Pontiac, Michigan, has had three emergency managers since 2009. They have gotten rid of most public services, either by outsourcing or privatizing them.
A powerful quote in this NY Times story:
“An emergency manager is like a man coming into your house,” said Donald Watkins, a city councilman. “He takes your checkbook, he takes your credit cards, he lives in your house and he sleeps in your bed with your wife.” Mr. Watkins added, “He tells you it’s still your house, but he doesn’t clean up, sells off everything and then he packs his bag and leaves.”
Diane Ravitch's blog 
Sounds a lot like the carpet naggers of the post civil war era.
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Correction…carpet baggers. I really dislike auto correct on iPad.😫
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Except that the real so-called carpetbaggers- a pejorative term coined by post-Civil War supporters of the slave-owning class – were mostly abolitionists and employees of the Freedman’s Bureau, and were in the South to defend the rights of recently freed slaves.
Instead, the people Diane is referring to are actually much closer to managers from the International Monetary Fund, sent to developing countries suffering debt crises, and imposing what the IMF called Structural Adjustment Programs consisting of privatization, deregulation, attacks on labor and elimination of social subsidies and programs.
Economic Hit Men or Shock Doctrine Managers might be a better term for them.
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Does anyone have the absolute right to be loaned money?
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It also sounds like vulture capitalists… This is another example of “running public services like a business”… Drive through Northern New England and see the mills that are closed down because a vulture capitalist bought a distressed property, sold the inventory, and left the dilapidated structure for the town to take care of… When the mills close the outmigration of talent isn’t far behind… what’s happening in Detroit already happened in other places on a smaller but equally devastating scale… Meanwhile, we see schools falling into disrepair… soon to be declared distressed properties that will be replaced with spiffy new for-profit cyber-charters…
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Nuts!
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Some context: the point of emergency manager laws like Michigan’s is to create an alternative to bankruptcy. When a city can’t pay its bills — e.g., the interest on its bonds, the rent, the salaries and pensions of its teachers and police officers — it goes bankrupt. Municipalities generally file for bankruptcy protection under Chapter 9. Chapter 9 puts the bankrupt city under the supervision of the bankruptcy court, but it also gives the city extraordinary powers to do all kinds of things that it can’t do otherwise, including unilaterally modifying collective bargaining agreements and pension plans. All the creditors — and again, that means bondholders, landlords, and city employees — walk away with cents on the dollar. On top of that, the city’s credit rating is shot, making it difficult and expensive to rise from the ashes. An emergency manager law gives a lot of these powers to an emergency manager, and doesn’t do the same damage to the city’s credit rating.
So yes, an emergency manager definitely has a paternalistic relationship with the city it manages, and it’s not a pleasant process for the stakeholders. On the other hand, so is bankruptcy.
Municipal bankruptcies have been very rare since the Great Depression. But it looks like they’re going to become more common.
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“Municipal bankruptcies have been very rare since the Great Depression. But it looks like they’re going to become more common.”
Hmm, what do our times and the Great Depression have in common? I wonder why municipal bankruptcies are suddenly becoming common again? Must be those greedy, entitled teachers.
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Or greedy, entitled police. Or greedy, lenders that want to be paid back. Or greedy, entitled taxpayers who want to maintain the same level of city services without paying higher taxes. Or their greedy, entitled employers who won’t pay the taxpayers more money so they can afford to pay higher taxes. Or the greedy, entitled companies that moved their factories south and overseas so they could lower the cost at which they produced cars. Or the greedy, entitled shareholders who take profit margins into consideration when they decide whether to buy or sell a company’s stock or bonds. Or the greedy, entitled Americans who want automobiles to be both better and cheaper.
Federal austerity makes all of this worse, but Pontiac has very little control over any of it.
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NYC had emerg mgrs from Wall St in 1970s during the fake financial crisis of that decade; pvt sector mngmnt was disaster for city services, pub schls and our grand pub univ CUNY which lost its 129-yr-old free tuition and its remarkable experiment in cultural democracy called Open Admissions, got instead rising tuition, lots of underpaid adjuncts replacing prof’s, and new standardized reading/writing/math tests as bogus entry exams. Corporatization of CUNY exemplifies what is happening now to k-12 nationally. The 1% dislike democracy, a nuisance, an irritation, an obstacle to the rule of profit, to the submissive acceptance of their policies. In 1970s, 1% turned dramatically against residual democ in US and elsewhere(pls read Trilateral Commission reports of that time). Demolition of democracy, unions, and mass movements along with outsourcing and conglomeration paved way for vast increase in wealth of 1% and three collapses from runaway capitalism once public sector control of pvt sector greed ended. The corporate assault on pub schls, pub colleges, and pub sector generally is result of purge of democratic rights and restraints, promising even more fabulous returns for the already fabulously wealthy. Wealth buys power. What restrained them in early 70s were mass movements, still viable labor unions, public desires to live in a social democracy…things we need now again to stop the plunder. Our vast numbers against their vast wealth and institutional control—we sure can prevail if we consolidate.
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This reminds me of the charter co-location analogy, that is, a public school and a charter school sharing a campus. You and your family go to bed one night in the bedroom of your rented apartment. During the night, the manager moves in a family to live in the living room because “you weren’t using it.” In the morning you find a letter from the manager stating that your and the living-room family (LRF) are to share the kitchen and the bathroom based on a schedule that the LRF creates. You are to pay the rent and all of the utility bills although the LRM will give the manager personally $50 a month. That’s how it works in LA.
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The good people of Pontiac should arrange an ole’ fashioned neck tie party for their next “manager”
He’d quickly get the hang of it.
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Metaphor is never analysis, merely an appeal to pathos. All of the fired police officers have been hired by the county sherriff’s office, which does the policing in Pontiac now. Law and order is working well for them. When a city can’t pay it’s bills, often because of corruption, this is what happens. Detroit, next. As Aguilera says, the CAUSE is corruption, and neither party has a monopoly on that. It’s ok to be for sound public services, but not ok to be dismissive and uninformed at the same time.
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The cause is their tax base disappeared. The people and businesses left in droves and now the city is in shambles. I really don’t think this EM will accomplish much except for cutting jobs, nullifying unions, etc. I’m skeptical.
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If there is no money flowing into the cities treasury, how will the city be able to pay its employees and pension obligations no mater who is in charge?
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“If there is no money flowing into the cities treasury, how will the city be able to pay its employees and pension obligations no mater who is in charge?”
From Pontiac’s perspective (and now Detroit’s perspective), that’s the only question that matters, isn’t it. Everybody’s an expert until they have to run Pontiac or Detroit.
For years, Detroit’s been paying its bills (for its employees, for goods and services purchased, for pensions) by borrowing, firing city employees, and outsourcing. If you fire city employees (teachers, police, firefighters), you make the city unlivable, and even more people flee. If you outsource, that’s privatization. If you borrow, you enrich Wall Street for a short-term reprieve that ultimately requires more aggressive firing and outsourcing. (See the NYTimes article on the fees Detroit paid for its bond issuances under Kwame Kilpatrick’s sage guidance.)
Any other options? There’s declaring bankruptcy, which Detroit could have done at any point over the last several years, or longer. I don’t know very much about Michigan’s emergency manager law, but based on the little bit I’ve read about it, I have questions whether it’s (1) constitutional, (2) fair, and (3) a better option than bankruptcy.
Other options? There’s a state or federal bailout. From the perspective of Detroit, that’s the best option. It’s also the option that the bankers prefer, because it’s the one that gives them 100 cents on the dollar. (See, e.g., Goldman Sachs, as M. Fiorillo notes below.) But a bailout’s nice work if you can get it. If you can’t get it, see the options above.
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As a resident of Oakland County (where Pontiac is the county seat), I can tell you Mr. Underhill that all Pontiac’s EM did was shift the costs of Pontiac onto the rest of the county and surrounding communities.
The outsource to Oakland sheriff means that Pontiac is now policed by taxes from the rest of the county. (By the way, crime in Pontiac is up. The sheriff’s department is not committed to having regular patrols of Pontiac like a city force would. They have a responsibility to the county first.)
The Pontiac Em also sold off public properties and assets to private firms. It’s an exceedingly short-term fix that reduces the long-term assets of the city. While shifting the costs of the city to those who don’t live there. Everybody lost on this deal. Except the EM. He cashed in nicely.
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Yes, another shell game where someone’s cronies put on a smoke and mirrors show and plays political games. I think Snyder will make things worse in Detroit. If you can’t attract businesses and a tax base how are all of these problems going to be fixed?? The city has been cut to the bone. Cut more jobs, create low paying jobs, sell to cronies, etc. etc.
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Sorry to hear it’s not working out as well as I read. Thanks for the additional information. As for Detroit, the EM will surely make cuts.
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teachingeconomist,
Since there is no reply button to a reply, this must appear further down the thread.
You ask, “Does anyone have the right to be loaned money?”
You ask the wrong question, one steeped in certain assumptions.
First, governments are not “anyone:” they are public entities charged with maintaining the public welfare, which gives them standing far different from that of a typical consumer.
Second, your question seems to imply that “All creditors have the right to be repaid 100 cents on the dollar, no matter the distress of the debtor.”
Where in the private sector is that ever the case? Creditors of troubled companies take haircuts all the time – unless, of course, we’re talking about Goldman Sachs, which can get the US Treasury and Federal Reserve Bank to guarantee payment, a la AIG in 2008 – yet your question assumes that basic public services can be eviscerated, facilities sold off, and citizens disenfranchised, so that banks do not lose a nickel in interest.
As per most orthodox economists, you seem incapable or unwilling to see the assumptions and biases embedded in your outlook.
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Lending to sovereigns is always a risky business. Creditors may well get nothing back, and there is nothing a creditor can really do about it except not make the same mistake again.
My question did not imply that all creditors have the right to be paid back 100% on the dollar, it implied that all creditors have the right to decide if they want to become creditors at all.
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http://www.hollandsentinel.com/news/x1959358073/Records-Detroits-EM-has-tax-liens-on-Md-home?rssfeed=true
I had to write to show you this. You’ve got to admit truth is stranger than fiction.
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A am not really sure why that is relevant to the point a was making that forcing people to loan money to anyone is a poor idea, though Michael seems to be in favor of it.
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I didn’t follow this.
Re: #1: Governments, including municipalities, do not have an absolute right to be loaned money.
Re: #2: Are some of Pontiac’s creditors getting 100 cents on the dollar? In a Chapter 9 bankruptcy — and we may end up seeing what that looks like for a large city like Detroit — all creditors do not have the right to be repaid 100 cents on the dollar. A possible exception, depending on how courts interpret conflicts between state constitutions and federal bankruptcy public employees with vested pension rights.
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Sorry, that got garbled somehow. Should read: “A possible exception, depending on how courts interpret conflicts between state constitutions and federal bankruptcy law, is public employees with vested pension rights.”
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http://www.hollandsentinel.com/news/x1959358073/Records-Detroits-EM-has-tax-liens-on-Md-home?rssfeed=true
Flerper, you must admit this is beyond bizarre.
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