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Michigan

Detroit is getting an “emergency manager”

This is startling news considering that much of the news out of Detroit has been good lately.

I spoke with several people deeply involved in counselling the governor on Detroit, and none doubted that his next move is an emergency manager. Managing the restructuring of the city’s $12 billion of debt and pension liabilities is too complex to be handled through the political process.

There’s also a rumor that more bad news is coming on the pension shortfall that will make erasing the deficit even more difficult.

Pieces are falling into place quickly. The Financial Advisory Board will get an update Monday on the work of the three consulting firms hired to handle the restructuring.

Teams from Conway MacKenzie of Birmingham are embedded in all city departments and are finding broken systems — and savings — in every single one. The advisory board and Ernst & Young are digging deep into the budgets of each department in an attempt to match spending to revenue.

The goal is to achieve positive cash flow for the first half of the year. By then, the restructuring blueprint being worked up by New York-based Miller-Buckfire & Co will be ready. It will either be used to take the city into bankruptcy or handed to the emergency manager.

Which one implements the turnaround depends on how cooperative Detroit’s creditors are in shaving the debt. If the manger can convince them to take a significant haircut, the city may avoid bankruptcy.

14 Ways to Create Jobs in this Economy

Bill_ClintonFew Presidents have been able to create jobs like Bill Clinton did during his eight years in office.  In Newsweek (it still exists?) he outlines 14 ideas for creating more jobs.

2. CASH FOR STARTUPS

If you start a business tomorrow, I can give you all the tax credits in the world, but since you haven’t made a nickel yet, they’re of no use to you. President Obama came in with a really good energy policy, including an idea to provide both a tax credit for new green jobs and for startup companies, to allow the conversion of the tax credit into its cash equivalent for every employee hired. Then last December, in the tax-cut compromise, the Republicans in Congress wouldn’t agree to extend this benefit because they said, “This is a spending program, not a tax cut. We’re only for tax cuts.” It was a mistake. The cash incentive worked. On the day President Obama took office, the U.S. had less than 2 percent of the world market in manufacturing the high-powered batteries for hybrid or all-electric cars. On the day of the congressional elections in 2010, thanks in large part to the cash—incentive policy, we had 20 percent of global capacity, with 30 new battery plants built or under construction, 16 of them in Michigan, which had America’s second—highest unemployment rate. We have to convince the Republican Congress that this is a good thing. If this incentive structure can be maintained, it’s estimated that by 2015 we’ll have 40 percent of the world’s capacity for these batteries. We could get lots of manufacturing jobs in the same way. I could write about this until the cows come home.

3. JOBS GALORE IN ENERGY

When I was president, the economy benefited because information technology penetrated every aspect of American life. More than one quarter of our job growth and one third of our income growth came from that. Now the obvious candidate for that role today is changing the way we produce and use energy. The U.S. didn’t ratify the Kyoto accords, of course, because Al Gore and I left office, and the next government wasn’t for it. They were all wrong. Before the financial meltdown, the four countries that will meet their Kyoto greenhouse-gas emission targets were outperforming America with lower unemployment, more new business formation, and less income inequality.

4. COPY THE EMPIRE STATE BUILDING

Just look at the Empire State Building—I can see it from my office window. Our climate-change people worked on their retrofit project. They cleared off a whole floor for a small factory to change the heating and air conditioning, put in new lighting and insulation, and cut energy-efficient glass for the windows. Johnson Controls, the energy-service company overseeing the project, guaranteed the building owners their electricity usage would go down 38 percent—a massive saving, which will enable the costs of the retrofits to be recovered through lower utility bills in less than five years. Meanwhile, the project created hundreds of jobs and cut greenhouse-gas emissions substantially. We could put a million people to work retrofitting buildings all over America.

So many of these ideas could be implemented in Canada (and Saskatchewan) that it would make your head spin.  Of course Canada would actually need an energy and environmental policy framework that was based on reality.

The future of Detroit

City Journal has a good article on the problems and future of Detroit.

The new mayor’s boldest argument may be that Detroit needs to shrink to revive. Detroit has contracted from 2 million residents to about 900,000; whole areas of the city have virtually emptied. As many as 70,000 homes stand abandoned. On some blocks, many homes have gone unoccupied and untended for so long that summer vegetation completely engulfs them; only the outline of the house suggests something man-made. Detroiters refer to certain city districts as “feral”—that is, having reverted to nature. Yet the city must still provide services to these areas’ few remaining occupants, at great cost.

Bing hopes to raze entire underpopulated neighborhoods and relocate their few residents to more viable areas of the city. Perhaps as much as one-quarter of Detroit would revert to unoccupied parkland and woods under Bing’s plan. The controversial initiative is a necessary step, the mayor believes, in reducing the size of government and hence regaining control of finances, out of balance after years of mismanagement. The city has an accumulated deficit of $300 million. Even though Bing has already cut about 1,000 positions, the city still employs some 13,000 workers to serve its fewer than 900,000 residents, yielding one of the highest ratios of workers to population among major American cities.

As I posted earlier today, the school system is still in shambles

Detroit’s school system is in even worse shape than Newark’s, if that’s possible. Secretary of Education Arne Duncan recently called it “a national disgrace.” The problems are both financial and academic. Because the political class in Detroit has long viewed the schools as patronage mills, the system didn’t shrink as enrollment fell by half over the last decade. A state-appointed monitor has uncovered approximately 500 employees on the payroll in positions that aren’t budgeted. He’s requiring workers in the system to show up to collect their checks in person because of widespread concerns about “ghost” employees ripping off taxpayers. Detroit also suffers from astonishingly poor academic standards. In last year’s National Assessment of Educational Progress, Detroit’s students registered the lowest score of any school system in the history of the test, with 69 percent of fourth-graders and 77 percent of eighth-graders scoring below the basic level in math.

There is some hope

As for Detroit, it remains a gateway to Canada and the Great Lakes region, and its airport is one of the nation’s busiest. Despite the years of decline, the city boasts what development experts call a “meds and eds” economy—that is, major health-care and research institutions like Henry Ford Hospital and important universities like Wayne State. Detroit also has a rich infrastructure and architectural legacy from its glory days, including numerous art-deco commercial towers. Many of them were abandoned over the years but still stand, such as the hauntingly beautiful old Michigan Central Station and the Book Tower.

And the upside of the city’s population decline is that affordable office space and homes are plentiful, even in well-occupied portions of the city. “Detroit has the opportunity to make itself attractive to young professionals who work at its universities and are drawn to urban living, and to immigrants, who now make up just 5 percent of the population,” says Lou Glazer, president of Michigan Future, Inc., an economic development group. “Mayor Bing can make a difference by making government more business-friendly.”

Flint, Michigan

The other day I took a shot at Flint, Michigan in a blog post and the next day I got a friendly comment from someone who works for Flint Tourism pointing out that I may have over looked some of Flint’s characteristics.  Now I wasn’t really trying to be mean to Flint, I was just trying to point out that when factories shut down, cities really struggle as Flint did as General Motors pulled back production from the region.

So to be fair, here is a more balanced look at Flint.

City of Flint website and Quick Facts About Flint

It is home of the University of Michigan-Flint campus.

Flint Tourism

It’s home to the Flint Tropics

It’s also the home of Buick City, what is now the largest brownfield in the United States

I was suprised to learn that General Motors still has a presence in Flint

  • GM Truck Group, Flint Assembly
  • GM Powertrain Flint North
  • GM Powertrain Flint South
  • GM Flint Metal Center
  • Delphi Flint East
  • Delphi Technical Center Flint (closing 4Q 2008)
  • GM Flint Tool & Die
  • GM Grand Blanc Weld Tool Center
  • GM Service Parts Operations warehouse, Swartz Creek
  • GM Service Parts Operations processing center, Burton
  • GM Service Parts Operations World HQ offices, Grand Blanc Twp.
  • GM Service Parts Operations offices, Great Lakes Tech. Center, Flint

There you go.