Economy
12:55 pm
Mon March 4, 2013

State Of Emergency: Cities In Financial Crisis

Originally published on Mon March 4, 2013 1:37 pm

Transcript

ARI SHAPIRO, HOST:

This is TALK OF THE NATION. I'm Ari Shapiro in Washington; Neal Conan is away. Year by year, cities are raising fees and cutting public services to stay out of financial trouble. For some cities, that's just not enough. Detroit projects a $200 million deficit this year, and the city owes $14 billion in long-term obligations. The state's Republican Governor Rick Snyder says there's probably no city more financially challenged in the entire United States.

So last week Snyder announced that an emergency manager will try to bring the city out of the red. Whoever gets the task will have the authority to make huge structural changes in Detroit. And this is not unprecedented. From Stockton, California to Jefferson County, Alabama, many cities are going through similar shakeups.

This hour we'll try to learn what's worked in the past and how emergency managers are trying to get cities out of the mess they're in. If your city is cutting back on services, tell us your story. How has it affected your daily life? And when does it cross the line from inconvenience to crisis? And what can you sacrifice to keep your town afloat? Our number is 1-800-989-8255. Our email address is talk@npr.org. And you can join the conversation at our website. Go to npr.org, and click on TALK OF THE NATION.

Later in the program, we'll talk to Jon Crispin, a photographer, about his project to capture hundreds of abandoned suitcases from insane asylum patients in New York. But first to Detroit. Joining us now is Jerome Vaughn. He's the news director at member station WDET in Detroit. We're talking to him from a studio there. Thanks for joining us, Jerome.

JEROME VAUGHN: Good to be with you, Ari.

SHAPIRO: What's the reaction to the city reaching this crisis point where an emergency manager has to be appointed?

VAUGHN: I don't think anybody is really stunned by this reaction, by what has happened. There's different reactions. You've got people here in Detroit who are very much in favor of the measure, very much in favor of things getting fixed and quickly. And you've got folks, on the other hand, who are against it. They're against the idea that democracy is not foremost in Detroit if this emergency manager gets appointed shortly.

SHAPIRO: Because the manager can override the mayor, the city council and so on?

VAUGHN: That's exactly right. You know, the emergency manager will come in. He or she will make determinations of where to cut the budget, what departments will or will not exist anymore and will even be able to do some things with union contracts to make sure that the city is back on a track towards solvency. The emergency manager can use the city council and the mayor as much as he or she would like.

Maybe they're very important partners in getting things moving. Maybe they are unimportant to this manager. And so that's one of the concerns of residents.

SHAPIRO: And I understand there's also partisan dynamics, since the mayor is a Democrat, it's a largely Democratic city, a lot of African-American residents, a white governor who is a Republican appointing this emergency manager. How is that tension playing out?

VAUGHN: Oh, there is no lack of tension over that. You know, Governor Snyder was elected back in 2010, was very much seemed to be a moderate Republican until late last year. He championed right-to-work legislation that really set off Democrats. Detroit an overwhelmingly Democratic city. You know, there is not a Republican on the ballot in Detroit that can hope to do well in the city.

So there's that dynamic, and as you mentioned, there's also the dynamic of race. You know, the city is 80 percent African-American. All of the government elected officials in this city are African-American. And there's a real concern about the African-Americans losing power to this emergency manager who we don't know what he or she will be racially speaking. But that a white governor is imposing this power, that is one of the dynamics at play here.

SHAPIRO: How did Detroit get into this situation in the first place? What are the biggest contributors to the deep, deep debt that the city is in right now?

VAUGHN: Well, I'll try to keep this...

SHAPIRO: I'm sure we could fill an hour with a list of the reasons.

(LAUGHTER)

VAUGHN: Putting it briefly, Detroit had 1.8 million people back in 1950. The city has been shrinking continually since then. It's down to around 700,000 now. Many of the people who are left in the city, you know, are near the poverty line. So taxes have dwindled from income tax. We've gone through the foreclosure crisis, so many foreclosures have decimated Detroit neighborhoods. That means property taxes have dropped.

In addition, the city's bureaucracy has not been that good at collecting those taxes that do exist and are owed to the city. That's been a problem. So it just goes on and on and on like that. And in many ways you could say it's become this perfect storm as we've gotten to this point.

The city is getting to the point where it is unable to pay its bills.

SHAPIRO: Detroit is certainly the biggest Michigan city to be going through this, but it's not the first. What's been happening elsewhere in the state, and how has it worked out?

VAUGHN: Well, there's been a mixed record, at best, in other cities: Benton Harbor, Pontiac, Ecorse, Allen Park and Flint are other cities that are in one layer or another of having an emergency manager. The results have really been mixed. There have been some cities like Ecorse who have had emergency managers previously, got out of that and went back into that system.

Probably the best situation so far has been Pontiac. They've been working to sell off assets and revive parts of their downtown. So critics of emergency managers are saying, look, no city has been perfect coming out of this, and that's a reason to avoid getting one for the city of Detroit. I think the situation is so dire now that the city government here has not been able to do what it needs to do to turn things around quickly enough.

SHAPIRO: Let's take a call. We're going to go to Doug(ph) in San Leandro, California. Hi, Doug, go ahead.

DOUG: So in my town, San Leandro, there's been a discussion about the city budget. And the entire discussion has been driven in a way that it blames the deficits in the city budgets on public-sector pensions. Now, there's been a number of things here in California that have happened in recent years. Proposition 13 started slowly withdrawing the amount of revenues that comes into cities from state government.

That's been a chief thing in the budget deficit in San Leandro, California. But because ideologically it serves the mayor and certain people in the city council in San Leandro to drive the discussion entirely around pensions, pensions which are problematic, more problematic in the out years. They're not as significant a problem towards this year's, next year's budget.

But ideologically there's a whole bunch of people that are using this discussion to say these workers are going to accept wholesale cuts to their jobs, their hours, their pensions, or we're going to cut services. It's really dangerous and highly offensive when in reality the state withdrawing funds to the cities is the main cause of this problem. And I know that's the cause in Michigan as well.

SHAPIRO: Thanks for the call, Doug. I want to bring in somebody who has the national perspective on this issue, Michael Pagano, dean of the University of Illinois Chicago College of Urban Planning and Public Affairs. He has tracked this across the country. He's author of the National League of Cities annual report on fiscal conditions and has been looking at finances in America's big cities for more than 20 years. Welcome to the show, Michael.

MICHAEL PAGANO: Thank you, thank you (unintelligible).

SHAPIRO: So talk about the tension between these long-term pension and other obligations and the short-term, you know, shortage of tax revenue as an economy crunches.

PAGANO: The caller, I think, has a very good point, and that is that most pension obligations are in the out years, not in the current year, and most of the budget conversations we are confronted with today is a budget conversation about this current year's fiscal position. And I think the problem with the current-year fiscal position is that, as Mr. Vaughn said earlier, that we are confronting what seems to be a perfect storm.

And the perfect storm is that property values have been declining for a number of years now, which means that property tax receipts on the part of municipalities have been challenged and that the property tax receipts actually reflect the value of property, some one, two, sometimes five years in the past.

And that means that we, we probably haven't hit the bottom of the property tax receipt trough yet in the cycle. Second...

SHAPIRO: Sorry.

PAGANO: I'm sorry.

SHAPIRO: Does that explain why we see cities doing poorly even as the national economy is slowly improving?

PAGANO: That's mostly the reason. It's because of the property tax foundation for most municipalities around the country. The value of property, even if it picks up tomorrow and continues to surge ahead in the next year, won't be reflected in the city treasury for another couple of years because if you look at your property tax bill for today, it says something like what the value of your property was 18 months to two years ago.

SHAPIRO: Interesting. I'm going to take another call. This is Mike in Benicia, California. Hi, Mike, go ahead.

MIKE: Yeah, hi. I just wanted to make a comment. I live in Benicia, which is right next to Vallejo, and a lot of people in the Bay Area are probably aware that Vallejo went into bankruptcy. And one of the results that I saw was with the police department, and it's not their fault, but you know, they really had to pare down what they could respond to.

And there were two incidents that I encountered when I was driving through Vallejo. I called the police once because I was at a stoplight, and the person next to me was smoking pot. I mean, it was clearly obvious that they were smoking marijuana...

SHAPIRO: And what did the police say when you called?

MIKE: To tell you the truth, the dispatcher actually got irritated with me, you know, and I understand on the one hand, but she basically said, you know, I'm paraphrasing, of course, but she said we are responding to, you know, high emergency calls like shootings because Vallejo has a high crime rate.

And another incident was late at night, probably about 11:00 p.m., I saw a guy standing on a corner next to a set of railroad tracks with what appeared to be a three-year-old child, right in that age range, right on the curb on a busy street next to railroad tracks. And I called the police, and I just said, hey, maybe you should check this out. And I basically got the same type of response.

And so I just said, hey, I did my part of being a good citizen, and that's all I could do...

SHAPIRO: Thanks for the call, and Michael Pagano, briefly, is this what cities going through these sorts of financial crises can expect, no police available to respond?

PAGANO: Yeah, I think they can expect that they're going to prioritize the services that they provide and what's an emergency and what is something that can wait. It's not unusual now for fender-benders now to self-report and do it later rather than having a police officer come out immediately. You see (unintelligible) priorities.

SHAPIRO: All right, Michael Pagano and Jerome Vaughn, please both stay with us. And if you live in a place where an emergency financial manager has taken the reins, tell us how it's affected your life. The number is 1-800-989-8255. Or email us at talk@npr.org. We'll be back in just a minute with more. I'm Ari Shapiro, and this is TALK OF THE NATION from NPR News.

(SOUNDBITE OF MUSIC)

SHAPIRO: This is TALK OF THE NATION from NPR News. I'm Ari Shapiro. In Michigan, Governor Rick Snyder will soon name an emergency financial manager to square away the books in Detroit. When that happens, Motown will be the 13th city, town or school district in Michigan to have one.

And cities across the U.S. have turned to financial managers who have had varying degrees of success. So if you live somewhere where an emergency financial manager has taken over, tell us what's changed. How has it affected your life? Out number is 800-989-8255. Our email address is talk@npr.org. And you can join the conversation at our website. Go to npr.org, and click on TALK OF THE NATION.

My guests are Jerome Vaughn of member station WDET; and Michael Pagano of the UIC College of Urban Planning and Public Affairs. And joining us now is Bob Deis, he's the city manager for Stockton, California. He was brought on in 2010, when that city was deep in debt. Bob joins us by phone from his office in Stockton. Welcome to the program.

BOB DEIS: I'm glad to be here.

SHAPIRO: So how much does your city's situation have in common with Detroit? Any advice for those folks in Michigan?

(LAUGHTER)

DEIS: Well, I haven't been listening to the program.

SHAPIRO: That's all right. You've got a lot on your plate. Describe what the situation in Stockton looks like and how it's different from when you came in a couple years ago.

DEIS: Sure, we're different from Detroit in the sense that we are in bankruptcy, and we're operating under Chapter 9 protection. We don't have a receivership law in California, so I'm the appointed city manager, appointed by the city council. When I came, it was in the midst of the recession.

There's three years of cuts to our general fund that pays for police and fire and things like library and parks. And we've been cutting and cutting both compensation and services and privatizing some services, and eventually it got to the point where we couldn't cut any more while still maintaining the health and safety of our citizens. So we filed Chapter 9 and stopped paying some of the debt that we were obligated to.

SHAPIRO: If I could just read from an op-ed that you wrote in the Wall Street Journal, you say since 2009, the council has cut police officers by 25 percent, fire staffing by 30 percent, other general fund workers by 43 percent while cutting employee pay by nine percent to 23 percent. And then later you note that Stockton is the 10th most violent city in America. What does life look like in the town right now?

(LAUGHTER)

DEIS: Well, it is not as bad as what you might see on TV.

SHAPIRO: It sounds pretty bad from what you wrote in the Wall Street Journal.

DEIS: Well, it is more challenging than other communities. There's clearly more crime. And we have very low staffing levels and service levels. And so we have reached a tipping point where we can't cut any more. But it's not like, you know, there's complete anarchy in the streets or, you know, you can't - it's not like you can't walk down the street and be safe.

But clearly there is still violence occurring at unacceptable levels.

SHAPIRO: Is bankruptcy in some ways a light at the end of the tunnel, or is it a worst-case scenario?

DEIS: Well, it's a little bit of both. Bankruptcy is not the disease. It's a possible cure for the disease. What I say, it's almost like chemotherapy, where you hope it will cure the disease. Sometime you question whether it's actually worse than the disease itself. But it's not something anybody should consider as an option unless it's your only option. And that's the way it was here in Stockton.

SHAPIRO: When do you hope to be able to resign from your job? How soon do you hope Stockton will be on solid footing again?

DEIS: Well, I'm hoping this next year will be a good bellwether year for us. We have a court trial to determine eligibility for bankruptcy. We expect to prevail on that court decision. And then we're hoping that creditors will sit down with us and negotiate a plan of adjustment.

We also have just completed a draft Stockton recovery plan. That is something that hasn't been done, that I know of, that takes the issue of crime in Stockton head-on. And we hope to implement that once we come out of bankruptcy.

SHAPIRO: I also want to ask what your relationship has been like with the local city government because as we heard in Michigan, there's been a lot of tensions and clashes when somebody comes in with the authority to override the local officials.

DEIS: Right, and that's clearly something I don't have. I don't have the authority to - like a receiver in Michigan. But the cuts required to get us to today have been very difficult on everybody: retirees, employees, businesses, the community. It is a very tense time. It's been very difficult on everybody. And it's been tough. But I think we've turned the corner, and I think things are improving.

SHAPIRO: Bob Deis, thanks for joining us. He's city manager of Stockton, California, since July 2010. Good to have you on the program.

DEIS: Thank you.

SHAPIRO: We're going to go now to Caroline(ph), a caller from Oakland, California. Hi, Caroline, go ahead.

CAROLINE: Hi, thank you. Oakland, California, is I still think the best place in the world to live. However, we're going to have someone, a federal - federally appointed person take over our police department for a lot of very good reasons. I guess my concern is I am concerned about the pension obligations. And that's usually not discussed.

We are way down in terms of police officers, and part of me thinks that we should bring in an outsider who isn't beholden to the public service employees for elections of politicians.

SHAPIRO: Yeah, and it sounds like you would be willing to see other cuts made first in order to staff back up the police.

CAROLINE: I think we - all of us in Oakland have acknowledged that.

SHAPIRO: All right, well, thanks for the call. And we have an email here from Gavin(ph), who writes: San Carlos, California, disbanded the police department and turned over policing to the San Mateo County Sheriff department. He writes: So far, so good. Michael Pagano of the UIC College of Urban Planning and Public Affairs, is what you're hearing from these callers and from our guest in Stockton similar to what you're seeing in cities around the country?

PAGANO: Well, there's a great variation in how cities are adjusting to their underlying fiscal conditions. And California, in part because of an extraordinarily restrictive law called Proposition 13 that restricts the city's capacity to tax property values, those property value increases, it doesn't much matter to their treasuries, when those sorts of things happen at that level, then you have the situations that the two callers have identified.

But is it a national problem? The national problem is that there is - this is the fifth or sixth year of very difficult times for municipalities. But municipalities are adapting and adjusting the best way they can. As draconian as those measures were, in which a police department is disbanded and taken over by the county, that can happen in maybe a few cases.

Is that the choice that municipalities are going to choose? Not typically because they have other options, and they're not as hamstrung as the municipalities in California are. So really, I think the answer to your question is that it varies across the country. It depends on what states allow their municipalities to do and the fiscal or the economic base of those municipalities, whether they're shrinking, whether the city has the authority to tax users or charge users of municipal services or whether the city essentially subsides users of services who don't happen to live there.

SHAPIRO: Turning back to the crisis of the moment in Detroit, we have Jerome Vaughn with us from member station WDET. And an emailer named Dave(ph) in Fresno, asks: By contrast, how are the Detroit suburbs and exurbs doing financially? How many might organically have been part of the city except for incidental history? Jerome, any idea?

VAUGHN: Well, some of the suburbs, especially the ones a bit further out, are doing better comparatively, but kind of who isn't compared to the situation in Detroit. Some of the inner-ring suburbs are really being affected by some of the same issues that have affected Detroit: you know, being sprawl, being older infrastructure, folks want to move further out to bigger homes, nicer yards and things like that.

So that has been a factor in what's been going on. Some of the cities who have emergency financial managers are those older suburbs. Ecorse is a suburb of Detroit. Pontiac is a suburb of Detroit. Allen Park is a suburb of Detroit. So it's a mixed bag. One of the other factors which has led to this whole problem has been the great recession and the impact it had on the auto industry.

GM downsized. Chrysler downsized back in 2008, 2009. And that's had an impact on the region, as well.

SHAPIRO: What about all President Obama's talk about a rebound in the auto industry? Just spin, or is it rebounding yet just not quite enough?

VAUGHN: Well, the industry is rebounding, the automakers are rebounding. They're making profits, but they're smaller and meaner and leaner. So, you know, not as many people are working for the automakers as used to, and the same thing can be said for suppliers to the auto industry, and as well as the, you know, the restaurant on the corner that used to feed 5,000 workers at a plant maybe is only feeding 2,000 workers at that same plant. So it's had a real ripple effect.

SHAPIRO: If you're listening and you live somewhere where an emergency financial manager has taken over, tell us what's changed and how it's affected your life. Our number is 1-800-989-8255, or you can email us at talk@npr.org.

And, Michael Pagano, we're talking about these cities in deep financial crises that are going into, you know, emergency oversight managers being appointed. Yet I imagine there are all sorts of levels of crisis that fall perhaps just slightly shy of that and yet are still extremely serious for the people living in those cities.

PAGANO: Oh, absolutely. And some municipalities don't have the opportunity to go into something like a chapter nine. In fact, most municipalities don't have that. Their states don't allow them to move into that level. But states are responsible because states are - essentially have created the municipalities. And so the authority that they give them to manage themselves is, I think, determinant in a lot of ways about how well the cities actually can cope with the crisis.

So we're seeing that there are municipalities that aren't at that level that we're hearing in Detroit and in Stockton and Vallejo, but they are struggling. And the way they cope with the struggle is by adjusting their spending and their taxing and by collaborating with neighboring municipalities to jointly offer services, to find ways of charging for the consumption of a particular good or service.

There are even some municipalities who are charging people whose house is on fire when the fire department comes, actually charging them a fee to put out the fire.

SHAPIRO: Wow.

PAGANO: So they're - that - not something I would necessarily recommend but something that municipalities have adopted as a way of coping with this long-term decline in their economic base and their fortunes.

SHAPIRO: You know, you've been covering these issues for decades. Is this just something that happens with the boom-bust cycle of the economy, or is this a really unique time in America? Have we ever seen this before?

PAGANO: Well, we've probably seen this back in - during the Great Depression, but I don't think we've seen anything since World War II, and the reason is that it - typically, what happens in recessionary periods is that, as I said earlier, the property tax receipts aren't affected for maybe two years or so after the trough in the recession or the - or when the property value is at their lowest because of the way we collect revenue on property.

And by the time you feel the downturn in the property cycle, you've seen a pickup in retail sales and income taxes, and that's what some municipalities rely on, is retail sales and, to a much less extent, income, but retail sales is rather prevalent across the country. So that all three of these revenue sources are being affected in a negative way. At the same time, it is something that is unprecedented since the Great Depression.

SHAPIRO: And I imagine that it's a feedback loop where as cities cut back on public services, people move out, and that reduces the tax base even more.

PAGANO: Well, it can, and I think that raises the second issue. One issue is that, you know, property values may decline and you receive fewer resources. Where the other part of it, though, is how does the municipality pay for services that are provided, and who consumes those services?

And the places that I think are affected most readily in the way you've just identified - that if the taxes go up enough, they'll move out - are those municipalities that don't have the authority to charge the users for the services they're providing. By that I mean what I refer to as employment cities. Cities that have a larger daytime population provide more police and fire protection, more transportation, sidewalks, lighting and whatever else.

But the charge for those services can be distributed to all the users, and that is the people who commute into the city to work as well as to the residents. Or if cities are prevented from doing that, the full cost is borne by those who live in the city, which raises their tax burden; that is, how much they have to pay to the city more than what they are receiving in services from the city, and effectively they're subsidizing the commuters.

SHAPIRO: We're talking about cities in financial crisis, and you're listening to TALK OF THE NATION from NPR News.

We have an email here from Rob in San Ramon, California, who says: Michigan voters have overturned the original emergency manager law, only to have the legislature and Governor Snyder pass a new one that is harder or even impossible for voters to overturn again.

Jerome Vaughn at member station WDET in Detroit, tell us the story behind this. What happened?

VAUGHN: Well, what happened was there was an emergency financial manager law, which was passed back in 1990, and this was to give cities some resources when they fell on hard times, like Pontiac and Detroit and other cities have. A stronger measure came into being a couple of years ago which allowed the emergency manager - different term - to get in and monkey with union contracts and really impose some things that an emergency financial manager could not impose.

Voters in November of 2012 said, we don't like that law, and they overturned it. And so that law disappeared. So that is why if someone is appointed in Detroit, it will be an emergency financial manager. The legislature and Governor Snyder came up with a new law, a new type of emergency manager. That happened in December, and that won't take effect until the end of this month.

So an emergency financial manager is appointed in Detroit. He or she will turn into an emergency manager at the end of March, and he or she will have some stronger powers, especially when it comes to dealing with unions.

SHAPIRO: OK. Michael Pagano, fact check time. Governor Snyder in Michigan says there's probably no city that is more financially challenged in the entire United States than Detroit. Do they win the prize? Is he right?

PAGANO: Well, if he's not right, he certainly has the right category. There are a few that are - have been challenged for a long time. East St. Louis is one of those; Flint, who's turned around a little bit. But for a large city, I think he's absolutely right.

SHAPIRO: And cities have done it right, who've gotten out of it. What's the solution?

PAGANO: Well, it's not a single silver bullet, that's for sure. There are a lot of elements that go into building a fiscal healthy municipality. One is, certainly, the employment base and - which is - which helps and is reflected in the value of properties. And properties - property values are what cities rely on to a large extent. So there has to be a good employment base. There has to be good economic opportunities, but there also has to be a willingness on the part of the city to offer services that it can afford to offer today and in the future.

SHAPIRO: Without cutting them too deep. Michael Pagano there, co-author of the National League of Cities' annual report on fiscal conditions. And also, we spoke with Jerome Vaughn, a Detroit native and news director at member station, WDET in Detroit. Thanks to both of you for joining us.

PAGANO: Thank you very much.

VAUGHN: Good to be with you.

SHAPIRO: Coming up, stories of a shattered asylum's former patients told through belongings they left behind in suitcases. Stay with us. I'm Ari Shapiro. It's TALK OF THE NATION from NPR News. Transcript provided by NPR, Copyright NPR.

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