Detroit seeks salvation during Big 3's victory dance

Reuters News
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Posted: Jan 09, 2012 6:08 PM
Detroit seeks salvation during Big 3's victory dance

By John Stoll

Detroit (Reuters) - Bill Perkins, a Detroit-area car dealer, has ample reason to raise a glass in the early days of January.

Perkins is chairman of a North American International Auto Show that debuts here this week just as domestic car companies are riding high from an $80 billion government bailout and strong sales in 2011.

"Detroit, we are with you," Perkins said, leading a group of automotive business leaders in a lunchtime swig of Brut champagne at the city's Cobo Center.

But not everyone is in the mood to celebrate.

While car companies thrive, Detroit continues to bleed. Saddled with a crippling debt load, mounting labor costs and onerous union contracts, the city that paved the auto industry's success is in need of a bailout of its own.

In the next month alone, another 1,000 Detroit employees are slated to lose their jobs, adding to the already-alarming rate of people who are not employed here. Retiree pensions, health-care benefits, vendor contracts and overtime hours are also on the chopping block as the city eyes a quarter-billion dollars in cost cuts by mid-2013.

"The building is on fire," Detroit Councilwoman Saunteel Jenkins said to Mayor Dave Bing Thursday after a budget presentation. "We're in a place where we've never been in as a city."

PERPETUAL DOWNSIZING

The crisis means that Detroiters -- historically benefiting from booms in the persistently cyclical auto industry -- are forced to sit on the sidelines and wait out another reckoning for a region battered by decades of insufficient downsizings.

On Tuesday, residents in northeast Detroit watched as student protesters -- many from the "Occupy" movement -- marched in an effort to block movers from taking books and furniture out of the newly closed Lincoln branch of the city's library. A map posted on the door showed residents "other libraries available to serve," the closest being a few miles away.

"It's sad that this neighborhood is being destroyed," Mable Washington, 70, said while waiting a block from the library for a bus that was running late. Washington frequented the library until it closed December 22, and said children from the nearby elementary school and unemployed people looking to search for jobs on the Internet would routinely walk to the Lincoln branch.

Two days later, just a couple miles away, Police Chief Ralph Godbee announced a plan to dramatically reduce services that will be available at the city's eight police stations. On Monday, stations will begin working with skeleton staffs between the hours of 4 p.m. and 8 a.m. -- including overnight hours during which residents feel particularly vulnerable.

On Thursday, Godbee, surrounded by reporters and staffers in a station located in the depressed northeast corner of Detroit, said the move allows him to eliminate non-essential positions: report clerks, desk clerks, building maintenance officers, timekeepers and property officers.

These people too often find themselves "sitting there like the Maytag repair person waiting for something to happen ... it is prudent for us to do this while we talk about the city's fiscal challenges."

FINANCIAL STRESS

"Do we have financial stress?" Bing asked the city council as he presented Detroit's bleak numbers to them only a couple hours after Perkins' champagne toast Thursday. "Damn right we do."

Bing's urgency is fueled by the Michigan governor's threat to potentially appoint an emergency financial manager in the coming weeks. Such a move would give a manager unilateral power to cut costs, but threatens to yank power from Bing and the city council.

The city faces a mountain of obligations accumulated over decades during which officials relied on debt to cover deficits and continued to offer generous pensions and health care packages to employees.

There currently are two retirees supported by the city for every active employee. Tax revenue, meanwhile, has fallen as the population plummeted and corporate payers -- including GM and Chrysler -- dramatically lowered their tax bills through downsizing.

Detroit, meanwhile, is saddled with $13.2 billion in longterm financial obligations, or $18,500 per resident, according to the Bing administration. Detroit's direct net per capita, or debt related to bonds issued by the city, is second- highest among big U.S. cities, only trailing the city of New York, according to Moody's Investors Service. <For a graphic, click on http://link.reuters.com/bag85s

The city said it paid about $150 million in interest in fiscal 2011 alone.

The mayor said the pain will continue as he looks to create "headroom" in relation to cashflow over the next 18 months. He said he is not willing to kick the can down the road by raising more debt, and he will not try to contrive a quick fix.

Detroit is a city littered with the remains of failed last-ditch efforts, including the monorail "People Mover," which operates 12 cars on 2.9 miles of elevated track. Built in the 1980s as a way to connect the city's major attractions, the system now is severely underutilized.

On Thursday at lunch time, only two people sat on a train surrounded by hundreds of empty seats.

Bing said he is focused on beefing up the delivery of simple services -- such as on-time bussing, functioning streetlights and the demolition of thousands of buildings that sit vacant throughout the city.

CONCESSIONS

The plan includes deep concessions needed from the unions by the end of the month to avoid running out of money in the next 120 days. Concessions will include rewriting of work rules and slashing the $80 million overtime tab paid in 2011.

One of these "outdated" work rules, according to a spokesman for the mayor, requires certain mechanics to only work on vehicles inside garages. If a truck on the streets needs servicing, these workers are contractually barred from helping even if the worker is sitting idle.

"We suffer every day," Wisam Zeineh, a 36-year-old paramedic, said. "You see the shortages everywhere."

On New Year's Eve, Zeineh took video inside his disabled ambulance as he tried to get help from a dispatcher. Viewers of the video, which he sent to a local television station, could hear gunshots going off in the streets as people celebrated at midnight.

Zeineh sat in a broken-down vehicle, unable to move and unaware of where the shots were coming from.

But workers like Zeineh worry the city's cuts will further diminish city services, even for emergencies.

"It's already almost impossible to survive a cardiac arrest in this city," he said.

(Reporting By John D Stoll; additional reporting by Karen Pierog; editing by Edward Tobin and Maureen Bavdek)