Greg MacMaster: Why I oppose the Detroit ‘bailout’

On January 22, 2014, Governor Rick Snyder proposed spending tobacco settlement money to shore up Detroit’s two city employee pension funds.

These pension funds are currently underfunded by $3.5 billion, according to Kevyn Orr, the city's emergency manager.

Last week, an 11-bill package was introduced that would give Detroit’s pensions a one-time $194.8 million infusion from the state’s rainy-day fund, create an oversight commission and switch Detroit from a defined benefit pension system to a defined contribution plan, among other reforms.

While I support many of the reform proposals, I will vote no on spending $194.8 million to bail out Detroit’s pension funds. I will vote no for the following reasons.

It’s not fair to local taxpayers.

It’s not fair to force Northern Michigan taxpayers to – again – pay for Lansing projects that don’t benefit our communities or our region. On a whole variety of issues, our tax dollars flow to Lansing only to be spent in southeast or west Michigan.

Our local governments receive less in state revenue sharing, our local infrastructure is underfunded, and our per-pupil school funding is less than in other parts of the state.

The time has come for the legislature to stop using Northern Michigan as its piggy bank.

It’s not fair to local governments.

Fitch Ratings, an independent Wall Street credit rating agency, has indicated that the governor’s priority of bailing out Detroit’s pension funds could make it more difficult and more expensive for other Michigan municipalities to issue bonds and borrow money.

Northern Michigan’s local governments are run well. And to think this bailout could result in them incurring higher borrowing costs because of another city’s mismanagement, and subsequent state bailout, is unacceptable.

It creates a bad precedent.

No Michigan municipality has ever received a bailout similar to that being proposed for Detroit.

The unfunded liabilities of just the third of all the municipalities that belong to the Michigan Municipal Employees Retirement System consortium are nearly $3 billion.

While I have great sympathy for Detroit’s public-employee retirees, whose retirements are jeopardized by that city’s fiscal mismanagement, the fact remains: If Detroit is bailed out, how can any of these other municipalities be denied a bailout?

The governor’s plan creates an implicit contract that Michigan taxpayers will be the funders of last resort for any mismanaged public pension fund. And these amounts could run into the billions.

Detroit already receives special treatment from Lansing.

Historically, Detroit has received generous support from state government.

The state has decreed that Detroit is the only city in Michigan that can assess its own utility tax. It’s the only city that can assess a wagering tax. It has the highest city tax in the state. The state has helped Detroit borrow $610 million between 2005 and 2011 alone. The list of special considerations goes on and on.

But perhaps the most egregious example of how Detroit is treated better than other municipalities is in state revenue sharing payments.

In 2013 the state budget included $236 million in optional revenue sharing payments to cities, villages and townships. That’s funding that helps to pay for local fire, police and a host of other local government services.

Detroit alone took 58 percent of these payments. Michigan’s other 1,240 townships, 275 cities, and 257 villages split the rest.

Far from the claim that the state has been neglecting Detroit, the state has been propping up Detroit for years. And what have Michigan taxpayers received for their generosity? Epic corruption and fiscal mismanagement.

There are better uses for $194.8 million.

According to the Michigan Department of Transportation it costs $20 to fill a pothole. $194.8 million is enough to fill 9.74 million potholes, which would benefit all Michigan residents.

Detroit has the ability to bail out the pension funds on its own.

According to the Mackinac Center for Public Policy, Christie’s auction appraised the painting portfolio of the city-owned Detroit Institute of Arts.

Just one painting in its $1 billion collection – “The Wedding Dance” by Pieter Bruegel – would sell for as much as $200 million if put up for auction.

I believe the city has turned a corner under the guidance of emergency manager Kevyn Orr. And I’m willing to consider options to reduce legal risk and limit liabilities by dismissing a lawsuit with prejudice. But I see the $194.8 million going beyond the lawsuit and helping to pay off creditors too, which I cannot support.

The rest of the state, and in particular, Northern Michigan has needs too. We can no longer continue to give Detroit preferential treatment that other communities do not receive, and this is especially true when the city has its own assets that it can use to bailout these pension funds.

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Comments

barb cherem
Tue, 05/13/2014 - 8:57am
You miss the fact that most states realize that their interdependence with their major city is an important one for all sorts of benefits, but Michigan has never done as most states and felt (and contributed) to that reality. That is part of the reason Detroit suffers. Suburbanites and out-staters can enjoy sports, lectures, plays, music and conferences in Detroit, but don't see how they owe anything to the city. The price of a basketball or CoAmerica ticket doesn't underwrite the land and costs of such venues alone. Detroit is asked to absorb lots of the extra costs of such intrastructure, special police and traffic costs and the like. Other states typically have realized that very real interdependence (N.Y. City was an example when they were nearly broke years back), and have contributed to "their" city in kind. Lansing needs to "get with the program" and step-up for such a change. If Detroit fails after this level of attention and costs, then our state won't have anything but Grand Rapids as a viable large city, and it really isn't where the population is, nor does it have the diversity of a Detroit area, and access to all of population centers of southeast MI. Come on UP! Us tri-county area folk tour to your area with lots of dollars. It's not all an extractive deal for the rest of the state to do more than the price of their ticket to an entertainment venue. Lansing needs to realize that "we're in this together"; we thrive or die together, just not to the same extent, but we really do need one another.
Tue, 05/13/2014 - 10:38am
But isn't this an opportunity to educate the public? Are you against public education? How else are the voters in Detroit going to get the message that they themselves are responsible for their politicians? Are the unions going to have their Damascene conversion unless they feel a little bit of the pinch? And I don't see any basis for “we’re in this together” kind of slogans. Detroit has been an economic and cultural doughnut hole for 40 years. What math finds that a zero adds or subtracts from the sum?
Rich
Tue, 05/13/2014 - 9:02am
And in all the statements about rescuing Detroit, what we have not heard is what they will do to prevent the same scenario from happening in another 10 years. It has been stated that Detroit is too large for its population and requires too much fire and police protection spread too thinly. Where is the measure to close off and close down or sell off 1/2 of the 139 square miles of the city. Instead we read that the lighting commission is placing new streetlights on every block in the city and when it is winter, every street will be eventually plowed. When will new efficiencies be in place to, among other things, reduce the cost it takes to process each check that the city writes. We've heard of "new infrastructure" to achieve such efficiencies, but have seen no metrics to support any reduction. Privatize the payroll department and you will get an immediate reduction, as well as more motivated employees. No, I think Detroit is fighting every measure that would prevent another bankruptcy, and would like things to go on as they have for the past 50 years. Absent any proof of efficiencies, the State would be better served taking care of those that have already shown they can run a local government. I agree with Rep. MacMaster.
Tue, 05/13/2014 - 9:30am
After the public schools in Kalkaska ran out of money in the 1990s, the state fundamentally changed the way public education is funded. Local property taxes no longer support the operation of local school. The bankruptcy of Detroit and the need for an Emergency Manage in a dozen or so Michigan cities and school districts should lead to a similar change in the funding of local government. Let's impose a statewide property tax on all property owners. Let the state take those funds and distribute them to cities on the basis of census counts of their population.
Jim
Tue, 05/13/2014 - 10:04am
Until there is accountability or all concerned, I too oppose a bailout for Detroit. I want to see concessions and I want to see lawmakers from the Southeast part of the state support equity funding for ALL schools in Michigan.
Chuck Fellows
Tue, 05/13/2014 - 12:35pm
The City of Detroit has endured abuse and ignorance since the 1950s. The influx of those who were "different" (Immigrants from the southern United States) as labor for the industry that created Michigan's economy were isolated, separated and ignored by policy leaders. Housing values deteriorated, inadeaquate housing projects built to accomodate those displaced by the escape freeways built for real estate interests. I guess its convenient to forget the restrictive covenants written into master deeds prohibiting a certain type of citizen from buying or renting in certain neighborhoods. When containment didn't work the money left Detroit for the suburbs leaving Detroit's citizens to support the infrastructure still used today by suburbs. The representative is short on history and knowledge. Detroit is a State of Michigan matter to be delt with by the whole state since it took the whole state to create the morass it is today.
EB
Tue, 05/13/2014 - 1:15pm
This extreme right wing Tea Partying legislator is mine. He's in the 105th, a very red State House district gerrymandered to stay that way. The winner of the Republican primary in the 105th is the winner of the general election, and the winner of the Republican primary is always the most radical Republican candidate on the primary ballot. In a contested primary they fall over themselves attempting to get the mantle as the most radical conservative. Fortunately our current nut case isn't running for the 105th, he's unfortunately running for a State Senate seat. But it doesn't make any difference. His replacement will be just a looney as MacMaster. MacMaster should be the poster child for election reform: unbiased redistricting and a jungle primary where the top two vote-getters runoff in the general. As for what he has to say about Detroit, it's the Tea Party position. Everything he favors is the Tea Party position.
blufox
Tue, 05/13/2014 - 1:37pm
Has Representative MacMaster started working on the constitutional amendment to delet Section 24 of the Michigan Constitution? You don't have to send money to Detroit......just follow the law. STATE CONSTITUTION (EXCERPT) CONSTITUTION OF MICHIGAN OF 1963 § 24 Public pension plans and retirement systems, obligation. Sec. 24. The accrued financial benefits of each pension plan and retirement system of the state AND its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired there
LawyerBru
Tue, 05/13/2014 - 2:12pm
You are correct to focus on the word AND but you also need to consider the word THEREOF. Maybe it refers to the state only, but it also may refer to "its political subdivisions." This could be read to mean that Marquette has a contractual obligation to pay for Detroit's pensions and vice versa. It could also mean that each political subdivision has a contractual obligation to pay for its own pensions. It's just not clear. Short of a constitutional amendment clarifying the meaning, the interpretation must be by a court with proper jurisdiction. It appears that the governor wishes to avoid a legal battle (at this time) on the meaning of "thereof." Detroit may well be the first of many cities or counties facing this problem. Flint is already hinting at the need for State aid so it won't have to fire public safety workers. So a state "bailout" of Detroit would not necessarily be the last bailout. In a perfect world, a court decision on the meaning of sec. 24 should be the first step so that the state and all of its political subdivisions may plan for the future. But it would take 3-5 years to get that court decision and -- because we elect the governor and our judges -- it would become a major political battle. Handling it through a combination of bankruptcy and bailout may be the most palatable alternative, especially when you consider that the main objectives of the state and local governments should be focused on education, public health and safety, economic growth and jobs, and our roads. Options other than bankruptcy + bailout seem equally bad, if not worse. There aren't any good options that I can see.
yooperine
Tue, 05/13/2014 - 2:30pm
This is disingenous to an extreme. The UP (and rural Michigan generally) get a huge subsidy from the more populous areas-on a per capita basis, spending for roads, infrastructure,and everything else is hugely skewed toward the rural areas. Having grown up in a rural area, and still spending a lot of time there, that is personally OK with me, since we need rural areas along with cities and suburbs, but to have the subsidized whine in this manner is really offensive.
Graydon DeCamp
Wed, 05/14/2014 - 7:03am
From the ad hominem vitriol of EB to BridgeMI's own mischaracterization of Mr. MacMaster as a Yooper to the utter failure of everyone else to agree on much of an anything, it looks like The Center of Michigan has a little more work to do. Until then, maybe, they should change the name of "BridgeMI" to "The Straitsjacket."
John S.
Wed, 05/14/2014 - 1:09pm
This is the old value conflict of self-reliance (conservative) vs. inter-dependence. Rep. MacMaster's argument makes some sense. It's the old moral hazard argument--if the state keeps on rewarding (i.e., bailing out) incompetent governance, it sets a bad precedent, reinforcing further incompetence. Still, there's also the notion of fiscal externalities. The city of Detroit (and some neighboring suburbs) include sizable populations of poor people who put extraordinary demands on services but pay little in taxes. For many of these poor, Detroit and a few other places are the only places that have affordable housing. Much of the middle class (both African American and white) have exited the city. The new mayor seems to recognize this fundamental problem (flight of the middle class) but without some help from the state may lack the resources (and policies) to stem the bleeding. Rep. MacMaster's constituents no doubt would say that the city of Detroit's problems should not be their own. There are dozens of problems that the City puts up with that are entirely opaque to rural and small town Michigan (e.g., food desert, high auto insurance, high property insurance, high crime rates, public transportation, ...) The fact of the matter, however, is that the City is only partly responsible for the mess that it finds itself in. The State (and its elected public officials) bear some of the responsibility too.
Earl
Thu, 05/15/2014 - 2:31pm
The email headline reads: "Detroit has received preferential treatment for years." Here are six reasons one Upper Peninsula legislator won't support sending more money Detroit's way. Kewadin is located in northern Michigan but it is south of the Mackinac Bridge and therefore NOT in the Upper Peninsula.
Charlene
Fri, 05/16/2014 - 2:22pm
"There are better uses for $194.8 million. According to the Michigan Department of Transportation it costs $20 to fill a pothole. $194.8 million is enough to fill 9.74 million potholes, which would benefit all Michigan residents." This is pretty interesting given that the Republican-controlled Legislature refuses to legislate any meaningful, long-term strategies addressing our deteriorating roads and bridges. Evidently Mr. MacMasters thinks just filling potholes will fix the problem. Detroit isn't just any other Michigan municipality, and it's contribution to the Northern Lower Michigan tourist economy has been considerable over the years. Maybe Mr. MacMasters doesn't know enough about his local economy to realize that.
Tom
Sun, 05/18/2014 - 8:58am
The State will have to bail out Detroit. The promised reforms should be guaranteed as part of the package. BUT, how about having the DIA throw in The Wedding Dance as part of the deal. The State could act as a pawn shop of sorts. Keep the piece at the DIA for a fixed period of time during which Detroit can buy it back. Afterward, if the State still owns it, the state decides if it wants to "loan" it to the DIA, rotate it around other museums in the State, or sell it if the State needs the money.
Jim
Sun, 05/18/2014 - 9:55am
As goes Detroit, so goes the rest of our state. Most Michigan citizens with common sense know this and want to help Detroit be the comeback city. Now is the time to turn this corner with help from the rest of us. His comments are but one more example of why Representative, Greg McMasters is unfit for public office. It goes along with his scare tactics about Agenda 21, his support for shutting down government, his opposition to the NITC, his opposition to Medicare expansion, etc. McMasters has tried to thwart just about all of the good things that Governor Snyder has tried to accomplish. I will be working hard to get him voted out of office and hope others will too.
Ruth
Sun, 05/18/2014 - 11:57am
I wonder if Representative MacMasters favors going back to local schools being supported by local taxpayers. I'm sure he willing accepts State school aid money generated from districts such as Oakland County. Oakland County is a "donor" county since they contribute more to the state than they receive. People often forget the times, although long ago, when Detroit was a very viable economic entity and contributed to the financial health of Michigan.