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Monday, July 22, 2013

Detroit Matters to Rogers City

Here is an article from the Lansing Journal.  It tells why Lansing (and, in my opionion, Rogers City--see blogger's notes) should care about Detroit. 
Written by  Kristen M. Daum
Ninety or so miles away, Lansing residents likely feel insulated from the financial implosion the city of Detroit is grappling with this week.
But local, regional and state observers in Michigan’s capital city are keeping a close watch on Motown, knowing that whatever happens there could affect numerous other communities in the state — and even the nation.

(Blogger's note:  Rogers City may be 250 miles away from Detroit, but we too are close in many ways.  Many residents of Rogers City and the surrounding area are retired from employment in the metro Detroit area.  Also, many people from the Detroit area have summer homes in Presque Isle County.)
Here are five reasons why Lansing-area residents and all Michiganders should care about Detroit’s historic bankruptcy filing:
Without changes, Lansing could have a similar fate in years to come.
Lansing faces more than $600 million in unfunded obligations for its retirees, including $218 million in unfunded pension liability and $431 million in unfunded benefit costs, primarily for health care.
By comparison, Detroit’s debts amount to as much as $20 billion.
“There’s no doubt there are big differences, but the trend line is the same,” said Eric Scorsone, an economist at Michigan State University who specializes in government finance and who was a member of a team appointed by Lansing Mayor Virg Bernero that earlier this year recommended solutions to fix Lansing’s own financial issues.
“Lansing has been better managed and they have more cash right now, so they have more time to figure out a solution,” Scorsone said. “Lansing has several years here, but they’re going to have to fix this. They don’t ever want to get near this situation.”
Bernero agreed, calling Detroit’s bankruptcy “a warning shot for mayors everywhere.”
“When things are unsustainable, they tend to stop,” Bernero said. “Bankruptcy looms for those who live in denial.”

(Blogger's note:  Rogers City uses the Michigan Employees Retirement System (MERS) to manage our employees' and retirees' pension fund.  Rogers City's pension liability is currently 56.4% funded with about $5,083,500 in combined pension reserves.   The City's unfunded pension liability is about $4,494,000--that is the amount we would have to pay if the City went out of business right now...to pay off all liabilities immediately.  We currently have 57 participants in the MERS program: 23 active members, five vested former members, and 29 retirees and beneficiaries.  One of the reasons our pension funding percentage is low (lower than we would like) is that the City of Rogers City has reduced the number of our employees over the last few years. We did this reduction in work force to cope with reduced revenues and control the cost and size of your local goverment.  With fewer active employees, there is less funding into the pension fund.  Currently, employees contribute five percent of their wages to the MERS system. Due to fewer employees and other factors, the percent unfunded has grown.  Over time, the City will reduce the unfunded percent, catching up as the City and its employees make increased contributions to the fund.  The City's employees have increased their contributions to the pension fund from 3% to 5%.  Also, we hope MERS investments will perform better, now that the economy is beginning to recover from the great recession.  MERS, the employees and retirees, and the City count on sustained operations, including contributions from future employees and regular payments from the City to help pay for the "unfunded" liability.  In other words, as long as the community is stable and employment does not significantly decrease, there is no major cause for concern over the large "unfunded" liability.  If you have comments or questions about the City of Rogers City's pension fund, please contact me at mslown@rogerscity.com)

As the state’s largest city, Michigan depends heavily on Detroit.
Detroit is the lifeblood of Michigan’s economy. It always has been since the Motor City rose to prominence as a manufacturing hub and became the heart of the American auto industry.
“It’s got major convention centers and sports complexes; it’s important even if you’re in the U.P.,” Scorsone said. “The closer you are, the more the impact is — but it affects the whole state in the sense that we’re all in this boat, too.”  Despite the state’s severe economic downturn a few years ago, more than 2 million people still work in the Detroit area, which is about 40 percent of Michigan’s workforce, according to the state Bureau of Labor Market Information & Strategic Initiatives.
Detroit’s business climate continues to be significant for the country’s well-being, too.
According to the federal Bureau of Economic Analysis, metro Detroit had a gross domestic product worth nearly $200 million in 2011, the 14th largest in the country at the time. GDP reflects the total value of all goods and services produced by an area and is a primary indicator of economic health.

(Blogger's note: If Detroit were doing better, more people from Detroit would visit here and spend money or even retire here.)

Detroit’s bankruptcy could make life harder for other Michigan cities.
One of the “most obvious potential impacts” of Detroit’s bankruptcy is the impact it could have on other communities in the state and their ability to fund certain services or improvements for their residents, Scorsone said.
He said interest rates for municipal bonds could rise, making it far more costly for cities — and potentially counties, villages and townships, too — to borrow the money they need to pay for, say, major infrastructure projects.
“We won’t know if that’s going to happen for a while yet, though,” he added.
Republican Gov. Rick Snyder told the Detroit News Editorial Board on Friday that he doesn’t believe speculation of higher lending costs will come to fruition.
“In the short term, it’s clear that we’re going to increase negative perception, but for how many decades we’ve been beaten up in terms of the image of Detroit and how many decades has this can been kicked down the road where people would sort of ignore the realities of the crises?” Snyder told The News. “Isn’t it about time we say, ‘Stop. Enough is enough? The people of Detroit deserve better services.’”

(Blogger's note:  Detroit's problems have made things tougher here. We need Detroit to get its act together. We deserve better!)

The damage done to Michigan’s reputation could halt the state’s growth.
Michigan leaders have spent the last couple of years trying to recover from the recession by balancing the state budget, attracting new businesses and lowering the unemployment rate.
However, that progress could be put on pause, or potentially diminish, because of Detroit’s bankruptcy, Scorsone said.
“There might be an impact on the state in terms of reputation and the willingness of investors to come here,” he said.
Michigan Economic Development Corp. President and CEO Michael A. Finney disputes that notion.
“The bankruptcy will not impact our efforts to revitalize Michigan’s economy,” Finney said. “Michigan offers great advantages to businesses of all kinds.”
Michigan’s tourism office within the MEDC also said Detroit’s bankruptcy shouldn’t negatively affect the “Pure Michigan” brand that brings in billions of travel-related dollars into the state.
“Detroit continues to have a compelling story, world-class cultural attractions, abundant and diverse events happening, and a creative spirit on display throughout the city. These are the things people are paying attention to when they are making travel plans,” spokeswoman Michelle Begnoche said.

(Blogger's note:  MEDC has helped Rogers City and the region with a large grant to help fund the new crane at the Port of Calcite.  This project will create many new jobs.)

Lawmakers might need to change the policies regulating local governments.
Michigan’s legislative leaders are still digesting the scope of Detroit’s bankruptcy, so it’s unclear yet what action could be taken at the Capitol in Lansing to help Detroit.
But some kind of legislative input is likely, Scorsone said.
“Bankruptcy isn’t going to fix all the other issues,” Scorsone said, “and there are other cities facing similar problems.”
The legislature could step in and make changes on anything from the municipal tax structure to how municipalities structure pensions — and those decisions could be far-reaching, Scorsone said.
“Those laws, they can’t be specific to Detroit, so they would apply to other cities in Michigan, too,” he said.
But, “it is too soon to tell right now,” said Gideon D’Assandro, a spokesman for House Speaker Jase Bolger, R-Marshall.
“In order to have a healthy Michigan, we need a healthy Detroit so we will do what we can to support a real, long-term solution for the city and get it back on the path to prosperity,” D’Assandro said.
Bernero, a Democrat, criticized Snyder’s administration for not implementing “city-friendly policies or solutions” in his quest to restore Michigan’s economy.
Bernero said lawmakers need to re-focus themselves on enacting legislation that improves education, transportation infrastructure, roads, land-use plans and other civic elements of communities.
Detroit is an example that “we ignore our cities at our own peril,” Bernero said. “There’s not a level of commitment or concern from the state until they run into severe financial difficulty.”

(Blogger's note: fortunately, Rogers City is nowhere close to facing bankruptcy. Our City is financially healthy and growing thanks to new economic development efforts and responsible goverance over the past few years. However, we do need to continue to work together to make Rogers City better, so that we can enjoy a prosperous future.)

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