Monday, November 21, 2011

More Municipal Cuts

Last Friday, Detroit Mayor Dave Bing announced plans to lay off 9% of Detroit's public work force.

The Mayor's cuts will directly affect 1,000 municipal workers, but will also have a significant impact on thousands of poor and elderly citizens who demand on government services.

Detroit's moves will doubtlessly be repeated by dozens of municipalities across the U.S. by cash-strapped cities and towns in the months ahead. Already there have been several towns in California that have not only laid off administrative officials but also police and firemen as well.

Once home to some of the strongest and most vibrant economies in the United States, Detroit in recent years has turned into one of the hardest hit of the major U.S. cities. Fully one-quarter of the homes in the greater Detroit area, for example, now stand vacant. The level of unemployment in the greater Detroit metropolitan area is 13%. Cuts in municipal services will hit hard.

Worries about municipal credits have waned over the course of this year. Concerns about the fate of the euro, and euro zone bonds, have rightly dominated investment discussions recently.

But that doesn't mean that municipal finances have improved. Like Marley's ghost, most municipals are bound by the chains of poor decisions and bad contracts forged in earlier years.

It seems likely that discussions about the poor state of municipalities will begin again.

An article in last Saturday's New York Times notes that Mayor Bing's cuts may not do enough to help:

For months, Mr. Bing and other leaders have bemoaned the city’s financial state as dire, but a new urgency has clearly set in. The mayor has called on union leaders to agree by next week to concessions to their existing contracts, even as City Council members have suggested that Mr. Bing’s cuts may not go far enough and that even sharper layoffs may be needed.

There is a looming threat hanging over all such talks: the possibility that the state may ultimately find Detroit’s woes so troubling that it requires the appointment of an outside manager to take control of the city, Michigan’s largest. State officials say that so far, no such plan is under way.