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State “Shared Taxes” Cuts have been Drowning Detroit: is Grover Norquist laughing yet?

norquist_drown_governmentThe Bankruptcy Court judge overseeing Detroit’s “restructuring” is moving really, really fast.

And – at least so far – he’s following the schedule proposed by “Emergency Manager” Kevyn Orr and the law firm Jones Day.

  • Read more about Kevyn Orr here.
  • Read more about Jones Day here.

This Friday, August 2nd, the judge is expected to rule on Orr’s motion that a hand-picked “Committee of Retirees” be allowed to make decisions on behalf of the more than 20,000 retired city employees.

How’s this shaping up?  It looks a lot like what just happened in Stockton, California – where a similar committee just accepted $5.1 million as full “payment” for future medical benefits estimated to be worth hundreds of millions of dollars.

And now that steamroller is headed straight for all those people who spent their lives working for the citizens of Detroit.

One of the many, many things that are wrong with this situation is: how completely the mainstream media has swallowed the spin offered by Michigan’s Republican Governor, Rick Snyder.

First, blame the unions.  (The Wall Street Journal’s “How the Unions Killed Detroit” is here.)

Next, blame “60 years of decline” – particularly the decline of the [unionized] auto industry.  (Watch Gov. Snyder on NBC’s Meet the Press here.)

Then, inflate the numbers.  All of a sudden, they’re not talking about annual deficits – not even the total accumulated annual deficits – they’re talking about “total debt”.   That includes bonds for the Water and Sewer systems.  For renovations to the Convention Center.  For the city’s Building Authority, and its Downtown Development Authority.  Its Transportation and Parking Funds.

Yeah, when you add it all up, that looks like a lot of debt.  But municipalities traditionally borrow the costs of capital projects, usually for terms of 20 to 30 years.  Just like most middle class families don’t pay cash when they buy a house.

But that “$18 billion” total debt number sure makes it seem like Detroit can’t possibly avoid bankruptcy, and can’t afford to keep its promises to its workers.

Great spin.

But what do Detroit’s auditors say?  Quoting directly from the city’s 2012 Comprehensive Annual Financial Report:

The City has an accumulated unassigned deficit in the General Fund of $326.6 million as of June 30, 2012, which has resulted from operating deficits over the last several years.                                                                         

$326 million… $18 billion… Gotta admit: Rick Snyder sure knows how to spin things.

Let’s look at Detroit’s problem from another direction, for a minute.  Let’s consider – just for a minute – that maybe Detroit doesn’t have “a spending problem”, maybe it has a revenue problem.

The reality is, all around the country, municipalities depend on state revenue-sharing to make their budgets work.  Those of us who lived through New Hampshire’s Bill O’Brien years know this all too well.  State tax cuts and budget cuts “trickle down” and hit municipalities where it hurts.

For Detroit, state “shared taxes” used to provide 16% of city revenues.  That means one out of every six dollars that Detroit budgeted came from the State of Michigan.

Then GOP right-wingers declared war on our government.

Look at how different Detroit’s revenues would have been, if the amount of “shared taxes” had stayed the same as it was when George Bush became President:

Detroit Shared Taxes

Data from Detroit Combined Annual Financial Reports available at http://www.detroitmi.gov/Departments/Finance/tabid/86/Default.aspx

An interesting math exercise: if the state had continued to pay the same amount of “shared taxes” as it did in 2001, Detroit would have received $4.1 billion in additional revenue over the years.  (And maybe the city wouldn’t have had to borrow quite so much to finance capital projects…?)

Just in FY2012, Detroit would have received $470 million more in “shared taxes” revenue – if the State had still been sharing revenue like it did in 2001.

And that would have been more than enough to wipe out the $326 million in accumulated operating deficits that Detroit’s auditor cited in the 2012 CAFR.

So maybe Detroit’s financial problems weren’t caused by the unions – or “60 years of decline.”  Maybe it’s not a “spending problem” – maybe it’s a “revenue problem”.

Maybe the problem is that the extreme wing of the GOP declared war on government back in 2001… and they’re still planning to “drown it in the bathtub.”

 

 

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About Liz Iacobucci

Liz Iacobucci is the former Public Information Officer for the State Employees’ Association of New Hampshire, SEIU Local 1984. Over the past three decades, she has served in government at the federal, state and municipal levels; and she has worked for both Democratic and Republican politicians.
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