Getting a fiscal house in order

Of vital importance in running a big city, as I mentioned last week, is getting finances under control and balance sheets resonating black. Unfortunately, the City of Detroit has operated far too long without a proper system of checks and balances and without city officials working in the best interests of their constituents. The City needs to run more like a business. Mayor Bing is trying to accomplish just that.

Take, for example, bus routes in the City. While there is no denying that public transportation is necessary and often lacking, there also exist many routes that travel where very few people live. Mayor Bing is now trying to make the tough, unpopular decisions that must be made to not “downsize” but rather, “right size.” There is simply no way around it.

If such moves are not enacted, the only alternative I see for the City is receivership. Bonds have helped Detroit Public Schools recently, and can help the City as well. But it’s only a temporary fix to a problem that has plagued the City for far too long. Because of Detroit’s tentative financial condition, its credit rating has been reduced, bordering on “junk” status. Hence, some past bond issues not sold out or future bond issues will cost the City much more due to having to pay bondholders a much higher interest rate. Investors see a much higher risk of bond defaults if the City does not get its fiscal house in order.

Mayor Bing recognized that increasing taxes is not an option. Detroit already has significantly higher property taxes than elsewhere in the state. Raising taxes will only exacerbate the problem of suburban flight.

Instead, the city’s return to profitability will be predicated on attracting a larger population of those living and working in the city; Rock Financial’s pending move to Detroit is a step in that right direction. Prudent cost cutting, including the “right sizing” of some services must also continue.

Bottom line: Detroit must operate more like a business; getting its fiscal house in order to increase its bond rating from “junk” to investment grade and create a climate which is an incubator for new business

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