News Story

Detroit Lawmaker Would Repeal City’s Post-Bankruptcy Financial Oversight

Critic: ‘Lawmakers shouldn’t act like the city’s problems are over’

Several bills proposed by state Sen. Sylvia Santana would end state oversight of the city of Detroit’s finances, a condition that was part of a 2014 “Grand Bargain” bailout package designed to help pull the city out of bankruptcy.

“The time for the so-called ‘Grand Bargain’ has come and gone, and so too should the parameters of that law,” Santana, D-Detroit, said in a press release. “The city of Detroit is financially solvent, and it’s time we give back what is owed to the people who made sacrifices for this to happen, especially on their retirement income.”

The 2014 bailout gave Detroit $195 million to ease its way out of federal bankruptcy court. But to ensure the city did not resume the practices that caused insolvency in the first place, the Legislature imposed oversight of Detroit’s finances.

Under the bargain, the state’s financial oversight would last 20 years, but Santana’s Senate bills 222 through 226 would formally terminate the oversight after just five years. No longer would city financial decisions be reviewed by a nine-member commission comprised mostly of gubernatorial appointees and chaired by the state treasurer.

“It’s time we started talking about this, and I hope these bills will be the start of a spirited, encouraging discussion on this matter,” Santana said.

Two years after the city went broke, the Detroit school district became the beneficiary of a state bailout itself, subject to many of the same oversight requirements. Santana’s bills would also end state oversight of the Detroit Public Schools Community District.

Additionally, the bills would repeal a provision of state law affecting the city and employee health insurance. That particular law requires municipal employees across the state to contribute specified amounts to their employer-provided health insurance benefits. Municipal governments can exempt their employees from these cost-sharing duties with a two-thirds vote by their governing body, but currently, Detroit cannot. Santana would let the city do so.

Santana has also introduced a bill to let large cities, including Detroit, impose a 10 percent amusements tax on tickets to concerts, shows, sporting events, zoos and more. The proceeds would be used to prop up underfunded police pensions and retiree health insurance benefits.

“The city of Detroit has been through so much this decade, but the integrity and professionalism of those who work at the Detroit Police Department has remained constant,” Santana said in a press release. “Even when our economic situation was tumultuous, our officers stood strong and worked overtime to protect our communities. The state has repeatedly slashed municipal budgets, so it’s time for Detroit to find a new way to pay for their current and prospective benefits. It’s simply not fair for Detroit taxpayers to foot the bill to train our police officers, only for them to be snatched up and employed elsewhere. We need to protect our taxpayers and the officers who work so hard every day to keep our residents, and communities, safe.”

James Hohman, director of fiscal policy at the Mackinac Center for Public Policy, cautioned legislators about liberating Detroit from state financial oversight. Among other reasons, he pointed to the 2018 conviction of a former Detroit employee for embezzling from the city. Masharn Franklin had worked in Detroit’s audit and payroll department and was sentenced to 18 months in prison in November 2018 for embezzling $265,000.

“There are some positive trends for the city, but Detroit still has an underfunded pension system,” Hohman said in an email. “Some of its elected officials and managers have been charged with corruption after bankruptcy. I am not sure that state oversight has helped these problems. But its residents deserve a competent and functional government, and lawmakers shouldn’t act like the city’s problems are over.”

Correction: The original version of this story inaccurately reported the terms of the 2014 city of Detroit bailout.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.