Dismember Detroit: For pensioners and public services, sell the art and Belle Isle too

Mattie Duppler | Director of Budget and Regulatory Policy, ATR

News that Detroit has been declared eligible for bankruptcy protection may have come as a surprise to very few. For decades, the city has increased taxes, enlarged its workforce and expanded the promises made to public employees, while its population and revenue base eroded.

The Detroit Free Press has done excellent work digging into the decades of mismanagement of the city’s obligations, showing that many leaders ignored years of financial red flags that led to the unfunded pension and health care liabilities that are crippling Detroit today. The city’s emergency manager, Kevyn Orr, contends that the city currently stands $18 billion in debt.

But is Detroit really bankrupt? Creditors are contesting the judge’s ruling, which has brought attention to the fact that the Motor City is home to millions – if not billions – in unrealized assets that could be leveraged for the future of the city.

Americans have witnessed this kind of shell game before. The debate over the country’s debt ceiling has brought with it the most dire of warnings; without more borrowing, the country was told it would immediately default on its obligations, withhold pay from its military and stop sending out social security checks.

Taxpayers are supposed to believe this doomsday scenario is imminent, despite the collateral the U.S. government refuses to use to prevent it. The feds own 650 million acres of land, worth hundreds of billions of dollars. The government has also refused to auction leases to oil and natural gas-rich land, or sell off some of the 900,000 unused buildings taxpayers have unwittingly leased.

Instead, politicians insist increasing the nation’s borrowing authority is the only way government’s core functions can be maintained. The 2011 debt deal, which resulted in the first year-over-year real decrease in spending in the modern era, has proven this to be untrue.

Detroit faces a similar situation. A fundamental restructuring of its finances is a necessity, and with it, a serious examining of its priorities – what good is a city that is asset rich if it does so to keep its people perpetually cash and opportunity poor?

A source of heated debate is the city’s art collection at the Detroit Institute of Art. The Motor City bought up thousands of European works of art in the first half of the 20th century, compiling a collection that could be worth tens of billions of dollars. There is plenty of debate over how to fairly assess the museum’s substantial collection. There is little question, however, that a city that is drowning should be more concerned with building life rafts that float rather than ones cast in gold.

Detroit could also consider whether maintaining Fort Wayne or the 982-acre Belle Isle is in the city’s best interests. City leaders have spent decades resisting restructuring. New taxes and new borrowing staved off insolvency, only to make the day of reckoning even more painful. Sure, the DIA is a wonderful feature for the midwestern city. But even more charming is a city with streetlights that work, garbage that is collected, and a police force that can keep a city safe.

It would be wrong to presume selling assets relieves the pressure on the drivers of the city’s debt. The city cannot survive when its health costs for retirees are double that of its current workers. Detroit’s unfunded pension system mimics other municipalities who have spent decades painting rosy pictures of funds that could never live up to their bloated valuations.

It is not simply a question of prioritizing paintings over a police force. The city’s decision to position itself as the water and sewage authority for 4 million Michiganders has racked up $6 billion in debt and an additional $1 billion in pension liabilities (not to mention its operating deficits).

Lacking the ability to deliver even the most basic services to its own citizens, the city could excise this department and recoup money in lease payments. Given Detroit’s unfavorable position in bond markets, relieving the system of its ownership could allow for refinancing the operation on much better terms.

Detroit’s fiscal reckoning requires a significant evaluation of its priorities. How the city ultimately treats not only its obligations but also its assets will demonstrate whether any deal can save Detroit from further collapse.

If the city refuses to consider whether a Rembrandt is more essential to its revival than a streetlight, there will be little reason to believe any solution exists that can save the city from itself.

Mattie Duppler is the Director of Budget and Regulatory Policy at Americans for Tax Reform and the Executive Director of its Cost of Government Center.

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