Financial Crisis: Coming to a city government near you? - Detroit Free Press Financial Crisis: Coming to a city government near you? - Detroit Free Press

Sunday, May 20, 2012

Financial Crisis: Coming to a city government near you? - Detroit Free Press

Financial Crisis: Coming to a city government near you? - Detroit Free Press

For more than a decade, politicians, policymakers and taxpayers too often have framed Michigan's urban crisis as a phenomenon restricted to Michigan's older impoverished cities -- usually those with large African-American populations.

It has been easy for residents and leaders in so-called nonurban communities like Birmingham, Novi or Traverse City to ignore the financial calamities besetting cities like Detroit, Flint and Pontiac. After all, it's not their problem, so why should they care?

But it is their problem -- and not simply because the health of Michigan's signature cities helps drive the vitality, economy and image of their regions and state. It's everyone's problem because the financial pressures hammering cities like Detroit, including plummeting property values and cutbacks in state revenue sharing, are undercutting municipalities throughout Michigan -- large and small, urban and rural, homogeneous and racially diverse.

The common denominator is a legacy of promises -- commitments to fund pensions and retiree health benefits, underwrite economic development initiatives, or forgo tax revenues -- many municipalities no longer have the wherewithal, or at least the political will, to keep. Lansing policymakers will soon have to consider whether this ubiquitous problem requires a statewide solution.

The news last week that middle-class Allen Park could soon be administered by a state-appointed emergency manager should be a wake-up call to the entire state, pushing Gov. Rick Snyder and legislators to re-examine how state fiscal policy is pushing municipalities to the brink and threatening to undermine their plans for economic revival.

Without fundamental reforms, the problems of Allen Park and other cities are coming to a neighborhood near you -- in fact, they're probably already there.

"I think it foretells things to come," said Paul Tait, executive director of the Southeast Michigan Council of Governments (SEMCOG). "I'm confident we're going to see more communities in trouble, further out in the next ring (of suburbs) and even in the outlying areas."

About 60 cities already have filed deficit-elimination plans with the state Treasury Department for budget problems in 2011, according to department spokesman Caleb Buhs.

Unexpected crisis

Up to now, Allen Park has hardly fit the stereotype of a city on the brink. With a population of 28,210, the Detroit suburb's median household income is more than $56,000 a year; its poverty rate 6.6%. The city is 93% white and 2% African American. The home ownership rate is nearly 90%.

Allen Park is home to the 80-foot roadside Uniroyal Tire and the Detroit Lions' team headquarters. Ford Motor has several testing facilities in the city.

Despite a solid economic base, however, Allen Park shows a $4.2-million deficit for 2012-13. That's chump change for the state or Detroit, but it's a beefy 22% of the city's $19-million budget for next year. More than half of that budget -- $10 million -- is earmarked for police and fire services.

In March, Allen Park City Council members asked state Treasurer Andy Dillon to conduct a preliminary review of city finances -- the first step in a process that could lead the state to appoint an emergency manager, as it already has in Ecorse, Benton Harbor, Pontiac and Flint, or to negotiate a consent agreement like those in place in Detroit, River Rouge and Inkster. The state continues to review Allen Park's request.

To be sure, some of Allen Park's budget problems were brought on by a bad investment decision. In October 2009, the city sold $25.3 million in long-term, general-obligation bonds to buy 104 acres at Southfield and I-94 to create the Unity Studios & Village project. The enterprise fizzled even before Snyder eliminated the state tax credit for most movie projects last year.

This month, Allen Park voters defeated a millage proposal -- with nearly 60% of voters against -- that would have covered the $2.6 million a year in bond payments for the failed movie studio. The city is marketing the property and seeking additional tenants for the building.

The bigger picture

In hindsight, it is easy to criticize the investment. But rolling the dice is tempting when property values, revenue sharing and other funding sources are drying up.

Nor can bad management account for the one-third drop in taxable values throughout southeast Michigan since 2007, or the $5 billion decline in revenue sharing Michigan municipalities have sustained over the last decade.

"That could buy some real quality of life," said Arnold Weinfeld of the Michigan Municipal League. "Local officials could be much further down the road in creating communities that people and businesses want to live in."

Between 2009 and 2010 alone, Allen Park's taxable value dropped 10% -- while the region's decreased by 9.9%. Allen Park gets $7 million less in property tax revenue than it did in 2007, city officials say.

Drops in taxable values especially hurt mature cities like Allen Park, incorporated in 1957, with less space for new construction.

Allen Park officials are debating whether to put the 4-mill tax on the ballot again in November. As traditional revenue sources dry up, many Michigan municipalities have appealed directly to the voters, who have often responded with a thumbs-up, especially for millages dedicated to specific services such as police and fire.

Besides looking for more money, however, Michigan's 1,800 municipalities must continue to merge departments and consolidate and share services, including police and fire, to increase efficiencies.

They also must re-examine the services and amenities they provide; many are overdue for outsourcing or outright elimination. Voters and their elected leaders must consider even more extreme measures, such as merging entire communities.

Find creative solutions

In the long term, however, solving Michigan's municipal funding crisis will take more than improved efficiency, cutbacks and stop-gap millage proposals. Michigan must figure out creative and stable ways to sustain healthy cities.

The current system is untenable, leaving more and more communities without the means to provide even core services such as police and fire.

"We've been saying that the Michigan municipal financing system has been broken for over a decade," Weinfeld notes.

At the core of this conundrum is the 1978 Headlee Amendment and Proposal A, which restrict property tax increases on existing development, making it impossible for municipalities to recoup enormous losses in property tax revenues in recent years.

As a start, Snyder ought to appoint a task force composed of representatives from the Department of Treasury, Michigan Municipal League, SEMCOG, Metropolitan Affairs Coalition and others to recommend ways to help sustain cities and local government services.

As Allen Park has demonstrated, it's no longer someone else's problem -- it's all of ours.

Stocks: Storm clouds continue to gather over Greece -

Facebook is finally public, but that won't solve Greece's problems.

Investors are likely to continue to bail out of stocks and continue the move into U.S. Treasuries and gold in search of safety as doubts over Greece's future in the eurozone continue to build.

Elections in Greece earlier this month failed to form a coalition government, and now the debt-laden country is under a caretaker government until the next election in June, which experts say will serve as a referendum on whether Greece stays in the eurozone.

Syriza, a coalition of leftist parties, is currently leading the polls. Syriza has vowed to fight austerity measures that are a condition for Greece to get the €130 billion bailout agreed to in March.

"If the pro-euro major parties fail to muster enough support to form a coalition and the radical left Syriza party and other anti-euro, anti-austerity parties secure a majority, the risk of a disorderly Greek exit from the Euro increases and could roil markets," said John Praveen, chief investment strategist at Prudential International Investments Advisers.

Though a Greek exit would pressure market, the greater fear is what it might mean for the rest of Europe, especially Spain.

While U.S. banks have cut two-thirds of their Greek debt exposure of the past two years, they have not necessarily had the same time to discount a blowup of Spain, said Kathy Lien, director of currency research at Global Forex Trading.

As investors continue to keep a close eye on the region for developments, increased uncertainty in the eurozone will likely boost demand for safe haven investments, Praveen said.

Last week, as U.S. stocks clocked their worst weekly losses of the year, investors rushed into U.S. government debt, sending the 10-year Treasury yield down to 1.71%, the lowest closing level on record. As investors continue to seek safety in Treasuries, the 10-year could move past its intraday record low of 1.671%, hit on Sept. 23, 2011.

Though the U.S. economic calendar is light next week, investors will also be taking cues for the latest reports on the housing markets. The weekly jobless claims number will also be in focus, as well as the final reading on consumer confidence for May from the University of Michigan.

On the corporate front, Facebook's first full week on the stock market will be watched closely. The social media giant's debut was highly anticipated, but shares ended just 0.6% above their offering price on the first day of trading.

Though a bulk of U.S. companies have reported quarterly earnings, a few major companies are on deck to open their books, including PC makers HP and Dell.

Delight for Roman Abramovich as Blues Finally Deliver Holy Grail -

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Abramovich took over the Stamford Bridge club nine years ago and has poured a considerable amount of money into the side and it must now be worth every penny, particularly since Chelsea are now the first London-based club to win the Champions League and have booked their place in next season's tournament despite finishing only sixth in the Premier League this season. The icing on the cake will be that the win pushes local rivals Tottenham into the Europa League, despite Spurs finishing higher than them in the league.

The game itself ended 1-1 after extra time, following Thomas Muller's 86th minute opening goal and Didier Drogba's equaliser two minutes later.

"It changed the game mentally. I'm very happy. Life is fantastic," said Drogba, on being asked about his equalising goal, according to a report in The Independent.

Meanwhile, Chelsea's captain for the night, Frank Lampard, said he could hardly believe the club had worn the prestigious trophy.

"I can't believe it. The season we have had, the determination and spirit we have shown... Our main man Didier Drogba has dug us out there. He is a hero. Without him we are not here. He scores the goals in the big games. This is the one we really wanted," The Metro quoted Lampard as saying.

Drogba, who thanked the heavens after scoring the equaliser, insists Chelsea's name had already been written on the Champions League Cup.

"It was [fate], I believe a lot in destiny. I pray a lot. It was written a long time ago. God is wonderful. This team is amazing," the Daily Mail quoted Drogba as saying.

"I want to dedicate this Cup to all our managers and players before," he said, according to a report in the BBC.

Meanwhile, Chelsea skipper John Terry, who was one of four players to miss the final, was seen in the Blues kit as soon as the celebrations started.

"The lads were fantastic. When our backs are against the wall we step up to the mark. You look at that trophy and that's what we have wanted and what the owner wanted, and Robbie [Di Matteo, the interim manager] has been superb," said John Terry, according to The Independent, adding, "We have won the FA Cup and the Champions' League and he can't do any more than that. It was do-or-die, win the competition or we would not have been in it next year, and that was enough to motivate us."

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Consider financial security in divorce -

I'm getting divorced, and it's emotionally overwhelming, so I don't want to end up financially devastated as well. Can you offer any advice for how we should begin separating our finances and assets?

Divorce is rarely a life event that one plans for, but while many couples live happily ever after, some will undoubtedly go their separate ways. A divorce can be emotionally devastating, but it doesn't have to derail your long-term financial security. If you're facing a divorce, consider these steps to protect and claim what's yours.

Understand your assets. A divorce can be expensive, especially if you fail to spend the appropriate amount of time reviewing and discussing your finances as you go through the process. Educate yourself by examining investment and bank statements, qualified plan and pension information, tax returns, mortgage information and insurance policies. Before you can begin to split the assets you've accumulated as a couple, you should know your total net worth so that you'll be able to assess how the divorce will impact your financial goals.

Consider the big picture. When deciding how to split the nest egg, it helps to look into the future and think about how your lives will look post-divorce. Will you have short-term needs -- like buying a home and furniture, new or continued child-care costs or paying a lawyer -- that require immediate funding? Will you be able to replenish your retirement assets if you must use them to pay for these unexpected expenses? Develop a detailed written financial plan as a soon-to-be single so that you may act in your best interest when deciding which assets will best fit your needs.

Think about tax consequences. Most retirement plans are made up of pre-tax dollars, meaning your contributions won't be taxed until you withdraw them. This can be beneficial if you believe your income and tax rate will be lower in retirement -- but it also means the amount of cash you'll be able to use to meet your day-to-day expenses will be less than what you actually withdraw.

Be sure you're aware of how taxes may affect your retirement income as you divide assets with your former spouse. Trusted financial, tax and legal advisers are especially valuable as you make such important decisions.

Follow the rules. If you decide that it makes sense to divide funds from you and your former spouse's 401(k) plans and IRAs, it's important to carefully follow state and local guidelines. This process is complicated so be sure that your divorce settlement states specifically how assets are to be divided and transferred.

Dividing a pension or 401(k) plan may require a Qualified Domestic Relations Order, which allows funds to be withdrawn without penalty and deposited into a separate retirement account. Make sure that you discuss preparation of such an instrument with your attorney.

Update your financial accounts. Once your divorce is final, revise the beneficiaries on your checking and savings accounts, investments, retirement plans and life insurance. Also re-evaluate your insurance policies and confirm that you still have adequate coverage for you and any dependents. Nothing can undermine your financial security faster than an uninsured accident or illness. Once the dust has settled on your divorce, create a new will or update the existing document to reflect your new marital status.

Seek expert advice. It's no doubt that your attorney will play an essential role in your divorce proceedings, but don't assume that he or she is a financial expert.

Consider working with a financial adviser who can help you with all aspects of your financial life before, during and after your divorce.

Let's face it ... there's no sure thing when it comes to marriage. But even if you end up going it alone, it doesn't have to mean the end of your financial security. With the help of trusted professionals and determination, you can face the new financial situation that your single life will bring.

John Gin is a certified financial planner in the local office of a national financial services firm. Send questions to Money Watch, The Times-Picayune, 3800 Howard Ave., New Orleans, LA 70125.

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