Milbank Tweed Forum addresses cities in fiscal distress

Focused on the growing problem of municipal fiscal distress, the February 12 Milbank Tweed Forum, “Saving Cities: Detroit and the Problem of Municipal Governance,” assembled a panel of experts to analyze the issue and offer potential approaches to a national dilemma.

Clayton GilletteThe discussion, moderated by Clayton Gillette, Max E. Greenberg Professor of Contract Law, began with the input of Sonya Mays, senior advisor to Detroit’s appointed emergency manager. A native Detroiter, Mays deemed her involvement in the city’s financial struggles deeply personal as well as professionally satisfying. “Some would argue that it’s undemocratic,” said Mays in regard to Michigan’s power to appoint emergency management supplanting the authority of the mayor and city council, “but that is the way that the state has chosen to deal with municipal distress, which I believe is unique in the country.”

Contrasting New York with Michigan, Thomas Nitido, deputy comptroller of the New York State and Local Retirement System, explained that the Empire State lacks a bankruptcy tradition because its elected leaders typically collaborate to create a financial package in reaction to municipal distress. A prominent example occurred in the 1970s when New York City was going under.

“It was not a flawless system,” said Nitido. “New York suffered pretty dramatic decline in populations, particularly middle-class population, during that time. But they were able to maintain access to capital markets at a fairly steep price, and since then obviously have done every well.”

Paul Romer, professor of economics at NYU’s Stern School of Business, described a common negative feedback loop as a precursor to trouble. “If there’s a reduction in the current services which are essential for making a city or a region survive,” he explained, “then people will leave, economic activity is lower, there’s less revenue to pay for current services, so you get a further reduction in current services. And then as that loop runs, the entire region can quickly become nonviable.” He held up effective policing as the most vital service keeping a municipality viable.

Mary Williams Walsh, a New York Times business and financial reporter who has long covered public pension issues such as the one at the heart of Detroit’s present woes, mentioned the anger her articles have generated. “If you’re trying to describe what’s going on in financial terms,” she said, “the imbalances that you see, it sounds terrible…. It sounds like you’re somehow saying it’s the workers’ fault, and I don’t think it is. As Tom said, if you don’t manage your pension fund right, this does happen. You can get into a death spiral and not be able to recover from it.”

Gillette asked the panelists if Detroit was an outlier or a harbinger of things to come. Mays was unsure. “Detroit was in this place that maybe we won’t see again, because it was a confluence of so many things all at once,” she said, citing manufacturing’s collapse, crime and drug epidemics, and poor financial decisions by the city’s leaders that were exacerbated by the global economic crisis. “But in saying that, the leadership arguably wasn’t so responsive to some of those changes as they were coming down the pipeline.”

Walsh chimed in to add demographics to the mix of ominous factors. “We have this big bulge of people going through the population who are approaching retirement age,” she said. “They’re going to retire, and you have to pay them.”

In the end, Mays pointed to the need for true systemic reform going forward. “What I do not want as a citizen,” she said, “is for my level of service and my quality of life to be dictated by the off chance that I get a great leader running my city. I want systems in place that are logical, that are well crafted to produce a communally agreed output.”

Watch the full video of the event (1 hr, 13 min):

Posted on February 21, 2014

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