Michigan city on verge of bankruptcy

GoingOutofBusiness

HAMTRAMCK Mich. - In a preview of what may happen to many cities and towns in this state, the city of Hamtramck is $3 million in debt and will run out of money by the end of January. It has sought permission from the State of Michigan to file for bankruptcy, a move never before taken by a Michigan municipality.

Instead of bankruptcy, Governor Granholm's administration is pressuring Hamtramck to consider various loan proposals. However the Hamtramck city manager has said bankruptcy is a way to void the labor contracts and pension responsibilities that will continue to add to the city's debt.

Voiding labor contracts is wrong and a similar approach did not work in the past. In 2001 the city privatized many services including cutting the pay of and firing of workers. And now eight years later the city is again in crisis.

A looming concern for labor is that the state's position in opposition to bankruptcy may change in January, when the new Republican administration of Rick Snyder takes office. Public worker unions and their benefits are in the crosshairs of Republican officials, the Mackinac Center for Public Policy (a right wing think tank based in the state) and many media pundits.

In the background of this development, a court battle is playing out between Detroit and Hamtramck that threatens to sour relations between the two cities. The General Motors "Poletown" plant lies within the borders of both cities. GM pays its taxes to Detroit, which then reimburses Hamtramck (almost $2 million in tax revenue comes back yearly to Hamtramck from the city of Detroit).

All seemed to go well until a recent state audit showed Detroit over collected its GM taxes from 2001 to 2005 and must pay them back. To do so, Detroit began withholding payments to Hamtramck saying it had overpaid the city as a result of its collecting too much from GM.

Whatever the merits of Hamtramck's claim, the forces bankrupting cities are far greater than a dispute over the taxes collected and paid by Detroit. A minimum of 68 municipalities in the state are running out of money and the state itself has a multi-billion-dollar-plus deficit.

It's likely that number is much higher. The number 68 was based on two-year-old data, just before the economic collapse. Since then, local property rates have fallen and city tax revenues will only fall further.

Despite the saving of the auto industry by the Obama administration, a huge loss of jobs has taken place affecting communities throughout the state. Michigan is an auto dependent state. It would have been impossible not to have a crisis under such circumstances.

Two year ago Dick Dauch, CEO of the auto parts supplier American Axle that sits on the Detroit and Hamtramck border, said, "We have the flexibility to source all of our business to other locations around the world and we have the right to do so." He backed up those arrogant words by moving almost two thousand jobs - and resulting taxes paid by the workers and the company - out of the area and out of the country.

Adding to this crisis has been the loss of tax revenue due to Republican tax breaks for the wealthy. Republican John Engler, Michigan's three-term governor who left office in January of 2003, signed 32 tax cuts into law, including the elimination of the state inheritance and capital gains taxes, and annual reductions on taxes to businesses. 

Less revenue coming in has resulted in state revenue-sharing to cities being steadily cut.

While the immediate problems municipalities facing are real, saying benefits to public workers are no longer "affordable" is not the solution.

Hamtramck, Detroit and the other cities facing bankruptcy were not responsible for lowering the tax rates on the rich, for creating an auto-dependent economy that underwent tremendous downsizing and neither they - nor their workers - were responsible for the Wall Street speculators that created - and profited from - the economic collapse.

As many have said, if the federal government can bail out the banks and Wall Street, why not do the same for "Main Street?"

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