earnest in the coming days and will be performed by the mayor and City Council, instead of an emergency manager appointed by the governor.

The agreement allows the state to assist in the city's long-term restructuring, while keeping actual power in the hands of elected leaders.

The deal is designed to fix the city's $200 million budget deficit and $13.2 billion in structural debt.

The task is daunting. Detroit's fiscal situation is among the worst any major city has faced, though not totally unique. Both New York and Philadelphia have had oversight boards help those cities out of financial trouble before.

So what is the answer for Detroit? A group of bankruptcy, business, turnaround and fiscal specialists shared their ideas for saving the city with The Associated Press.

SHRINK THE PAYROLL

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Robert Inman, professor of Finance, Economics and Public Policy at the University of Pennsylvania's Wharton School, said of one of Detroit's first actions should be to cut its payroll in half.

He then suggests a get-tough approach with city unions that would begin with very frank discussions.

"Public employees, you and your wages are going to shrink," Inman said. "We're going to feel free to contract out. We're going to contract out trash services. Unions if you want jobs at all, you're going to have to buy into a transition package."

That approach is similar to parts of agreement reached Wednesday with Snyder's office which calls for outsourcing of services to save money, consolidation of departments and negotiated pay hikes.

Inman said he would do away with regulations that prohibit the growth of business. He also would make a commitment to keeping taxes on the middle class and businesses down.

Inman suggests something similar to Philadelphia's Pennsylvania Intergovernmental Cooperation Authority for Detroit. The PICA was created in 1991 to oversee Philadelphia's finances. PICA has the authority to issue refunding bonds and grant or lend the money to the city.

"All PICA does is ask are you balancing your budget and puts really good fiscal managers in there to run the operation," he said. "You have to have the transition loan that balances the books and then you have the oversight."

RAISE TAXES, FREEZE BONDS, CUT SERVICES

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Detroit "by any measure of general accounting" is bankrupt," said James McTevia, a turnaround specialist and adviser to companies in transition, about Detroit. "It's bankrupt. It's broken. It needs to be fixed. The city cannot pay its bills."

The city needs to raise money, and that can be done through a special tax on all residents and businesses, he said

"Then I'd see how much money we have available to meet the expenses," McTevia said. "Bonds and obligations? We would freeze them. That debt would then have to be restructured. If Detroit owed $100 million in bonds, and you can't meet it, the people who own the bonds would lose that money. The city would default on the bonds. What are they going to do, repossess the Penobscot Building? Detroit is insolvent anyway. People just aren't recognizing it."

Bing has threatened service cuts, but so far the biggest changes are in city bus service. Some little-used routes have been cancelled, while others have been shut down during non-peak hours.

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