06.27.14

Plan of Adjustment Gains Increasing Support. Detroit’s largest union’s members (AFSCME) have ratified tentative agreements in the Motor City’s proposed plan of adjustment reached during the city’s bankruptcy case. The American Federation of State, County and Municipal Employees Council 25 announced yesterday that its members and other unions completed voting on the tentative contracts this week. In a statement, AFSCME Council 25 President Al Garrett said: “Labor and management have forged a path forward that secures the future for working people and the citizens they serve.”

Ride the Magic Bus. U.S. BankruptcyJudge Steven Rhodes yesterday gave a limited green light to the Motor City’s proposal to give the Judge a bus tour of the city as part of the upcoming plan confirmation trial—or, as Robert Hertzog, one of Kevyn Orr’s attorneys for the city told the court: “You need to witness this…You need to see what’s going on in the city. Pictures aren’t going to help you understand. You need to see it live, what is going on in the city.” In his decision, Judge Rhodes said he would not yet issue an order authorizing the tour, but would allow planning to take place. He said he wanted to keep the date and route a secret to help ensure “personal safety,” insisting the tour’s date and route be kept confidential as a matter of personal safety.

Grilling the AG. Also, yesterday, Judge Rhodes granted the request from Michigan State Attorney General Bill Schuette to quash a subpoena from creditor Syncora to allow it to grill both the AG and a number of philanthropic foundations about contributions to the so-called “grand bargain.” Syncora wanted to question Attorney General Schuette about the basis of his legal opinion that the city owned art collection held at the Detroit Institute of Art museum is protected from sale by Michigan law. Judge Rhodes determined that the Attorney General’s is the equivalent of a legal brief, so that he will judge solely on its arguments, not on who is making the arguments: “In weighing any settlement in the case, including what’s been called the grand bargain here, the court will weigh the merits of the opinions, evidence, facts, and law and not take into account the position of authority of the people who may have taken positions on one side or the other of the issues.” In addition, Judge Rhodes similarly granted the request from the foundations that Syncora’s subpoenas be quashed, saying that the information being sought is not relevant; however, he permitted Syncora to proceed with discovery with regard to whether the foundations have the ability to make the payments they have promised as part of the grand bargain.

Who Can Live in the Motor City?  The Great Recession impacted cities and counties far more than any other level of government—but unlike many of the financial institutions who bear responsibility—but were bailed out, that was not the case for local governments and school districts whose greatest budget reliance is on assessed property values. Few cities in the nation were hit as hard as Detroit—which by last year was home to an estimated 40,000 abandoned lots and structures—abandonments that fiscally crippled the city as Mayor Mike Duggan now seeks to implement policies to begin increasing the city’s population for the first time in decades. My friend and Texas colleague, Billy Hamilton, described Detroit as “either the ghost of a lost time and place in America, or a source of enormous potential.” One key area Mayor Duggan, who obviously wishes to tap that enormous potential, is trying to address is foreclosure in a city where tens of thousands have failed to pay their property taxes—of which there have been at least 70,000 since 2009, because of delinquent property taxes. As Monica Davey of the New York Times, in her fine piece this morning [Detroit Needs Residents, but Sends Some Packing]  writes: “And more than 43,000 properties — more than one in 10 in this city — were subject to foreclosure this year, some of them headed for a public auction where prices can start as low as $500.” Ms. Davey notes that several factors have brought the Motor City to the point that crucial revenues are not being collected and thousands of houses are being taken away each year — “not by banks, for failure to make mortgage payments, but by the government, for failure to pay taxes. Contributing are soaring rates of poverty, high taxes despite painfully diminished city services and a long pattern of lackadaisical tax collection by the city…In some cases, homeowners have abandoned properties and simply quit paying taxes, and foreclosure may be the only way to get a house back into the hands of people who actually want to live there and pay their share. In other cases, those who lose or abandon their houses sometimes end up buying other houses at auction — sometimes for as little as $500 — and begin the cycle again, although new rules are aimed at taking back properties sooner if taxes are again not paid. Either way, the city fails to get all the tax revenue it is owed.” Ironically, as we noted in our report, Detroit has one of the broadest tax bases of any city in the U.S.—and its income taxes constitute its largest source of revenue—a source, moreover, that will be helped as the State has agreed to step up and help collect those income taxes unpaid by Detroit residents who work in other jurisdictions. The city itself is trying to address the property tax issue—in part by lowering property assessments — creating a challenge for any municipal leader: how does one balance equal enforcement of the law against the goal of keeping families? After all, with 78,000 abandoned homes and structures—each new foreclosure risks increasing that number.

 

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