Why is This Happening?
In 2008, Detroit’s records
have shown that health insurance costs for workers and retirees increased by 62% to an annual $186 million. During the same three years, the city’s contribution to pensions spiralled upward from $50 million to $120 million. On the other hand, property taxes have decreased $52.5 million since the year 2006. With spending increasing and property taxes decreased the perfect recipe for disaster. It’s obvious that Detroit is having financial troubles.
Government officials are now desperately trying to make deep cuts in spending and public services to help save the city. "We have to make cuts that some are going to see as draconian, and it will be some tough medicine to take. No department is a sacred cow, including the police department, even though public safety remains our priority,” says Charles Pugh, the Council President
. The mayor himself is admitting that the city is going to go broke if no changes are made. One scenario that has been considered includes laying off nearly a third of the population, approximately 2,200 workers. Although this seems like a drastic cut, the plan will only delay the financial crisis from getting any worse, and Detroit will run out of cash by July. Other experts are saying that Detroit’s crisis calls for an emergency manager who can sell assets, rebuild the government, and terminate unimportant services.
The best plan seems to be laying off workers and making deep cuts, as outlined by Mayor Bing’s speech this Thursday. He proposed to have 1,000 workers laid off next year, which is around 9% of the workforce, in order to cope with the financial issues. This deep cut will save the city around $12 million, which will hopefully boost Detroit’s crisis from its entrenched state. The mayor is also looking for around $100 million in cuts in areas such as health care. “The reality were facing is simple. If we continue down the same path, we will lose the ability to control our own destiny,” Mayor Bing
Perhaps another positive to take from this crisis is that Detroit is awaiting $220 million in state funding. Back in 1998, Detroit decreased income tax, and in return received guaranteed levels of revenue sharing from Michigan. This will be extremely helpful given that the city’s tax revenues have been quickly decreasing, and can perhaps buy Detroit a little time for the mayor and the council to get this crisis sorted out.