The White House is pledging $300 million to the financially ailing city of Detroit, but that's only a small percentage of what the city needs to get back on its feet.
Boys play basketball on the street on September 5, 2013 in Detroit, Michigan. Detroit is struggling with over 78,000 abandoned homes across 140 square miles and 16% unemployment; in July, the city declared bankruptcy. (Photo by Andrew Burton/Getty Images)
Detroit won’t be getting a bailout any time soon, but that doesn’t mean that Washington is neglecting the financially troubled metropolis entirely. On Friday, the White House unveiled its plan to add $300 million to the Detroit’s coffers, a cash infusion which may boost economic development but is unlikely to put much of a dent in the city’s colossal debt burden.
Detroit, which two months ago filed for what would be the largest municipal bankruptcy in American history, has a long-term debt burden of about $18 billion according to estimates from the office of the city’s Emergency Manager (EM) Kevyn Orr. The aid offered by the White House adds up to a little under 2% of that amount, but that’s probably the best that the city can hope for given that state and city officials have already dismissed the possibility of a larger bailout. While the city’s debts are still “something that Detroit and its creditors must solve,” as White House press secretary Jay Carney said in July, the White House hopes it can use its checkbook to support economic redevelopment in the area.
“The Obama administration is dedicated to ensuring that the federal government remains an active partner in bringing jobs back into the City, and turning the people of Detroit’s vision of the future into a reality,” according to a White House fact sheet.
To that end, the White House has earmarked millions of dollars for hiring new police officers and firefighters, rehabilitating public transportation, and removing urban blight. On the same day the plan was released, Attorney General Eric Holder, White House National Economic Council director Gene Sperling, and the heads of the Department of Transportation and the Department of Housing and Urban Development traveled to Detroit to meet with Mayor David Bing and Michigan Governor Rick Snyder, among other local officials. The Obama administration is expected to dispatch additional administration officials to Detroit over the coming months.
Albert Garrett, president of the Michigan public sector union AFSCME Local 25, told MSNBC he welcomes the assistance but has concerns on how it might be used.
“We are concerned that whatever goes on is transparent and that the stakeholders have a seat at the table with regards to how the money is used,” he said. He worried that Orr—who, as EM, has the power to override the mayor, the city council, and public employee contracts—would use the money to employ private contractors instead of the public workers represented by unions such as Local 25.
A plan for cutting pensions
Ever since he first took office, Orr has clashed with public sector unions over the future of the city’s pension system, which accounts for about $3.5 billion of the city’s debt according to Orr’s office. Unions dispute the figure and argue that cutting into the city’s pensions would violate the Michigan state constitution. But one way or another, Orr has made it clear that he intends to seriously trim pensions as part of his efforts to rebalance the city’s finances.
Orr’s office released its proposal for restructuring pensions earlier this week: Current city employees would keep their defined-benefit plans, but all future employees would have to pay into a 401(k)-style system.
“When I’m hired shouldn’t be determinative of what I get,” said Garrett. “It makes you wonder, ‘Why? I’m working as hard as the next guy.’ So that’s a problem.”
The office of the Emergency Manager did not respond to a request for comment.
