Excerpts from WSJ
“There’s nothing like bankruptcy to concentrate the mind, and that prospect finally induced the Detroit city council Wednesday to approve a consent agreement with the state of Michigan to save the day—at least for a while.
The deal will help refinance $137 million in debt but, more important, it gives Mayor Dave Bing authority to void and amend labor agreements. He’ll now have the whip hand to renegotiate contracts that unions ratified earlier this year. Employee benefits make up about half of the city’s parched general fund, and Detroit’s largest liability is $6 billion for pensions and retiree health care.
Workers who have been loathe to concede anything more than a pay freeze will have to pay more for benefits. Many haven’t been contributing a dime to their pensions. If the unions refuse to make concessions that meet the state’s cost-cutting benchmarks, the mayor can impose new contracts.
The city council, which approved the agreement kicking and screaming, will retain control of day-to-day operations. But a financial advisory board will oversee the budget and ensure that city leaders fulfill the accord. City council members resent the oversight because of the implication that they’re not up to the job.
Maybe they haven’t been outside lately. Detroit has one of the nation’s highest crime and foreclosure rates, and its schools are among the worst. The city has lost 250,000 residents in a decade and its jobless rate tops 17%. Motown’s economy has been in recession for much of the last decade, but its politicians kept ratifying generous labor agreements. To pay the bills they raised taxes, which drove out more businesses and residents.
Detroit will never recover unless its leaders recognize that government can’t grow a local economy. Mayor Bing seems to understand this, but if the city council won’t do more than claim to be victims of an authoritarian state government, they ought to step aside”
