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Mayor: Fix Detroit or risk takeover

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CITY SERVICES: Robert Burton and Samantha Gangley board a bus on Michigan Avenue. The mayor's proposed cuts would force Gangley to find a new way to work.

Detroit Budget Crisis

Mayor: Fix Detroit or risk takeover

By Brad Heath, Judy Lin and Natalie Y. Moore / The Detroit News

DETROIT -- Detroit could face a state takeover of its finances within a year if officials don't move quickly to cut costs in the face of a projected $230 million deficit, Mayor Kwame Kilpatrick said Wednesday as he laid out a blueprint for layoffs, pay cuts and a scattering of tax increases.

"If we don't make a definitive change now, there will be a receiver in here a year from now," Kilpatrick said. A state receiver would have broad power to fire workers, void labor contracts or cut services without input from the city.

Outlining a two-part plan for repairing the city's crumbling finances, Kilpatrick said the city must slash costs in coming months, then look for deeper long-term changes -- including evaluating whether to shed some city agencies altogether. But he still faces political battles with labor unions, City Council members and state lawmakers who must approve many of his plans, a tussle complicated because he is seeking re-election this year.

Kilpatrick said he will lay off 686 city employees and get rid of 237 positions that are currently empty. He said he will order a 10 percent pay cut for the city's nonunion workers, including his appointees, and curtail some bus services. And he will seek concessions of up to 10 percent from city unions and contractors.

All told, that would save the city about $77 million.

And that's just to keep the city afloat in the next few months.

"These are things that have to happen immediately and making the tough decisions to get it done now," Kilpatrick said. "But this is not the big structural change that we need for the City of Detroit."

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Mayor Kwame Kilpatrick detailed his plans to several city unions Monday, then presented them Wednesday in meetings with newspapers and in a televised address. He said job cuts will not include police officers, firefighters or medical crews.

Ultimately, repairing city finances crippled by decades of population loss will require modest tax increases on utilities, cigarettes, liquor and fast food, Kilpatrick said. He said the city should renegotiate how it provides health care and pensions for its workers, and will sell off city cars and will study whether it can afford to continue operating its bus, health and public lighting systems, all of which are losing money.

He can make some of those cuts on his own -- his administration planned to start sending out layoff notices today. But union leaders and state lawmakers said other pieces could face opposition.

"We believe there is some truth in what they're saying, and there is some emergency. Does that translate into pay cuts? We're not certain," said Al Garrett, president of Council 25 of the American Federation of State, County and Municipal Employees, which represents 5,000 city workers. He said the union is willing to work with Kilpatrick, but suspects some union leaders will try to block proposed cuts.

Convincing Detroiter Samantha Gangley will be every bit as difficult. Part of Kilpatrick's plan calls for shutting down the city's bus service from midnight to 4 a.m. -- about the time she climbs on board the first of two buses that take her from her house on the city's east side to her job at a Metro Airport restaurant. She has to be at work by 4:30 a.m., and the ride takes at least an hour.

"I think it's ridiculous," Gangley said Wednesday afternoon as she waited on the sidewalk to switch buses on her way home from work. "It's already really hard. It already takes too long. If they cut back on bus service, it'll be really hard."

She said if the service cuts go through, she'll need to find someone to drive her downtown every morning, where she can catch a SMART bus to work. Kilpatrick spokesman Howard Hughey said the city will analyze ridership and hold public hearings before any service cuts take effect.

Meanwhile, key state lawmakers said they were reluctant to sign off on tax increases for the city. "We have to get everyone, at all levels of government, out of the mindset that the first solution they take is to ask the taxpayers for more money," said Ari Adler, spokesman for Senate Majority Leader Ken Sikkema, R-Wyoming.

And some City Council members said they were upset Kilpatrick had broached his plan to the city's labor unions and the media before telling them. "I'm extremely disappointed there was no conversation with council. We need to put all our heads together. I would hope the mayor and the administration realize we need to be together on this," Councilwoman Alberta Tinsley-Talabi said.

Officials said they will lay out their plans in detail for the council Friday.

Kilpatrick detailed his plans to several city unions Monday, then presented them Wednesday in meetings with newspapers and in a televised address. In a meeting with The News, he said the best leverage he has for getting unions to go along with a pay cut in the form of unpaid days off is the threat that without substantial and swift cuts across-the-board, Detroit will face financial receivership -- in effect losing control of its finances to the state.

He said job cuts will not include police officers, firefighters or medical crews and -- aside from reducing hours of bus service -- thinks Detroit can cut costs without cutting services for residents. "I do not believe we can turn back the clock on vital city services. The vast improvements we've made must continue," he said in his evening address.

He also acknowledged that this round of cuts and tax increases -- even if it is successful -- won't end the pressure from a shrinking population and rising benefit costs that have been undermining the city's finances. He said he wants to cut the city's property taxes and restructure its enterprise zones, which provide tax breaks, to make the city more financially attractive to its residents and staunch population losses.

Experts said unless Detroit can stabilize those trends, it will face additional financial problems in the future.

"In the short run, you have to cut costs, but in the long run, you have to stabilize revenue," said Van Conway, president of Conway, MacKenzie & Dunleavy, a consulting firm in Birmingham. "If you keep losing people, you're eventually going to get to the point where the plane hits the trees."

"In the short run, you have to cut costs, but in the long run, you have to stabilize revenue. If you keep losing people, you're eventually going to get to the point where the plane hits the trees."

Detroit News Staff Writer Gary Heinlein contributed to this report. You can reach Brad Heath at (313) 222-2563 or [email protected]

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Amarjit Singh calls a client's number over the intercom at the "Detroit Department of Health & Wellness Promotion," which fills hundreds of prescriptions each day at no cost.

Financial calamity worsened over years

By Natalie Y. Moore / The Detroit News

DETROIT -- Job cuts to the tune of 923. Salary reductions of 10 percent across the board for city appointees and nonunion employees. No more city cars or overtime.

As Mayor Kwame Kilpatrick unleashes his plan to resuscitate Detroit from what some believe is the road to receivership, one thing is clear -- such cuts were a long time coming. For decades, the city's declining population yet relatively uncut workforce has been increasingly draining. Add to that the lack of stable revenue, a jobless rate prompted by a recent recession, a squalid tax base exacerbated by businesses exiting the city and mounting pension costs gnawing at the general fund.

These main factors have created the financial swamp that has bogged down the city, which faces a $230 million budget shortfall for 2005-06.

"It's been in crisis mode. This is no secret," said Sean Werdlow, the city's chief financial officer.

"It began occurring 30 to 40 years ago and you cannot correct it in one year," Werdlow added. "We're at the point now where you have to make private sector-like decisions."

Experts -- nationally and locally -- have sounded the alarm that if Detroit does not deal with the financial calamity, it will be on the road to bankruptcy.

"Detroit is not yet into recovery," said David Osborne, author of "The Price of Government: Getting the Results We Need in an Age of Permanent Fiscal Crisis."

The city's long run toward its current crisis has been prompted most by the one-two punch of rising pension and health-care costs and its dwindling population, but other factors -- some unique to the city -- have added to the problems.

City expenses

Pension and health care costs continue to skyrocket and strap the city. Pension costs now represent 11 percent of the city's general fund versus 5 percent in 2003. For 2003-04, the city paid $155 million in pension costs compared with $90 million in 1993-94.

According to the city, employee health care and pensions increased by 22 percent for 2004-05, which is part of a national trend and fluctuations in the stock market.

But some city departments are also undergoing scrutiny as officials assess what the core services to residents should be. So far three areas have been identified: transportation, public lighting and the health department. They tap the general fund by $106.5 million a year. The Detroit Department of Transportation represents the biggest portion at $80 million, and the mayor said it will be subject of review.

Meanwhile, Kilpatrick has pledged not to lay off police officers. But the police department is one of the biggest expenditures for the city, costing nearly $400 million for 2004-05. Other hefty areas are public works at $130 million and fire at $192 million.

Some experts say governmental help on the national level to navigate the tough times is a long shot.

Williams Spriggs, a senior fellow at the Economic Policy Institute in Washington, D.C., said there are no longer "true urban advocates."

He said the federal government -- saddled with its own tribulations with Medicaid and Medicare -- is not helping cities with its woes.

Dwindling population

At its peak in 1950, there were nearly 2 million residents dwelling in the city. Today there are about 901,000 residents and that number is expected to dip into the 800,000s margin over the next several years. No one has a definite answer as to why, but officials suspect it's attributable to high city taxes and insurance rates and a deteriorating school system.

"We did not plan for depopulation," Mayor Kwame Kilpatrick said at last week's Detroit Economic Forum. "We really need to plan for the depopulation ... so we can grow again."

The city's workforce has not reflected the decline in population. There is one city employee for every 50 residents. And the total general city payroll represents $600 million of the $1.6 billion general fund budget. Sixty-four percent of the budget consists of salaries, wages, pension contributions and health care benefits for the 18,000-plus city workforce.

"It comprises a huge chunk of our budget each year before we even begin to spend money on light bulbs, lawnmowers ... essential (items) to delivering services. We have fixed costs that increase annually," said Howard Hughey, spokesman for the mayor.

City Council Fiscal Analyst Irvin Corley Jr. has said there could be a total deficit of as much as $350 million by the end of 2005-06.

Among his predictions were a $90 million deficit for 2003-04 because of overspending and lower collections in taxes and other revenue and a $90 million deficit for 2004-05 -- including a $15 million deficit from the Greater Detroit Resource Recovery Authority and a $4 million deficit in the parking department.

The lack of a hockey season this year has hurt revenues in that department, he said.

Last summer, after the Kilpatrick administration started projecting next year's shortfall, Corley questioned why more job cuts weren't budgeted. If police, fire and emergency medical services are exempted from layoffs, about 20 to 26 percent of the general fund civilian workforce will receive pink slips, Corley said.

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Council, union opposition

The unions and some City Council members have historically challenged the city administration when it has come to cutting jobs and right-sizing the government.

When Kilpatrick proposed slashing 377 jobs last spring, the unions cringed and found sympathetic council members offering strike-organizing help. In its attempt to save jobs, the council offered an alternative budget that would have trimmed fewer jobs. However, the council failed to override the mayor's veto.

This year will be no different.

"I don't trust the mayor, and he knows that. He's had his foot on our neck for the last three years," said John Riehl, president of AFSCME Local 207, which represents water, sewerage and public lighting workers. "He's looking to cause himself a lot of conflict if he thinks the poor city workers are going to give some money back to him and all they see is the city money going to contractors. Get rid of the contracting and there wouldn't be a deficit."

Kilpatrick said that $375 million goes to professional and contractual services, and operating supplies and services. Soon, the mayor said, his administration will be meeting with vendors to seek contract concessions ranging from 5 percent to 10 percent, depending on the product or service provided.

Council President Maryann Mahaffey has long opposed layoffs.

"My position is we do everything short of laying off," she said. "This burden should be carried by everybody -- not just down the line. Why do we need deputies in departments? We have some departments that might be combined."

Councilwoman Barbara-Rose Collins said she understands a state takeover should be avoided, so hard decisions must be made now.

"If we don't make the cuts, someone else will," she said. "If this city goes into receivership, there will be no comprises. It's better if we make the cuts than someone from wherever making cuts."

Councilwoman Sheila Cockrel has dubbed the problem a "financial tsumani."

Borrowing tendencies

Auditor General Joe Harris also says not enough layoffs have been incorporated in balancing the budget. He said union contracts and negotiations from 30 years ago are haunting the city because of pension and fringe benefits payouts.

"The city is currently in a tailspin and it is in a steep dive that'll be very difficult to come of. The only way is if unions agree to concessions," Harris said.

He has also criticized Kilpatrick for borrowing money to balance the budget -- analogous to using a credit card to pay off existing debt.

The city currently has $1.2 billion worth of debt and still has the capacity to borrow $1.3 billion.

For 2004-05, the mayor addressed the budget by selling $61 million in bonds to address a $69 million carried over deficit from 2002-03 and selling $61 million in bonds to fund lawsuit settlements against the city.

Kilpatrick is still pushing a deal on pension obligation bonds in which the $1.2 billion unfunded pension debt for its workers would be refinanced. There is an $80 million hole in this year's budget to address the issue.

Trouble with taxes

Five major areas comprise where the city gets the bulk of its money: property taxes, income taxes, casinos, state aid and utility user taxes.

Property taxes for most cities are a stable and major source of their revenue. Property taxes provide 77 percent of Dearborn's budget, 66 percent of Ann Arbor's and 62 percent of Farmington Hills'. By contrast, in Detroit -- where in 1950 property taxes were 61 percent of its revenue -- the percentage has plummeted to around 11 percent. Municipal income taxes -- another bread-and-butter source of revenue for some cities -- has been sporadic in Detroit, fed by the loss of population and the jobless rate. In 1970, 747,000 income tax returns were processed compared with 385,000 now. Only $310 million in city income taxes were collected in 2003 compared with $370 million in 1999. According to the state, the unemployment rate is about 14 percent as the economy has not bounced back here.

The state has agreed to roll back income taxes. By 2009, corporations will no longer have to pay the municipal income tax rate.

And as the state grapples with its own budget struggles, the effects ripple to Detroit in the way of state aid cuts. In 1998, the city received $330 million. In 2003, the amount shrank to $319 million.

Distinct problems

Unique urban difficulties also intensify the city's financial crisis. Since 1972, about 15,000 companies have left the city. Only 15 percent of owner-occupied homes exceed $100,000 in a city in which 43.5 percent of its residents earn under $25,000.

Also, 26 percent of Detroiters live in poverty.

"We don't have any industry to support or give people to move back into the city. Without people, we have no city. We should've been giving corporations huge tax breaks. We should do everything we can in our power to attract industry," said lifelong resident Thomas Cieszkowski, 49.

Detroit falls in line with what's happening to urban centers across the nation.

Kilpatrick has pointed out that from Cleveland to Chicago to Pittsburgh, cities across the country are making drastic cuts.

"People need to be mindful of what this mayor has done. The budget has not grown under this mayor," Werdlow said.

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Thursday, January 13, 2005

Detroit's tax plan faces tough sell

Kilpatrick says hikes needed to avoid possible receivership, but state lawmakers are wary.

By Gary Heinlein / Detroit News Lansing Bureau

LANSING -- Proposals to help solve Detroit's budget crisis with tax hikes would be a tough sell among state lawmakers, whose new session began on Wednesday with a vow to reform government spending.

Mayor Kwame Kilpatrick's plan will include a proposed 1 percent boost in the five percent tax on utilities, a tax levied by no other Michigan city, and possibly one-percent local increases in taxes on liquor, tobacco and fast foods. Without the increases, he told The Detroit News, the city could face state receivership.

The proposed tax increases would require legislative approval. Boosting the tax rate locally on tobacco, liquor and fast food also would require a city-wide vote, making that a longer-term and less certain bail-out strategy, said Earl Ryan, president of the Citizens Research Council of Michigan.

Republican leaders in both the House and Senate, who will shape legislative policy on the issue, said belt tightening, and not tax increases, is the appropriate remedy for troubled times. Rep. Craig DeRoche, new speaker of the House, set the tone by telling the membership that "it's time for us to get to work and to start living within our means."

Spokesman Matt Resch said DeRoche, who is from Novi, believes that applies to all levels of government. "For too long the solution to (budget troubles), whether it's city or state government, has been to go to the taxpayers," Resch said.

A similar sentiment came from Senate Majority Ken Sikkema, R-Wyoming, who added that he won't consider any aid to Detroit without first seeing a long-term plan development plan for the city and its equally strapped school system.

"A tax increase just tends to accelerate the downward spiral," said Sikkema spokesman Ari Adler.

It also was clear Wednesday that the mayor can't count on unanimous backing for tax increases among Detroit lawmakers. Reps. Steven Tobocman and Lamarr Lemmons III acknowledged the gravity of Detroit's financial woes, but both expressed reservations about hitting-up taxpayers for more money.

"That, to me, would be a last resort," Tobocman said. "As we seek solutions, we need to look at this from more of a consumer point of view."

Lemmons said he'd back an increase in the utilities tax only if the revenue from it were earmarked for a specific purpose, such as a special program to help low-income residents. He said he would prefer a boost in the income tax rate for nonresidents who work in the City of Detroit.

Detroit currently levies a 2.5-percent income tax on city residents and 1.25 percent on suburban residents who have jobs in the city.

You can reach Gary Heinlein at (517) 371-3660 or [email protected]

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Thursday, January 13, 2005

Workers, residents fume over Detroit layoffs

Employees blast mayor's plan; residents fear a big cutback in already sparse services.

By Judy Lin / The Detroit News

DETROIT -- Workers who have devoted decades to Detroit braced for the worst today as the city sends out hundreds of pink slips as part of a cost-cutting plan initiated by Mayor Kwame Kilpatrick.

And residents who have complained of long waits for basic services such as snowplowing, streetlight repairs and road resurfacing prepared for longer delays.

Uncertainty began to trickle through City Hall on Wednesday as workers declined to talk for fear their name will be placed on the layoff list. Inside union halls, members blamed an inexperienced young mayor who favored friends and family members and doled out lucrative contracts to private businesses.

"As far as the layoffs, they need to get rid of Kwame," said an angry Lekita Thomas, 47, who has worked for 18 years as a security guard at the city's northeast water plant. "No city employees should be laid off. The deficit came not because of the employees but the work he gave to contractors, family and friends."

In a televised speech, Kilpatrick announced his plans to cut spending in the face of a $230 million budget shortfall for the 2005-06 fiscal year, which begins July 1.

With spiraling health care and pension costs, the city will need to find a way to increase revenue and "right-size" the city's work force of 18,000, the mayor said. "While we work on the budget for next year, the reality is we can no longer delay the tough decisions," the mayor said in his speech. "We must begin taking action now."

Keith Shobe, 45, a water systems repairman who has been on leave since he injured his lower back two years ago, said he's worried that he won't be able to go back to work. Shobe, who makes $18,000, said an effort to eliminate overtime has already made paying his bills difficult.

"Off what we make, you can't pay $600 for rent while gas is going up. Sometime it's hard to get the beans and rice on the table," Shobe said.

Both Shobe and Thomas said they didn't vote for Kilpatrick the first time and the have don't to support him in his re-election bid. Shobe said he's unsatisfied with the mayor because he hasn't kept his promises.

"I remember when he ran, he bragged that his mother was a congresswoman and that she would bring more funding to the city," Shobe said. "It hasn't happened."

Thomas said the mayor's proposal to trim his salary by 10 percent was a "slap in the face."

Janet Richmond, president of American Federation of State, County and Municipal Employees Local 542, which represents museum and recreation workers, said the mayor should have taken a heavier cut.

"Ten percent of $170,000 a year is nothing. Ten percent of $20,000, which is what our average person makes, is a drastic amount," Richmond said.

Based on 2003-04 salaries, union officials estimated that the city could save some $4 million if the mayor and all his appointees reduced their salaries to $81,000, which is what council members make. The mayor makes $176,000, and many of his appointees make over $140,000.

Even seasoned union representatives who have battled budget cuts before couldn't hide their concerns as some admitted they have never been asked to give up so much at one time.

"We find ourselves in this situation of the perfect storm where the mayor is asking for layoffs, days without pay and pay cuts," said Al Garrett, president of the AFSCME Council 25. "I can't think of anywhere this happened. It's a very difficult task."

The mayor said the city's Department of Transportation will reduce the hours of its 24-hour bus service, which will affect many people who depend on buses to get to work. He said residents will have a chance to speak on the issue in a series of DDOT public meetings.

He promised one thing: "No changes will be made before these hearings are held."

Residents expressed concerns about the impact of the layoffs on basic city services.

Robert Burton, 65, a retired laminator who lives at Cedar Grove and Gratiot, said the city's bus service, which will be cut back, is already poor and inconsistent.

"How are people going to get to work if they cut the bus service?" he asked while waiting at a bus stop Wednesday. "I'd hate to see anybody lose their job because of this. The bus service is bad enough as it is."

Edward Zajac, who has lived in Detroit for 44 years, said he and his neighbors on Tarnow Street lack curbs, battle deteriorating road conditions and get no snowplowing.

"Nothing's been done," Zajac said. "That's why people are moving. They're just tired of it."

That's what happened to Doris Barkley, 65, who lived in southwest Detroit for 13 years. She packed up and moved to Lincoln Park last year after getting fed up with potholes.

"Things just didn't seem to go right in City Hall, and there's always bickering (among the politicians)," Barkley said. "Lights are out, and there's litter. It's just a lot of things that could be helped that's not."

Bill Gardner, a father of two in the Bagley community, said he's worried about how dark the city will get if public works crews aren't out trying to repair broken lights. He said he has been complaining to the city about too few lights on Outer Drive for the past two months and has yet to receive a response.

"I'm very concerned about my kids going to school and not having the opportunity to walk in a safe environment," Gardner said.

Union officials say the layoffs will have a devastating effect on the quality of life for residents. AFSCME Local 207, which represents 1,100 water and public lighting workers, plan to picket the Coleman A. Young Municipal Center today at 4 p.m.

"The phrase separate but unequal has real meaning here," said John Riehl, president of Local 207.

You can reach Judy Lin at (313) 222-2072 or [email protected]

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Based on 2003-04 salaries, union officials estimated that the city could save some $4 million if the mayor and all his appointees reduced their salaries to $81,000, which is what council members make. The mayor makes $176,000, and many of his appointees make over $140,000.
I agree that these should be the first set of cut backs. Kwayme doesn't even have to pay rent since, atleast for another year, gets to stay in the city paid for manor.

I know he is one of the highest paid mayors in the country, but I wonder where his appointees rank?

I think this person says it best!

"As far as the layoffs, they need to get rid of Kwame," said an angry Lekita Thomas, 47, who has worked for 18 years as a security guard at the city's northeast water plant. "No city employees should be laid off. The deficit came not because of the employees but the work he gave to contractors, family and friends."

Bring on Freman!!!!

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Many city officials are overpaid and are Kwame's friends and stuff

AKA Spoil System...

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Thats about every angle on the story . . . good work.

I know Kwame isn't winning any popularity contests but really if every "producer" is moving to the burbs then the city HAS NO TAX BASE! you could claim good for them, the taxes are too high and service not that good, but those complaints are across all cities pretty recent in their origin, and the taxes were raised because many of the "producers" in the metro moved to tax dodges like Pontiac etc. where they could get rich from the resources of the metroplex without paying their fair share of the metroplexes costs. Again another reason for fair Metropolitan goverment.

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