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untanglingwebs
El Supremo
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The Detroit Free Press editorial today on page 17 A asks an important question. "Will your city of Township be next?" is the headline in extra large letters.
The stats on Allen Park:
93% white;
9 out of 10 residents own their own home;
median income exceeds $56,000.
MIchigan's older urban areas with their large African American populations and their high poverty rates have been easy for politicians to ignore, even when they shouldn't. The same problems cited in the editorial, such as rapidly falling property values and the state's dramatic cuts to revenue sharing are affecting all of our communities, big or small, homogenious or racially diverse.
Last edited by untanglingwebs on Sun May 20, 2012 3:01 pm; edited 1 time in total |
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Sun May 20, 2012 2:15 pm |
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untanglingwebs
El Supremo
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"The common denominator is a legacy of promises-commitments to fund pensions and retiree health benefits, underwrite economic develoment initiatives, or forego tax revenues-many municipalities no longer have the wherewithal, or at least the political will to keep. lansing policymakers will soon have to consider whether this ubiquitous problem requires a statewide solution"
ibid |
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Sun May 20, 2012 2:20 pm |
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untanglingwebs
El Supremo
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| Flint is paying back two federal108 loans (James Crawley"s Manhattan Place and Giacaleone's OK Industries). Much of the downtown was built using tax incentives. Over 17 years of grant mismanagement has resulted in over a million dollar repayment. Add to that the problems with the Department of Energy grant (Walling), a HUD monitoring finding involving the inadequacy of Eason's revision of the Department of community and Economic Development and now Smith Village. Add to that the problems with the Flint Area Investment Fund and the Flint Economic Development Corporation. |
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Sun May 20, 2012 2:32 pm |
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untanglingwebs
El Supremo
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The editorial urges the Governor and state legislators to have a wake up call and re-examine the ways in which the state fiscal policy is "pushing municipalities to the brink and threatening to undermine their plans for economic revival."
The Free Press points out that the stressors contributing to receivership are probably impacting many communities, large and small. In 201 about 60 cities filed deficit reduction plans with the state Treasury Department.
Paul Tait, executive director of the Southest Michigan Council of Governments (SEMCOG) predicts these financial problems will extend beyond the urban areas into the suburbs and beyond. |
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Sun May 20, 2012 2:48 pm |
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untanglingwebs
El Supremo
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Allen Park has a $4.2 million for their 2012-13 fiscal year, 22% of their $19 million dollar budget. The city asked Andy dillon in march to conduct a preliminary review of the city finances-a precursor to an emergency manager.
A bad investment in 2009 has contributed to the city's woes. The city took out $25.3 in long term, general obligation bonds to but 104 acres to create a movie studio that fizzled almost immediately.
Almost 60% of the voters in Allen Park turned down a millage proposal that would have covered payments for the failed movie venture. |
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Sun May 20, 2012 2:55 pm |
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untanglingwebs
El Supremo
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| Southeast Michigan has seen a one-third drop in property values since 2007. Couple that with the $5 billion decrease in revenue sharing from the state and it is easy to see why communities are failing. |
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Sun May 20, 2012 3:00 pm |
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untanglingwebs
El Supremo
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And if to add to the misery, Susan Tompor of the Detroit Free press wrote an article on pension fund costs and municipalities on the brink of serious financial difficulty.
She refers to Fred J. Schaard, president of Rhemann Financial, who advocated the complete revamp of the municipal pension lans similar to the revisions made by major corporations. He refers to the high number of communities facing huge unfunded pension liabilities in their defined-benefit plans and the low interest rate environment.
Soaring pension and retiree health care costsare already raising havoc with the budgets of many municipalities and other governmental entities nationwide.
The article points out that many business owners will feel the squeeze if water and sewer costs increase and municipal services are cut to meet the shortfall caused by rising pension costs and falling investment returns. |
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Sun May 20, 2012 4:41 pm |
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untanglingwebs
El Supremo
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Schaard indicates that because of an accounting ability to "smooth investment returns over several years", communities showing pension funds that are 30% to 40% underfunded may actually be in worse shape.
The bond market high returns of the 1980's and the 1990's cannot be anticipated. Nor can a 401(k) take the risk of being overloaded with stocks. It is a difficult proposition to cover all of those generous pensions promised in the past to compensate for an inability to offer higher wages. Schaard states those benefits cannot be met without without new taxes and the cutting of services.
"You've got cities going bankrupt all over the United States for this", said the Lansing based consultant Schaard.
There are two groups that are not getting excessive benefits. Schaard notes that generally city employees aged 75 and older aren't receiving these excessive benefits. Nor are the municipal workers ages 45 and younger. |
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Sun May 20, 2012 4:54 pm |
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untanglingwebs
El Supremo
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Schaard refers to the middle group of the baby boomers as being the group that received the excess benefits. He calls this group the muffin top.
The taxpayer is the funding source for these pensions. Schaard indicated that raising taxes too much gives homeowners one more rason to walk away from their home, especially if they are underwater in their mortgage.
"The solution is not to go tax people more", said Schaard. "Everybody's going to have to participate in this to make it work". |
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Sun May 20, 2012 4:59 pm |
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untanglingwebs
El Supremo
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During the 1990's and maybe before the City of flint offered a number of early retirements, some of which offered free years to allow more to retire. The pension fund then was solid and thriving. The early retirements cut the amount of money needed for payroll as younger employees and new employees received less money.
I remember Journal stories on these pensions back then as the citizens were outraged that some retirees made more money in retirement than they made while employed.
When talking to John Carpenter he often complained about the hard hit his department, and indeed almost every department, over the high legacy (pension and healthcare) costs that hit his budget before any work was done. |
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Sun May 20, 2012 5:12 pm |
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untanglingwebs
El Supremo
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Mon May 21, 2012 5:58 am |
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untanglingwebs
El Supremo
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Another Event-Driven Fiscal Crisis: Allen Park, Michigan's Bet ...
www.citysurvivalproject.com/2011/04/another-event-driven-fiscal-crisis-alle...
Apr 22, 2011 ... The Allen Park incident proves that third-party subsidies (in this case the ... Jefferson County Edges Closer to Bankruptcy After Court Invalidates ...
04/22/2011
Another Event-Driven Fiscal Crisis: Allen Park, Michigan's Bet On Film-based Economic Development Sends It To The Edge
The relatively-affluent Detroit suburb of Allen Park bet $31 million in limited-tax general obligation-backed bonds (mostly via single taxable issue) that a film studio would boost jobs and economic growth, but when the film producer bailed out just months after the bonds were issue, the city lost its investment-grade rating. It's all making it a lot harder for the city to pay its bills.
The film project would not have been financeable without the city's backing, but it was consistent with then-governor Jennifer Granholm's ambitious program to attract the film industry to Michigan, which included a whopping 42 percent tax credit for film- and media-related expenses and a 25 percent credit for corporate studio investments. Nearby Oakland County issued $60 million in bonds to build a similar studio in nearby bankrupt Pontiac.
New Michigan Governor Rick Snyder has proposed a new budget that would phase out the film industry tax credit program.
Standard & Poors is worried that if the city continues to have to tap its general fund to make up for the gap in lease revenue (which is the first order of revenue for the bonds) that it may result in at least short-term liquidity crisis.
The Allen Park episode highlights another way that economically-worried cities become financially desperate cities: they invest with crossed fingers and full municipal credit in job-producing projects that are not financially viable as stand-alones, which in turn makes them exceptionally vulnerable to any change in the already-fragile business environment they were intended to address.
It also reflects the deteriorated municipal bond investment environment. In previous years, bond buyers did not much distinguish between risky and less risky projects, especially if they were insured in any form, including via the sponsoring city's general fund. More recently, bond buyers have become so wary that cities must take more aggressive measures -- like pledging their full credit -- to finance the deals they want most, especially economic development projects.
The only bright side of the situation -- other than the fact that the city is currently negotiating with some prospective new tenants -- is that it could have been much worse: the full industrial development project, of which the film studio was only part, called for $146 million in financing.
The Allen Park incident proves that third-party subsidies (in this case the state, along with support from the federal stimulus program) combined with a certain level of economic desperation can cause local officials to take outsized risks with taxpayer money. When things go wrong all at one time, including cut in state aid and depressed property tax revenue, risk becomes a crisis.
Steve Steckler, Editor |
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Mon May 21, 2012 6:03 am |
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