Saturday, April 27, 2013

Detroit's Finances


In general, how the finances have been handled in the past and how they are about to be handled disregard the future for Detroit's children. Yes, that's right, budgets, bonds, mortgages, and tax structures are all how we set up the world for the next generation. Do I think an Emergency Manager has come to save us from financial ruin? NO.


The bankruptcy is a BIG FAT SCAM. Please see my other post, Bankruptcy? NO!  for several articles that explain it. 

Detroit's finances are not clear. First, the city is understaffed as a whole so all financial processes are surely slower and less efficient than they could be. As well, sufficient attention has not been paid to the processes the city has for receiving money or paying money out. Financial information needs to be timely, ethical, and open online to the public in an easy to understand format. Here is one example of how to share financial information with the public from Ann Arbor. I think this one is a good example but it would be better for us if it had one more level of depth. For example, under vendor payments, it breaks it down into "expense type". There needs to be a real description of how that money was spent. We could also add names of people who are in charge of the companies the city does business with. It would be interesting if a user could click the names and it would search their campaign contributions for local elected officials. The most important ingredient in transparency is the details.   

How much money do we actually have? How much money do we actually owe? No, I don't believe the state's assessment and no, I don't believe the city. I will believe it when I can get a team of people together who work at the city & who want the city to be better and whatever independent consultants we decide we need to get this city humming.

 In the meantime here is some information for a quick overview of what we can learn about the city's finances from many sources, followed by an evolving plan of how I think the city and state should be handling this for the good of not just Detroit, but Michigan.  

 THE CAUSES OF DETROIT'S FINANCIAL ISSUES

Thus far, I understand the negative financial issues the city is facing are caused by the following:
  • Bonds/banks
  • Housing market (predatory lending, bank walkaways, and more)
  • Pension fund debt and declining city worker numbers
  • Decrease of state revenue sharing dollars
  • Detroit's tax system 
  • Poor decisions from leadership
DETROIT FINANCIAL BASICS
BONDS/BANKS
  • What are municipal bonds? Investors invest in a piece of a city’s debt and are promised interest in return. For simple but more detailed information visit the government's investor web page about bonds. Another good beginner article is here. 
  • This  article explains all about the interest rate rigging that got Detroit into financial trouble. The banks that did it are being sued by the FDIC. Will Detroit sue? Will we get anything from the judgements if they are found guilty like they were in Europe? If we do get the money, will any of it actually get to the people of Detroit or will the local greedy pigs hijack the money so it won't reach the community like they have for decades? 
  • Would you like to see just HOW in debt we are? Go to the municipal bond market website and type in Detroit, MI. Click on each current bond and see how much each one is for. That is all debt for Detroiters. Hold onto your seat.To see which municipal bond funds hold Detroit bonds, visit this webpage.
  • How Libor (interest rate) rigging affected Detroit.  Ethics and honesty are the things that protect future generations from unnecessary debt burden. This shows how adults have not been doing their jobs, neither in Detroit nor in the world.  More about how it affected many cities.  Here's an interesting article asking why the EM isn't looking into the money lost from the Libor rigging. 
  • How Wall Street doesn't lose on bad swaps. According to this article Chase got 7.8 million in fees from Detroit. (2012) Read this one. Look at how this nonsense is an unending slippery slope of fees for bonds to pay debts to pay for fees to pay for bonds to pay for debts...The article explains how the city purchased auction-rate securities at a premium and is "paying a higher interest rate on the debt it sold to raise the money for the purchases. Trading in the bonds shows that the borrowing through a deal lead-managed by Goldman Sachs & Co. (GS) cost the city more than was necessary, because the price was too low." 
  • State of Pay About Detroit's municipal bonds, bond insurers, and the federal govt's involvement in bonds - bond holders are looking to see if bonds will start defaulting everywhere. June 2013
  • Sell Alert comparing the looks of Detroit to Beirut and advising bond sellers that they may have to "take a hit".
  • Detroit Issues Proposal for Creditors. An article differentiating what Orr classifies as secured and unsecured debt and how unconventional his plan is. For instance, classifying general obligation funds which have a full faith and credit pledge as unsecured. Interesting. 
  • Who insures our bonds? Here is one group. It explains why municipal bonds are good investments. 
  • Can you default on on your municipal bonds? What effect does it have? One opinion. 
  • More information about municipal bankruptcy is on this post on my blog.
  • This article gives an amusing description of the situation in Detroit between banks and the people here. Read the paragraph about local sovereignty and how they put democratic "rights" in quotation marks.  
  • As an aside: This is an interesting article of how they will start selling small bonds in California and Massachusetts. Let's see how that works out for them. If its good, there are some possibilities for Detroiters to invest in themselves. 
HOUSING
  • According to Foreclosure Detroit, from 2005 to October 2011 there were about 63,150 mortgage foreclosures in Detroit. Of course there are many more since then.
  • According to The Hill, a lawsuit charges that just ONE of the subprime lenders victimized between 5,000 and 6,000 Detroit-area homeowners. The loans were made by a subprime lender that Morgan Stanley principally financed. The complaint charges that Morgan Stanley pushed the lender to make a large amount of extremely risky subprime mortgages…. "Mortgage lending data that shows black borrowers in Detroit were 70 percent more likely to get a subprime mortgage instead of a prime one, when compared to white borrowers."  
  • How groups who insured the mortgage backed securities sued the banks.
  • According to Foreclosure Detroit “Uncollected property taxes charged back when a property is unsold…rose to an estimated $55 million in 2010 and it may top $60 million in 2011.” 
  • According to the National Memo borrowers are being kicked out of their homes and then find themselves still responsible for property tax payments. "Banks choose not to finish the legal steps to foreclosure, leaving the properties vacant.  Banks that walk away from homes do not have to notify the city, or even the borrower, that they have abandoned the foreclosure process. ” This is called a Bank Walkaway.
  • All about the very high amount  Detroit property taxes are.
  • Here is a map showing information about Detroit property foreclosure .
  • Homes are being foreclosed on and bundled to be sold only to investors. Some people cannot even have access to the opportunity to get their home back! Who are the investors? They come from everywhere - like Australia and Cambodia - and are making a 40% profit. A few years back there was an odd white man with an accent who jumped out of a car to take a picture of a house on my block. He was super scared that I spoke to him - he even looked scared to get out of the car - lol. I asked him who he was and what he was doing. He said he was from some real estate company. He had an English accent. Now I get it. As mayor, I will be sure that no matter where these investors live, that they are taking care of the property, paying their taxes and treating renters with respect. I will also be looking into ways to finance low-income home ownership here. It is nonsense that there are such low priced homes here and especially single moms are not given the opportunity to purchase them through some kind of program, like the Section 8 Home Ownership Program. 
  • Did you know its cheaper to demolish a house that has been burnt down? Just something to think about as houses in your neighborhood burn from arson that will probably not be investigated, that are put out by your tax money, and later not taken care of their owners. 
DETROIT TAX SYSTEM
  • Detroit’s citizens are taxed more highly than in any other city of 50,000 or more in the state.
  • Detroit taxes people who work here but do not live here, but often does not collect those taxes.
  •  Here is an article about how big corporations may owe taxes. Surprise that when they were interviewed they said no. LOL. Of course. I think that because of Detroit's understaffing, legacy of corruption and low level of technology, we really do not know.


STATE REVENUE SHARING
  • What is revenue sharing? "State revenue sharing is the process by which a portion of certain tax revenues imposed and collected by the State of Michigan are distributed to local units of government, including municipalities, as provided by State law. Currently, the State shares a portion of sales tax revenue with local governments." (EXHIBIT 3 CITY OF DETROIT MAJOR REVENUES FOR FISCAL YEAR 2007-2008 THROUGH FISCAL YEAR 2012-2013)
  • The city took a $68 million loss in revenue sharing from 2010-2011 to 2011-2012. 
  • Why should there be revenue sharing? Here is an interesting perspective from the Roosevelt Institute. 
PENSION FUND
  • How pension systems are supposed to work: people who are retired are supported by the money of the people who are currently working and contributing to the system and by money made from investing money in the fund.
  • In Detroit there are not as many people at the city working to support those who are retired. There are currently about 20,000 retirees and 10,000 people working. There are two pension funds, the General Retirement System and the Police and Fire Retirement System. Police and Fire do not get social security when they retire.
  • The Emergency Manager can be made the sole trustee of the pension fund. See the wording in Section 12(m) of the EM Law. I think the words "sole trustee" should alarm everyone who has ever done anything financial no matter where you stand on the political spectrum.
  • ORR, MILLIMAN ATTACK ON DETROIT PENSIONS: ‘A VERY ROUGH PRELIMINARY GUESSTIMATE’ - See more at: http://voiceofdetroit.net/2013/07/01/orr-milliman-attack-on-detroit-pensions-a-very-rough-preliminary-guesstimate/#sthash.j7NOQ5rj.dpuf
     Orr, Milliman attack on Detroit Pensions: A very rough preliminary guesstimate  A must read. July 2013.
    ATTACK ON DETROIT PENSIONS: ‘A VERY ROUGH PRELIMINARY GUESSTIMATE’ - See more at: http://voiceofdetroit.net/2013/07/01/orr-milliman-attack-on-detroit-pensions-a-very-rough-preliminary-guesstimate/#sthash.j7NOQ5rj.dpuf
    ORR, MILLIMAN ATTACK ON DETROIT PENSIONS: ‘A VERY ROUGH PRELIMINARY GUESSTIMATE’ - See more at: http://voiceofdetroit.net/2013/07/01/orr-milliman-attack-on-detroit-pensions-a-very-rough-preliminary-guesstimate/#sthash.j7NOQ5rj.dpuf
  • At the end of this article it speaks to how Orr can transfer the Detroit pension fund to the Michigan Public Employees Retirement Fund. Look at HOW underfunded that is.  
  • Central Falls, Rhode Island  pensioners ' treatment in bankruptcy. A must read about pensions and municipal bankruptcy. Another article about how bankruptcy steals from workers. Then how the city gave raises (or money to try to cover the losses they took) to the workers after the bankruptcy. Another article about  their post-bankruptcy. 
LEADERSHIP  AND ELECTIONS

Leadership in Detroit has contributed to the financial issues Detroit has. However, the whole of America seems to going through a dearth in leadership. I see the generation who are in their 80's and 90's as the last generation of real leaders. Its been spotty since then. This lack of real leadership has had even worse effects on Detroit than on cities that are better off and can hide their lack better. I am not going into details because it would seem like a form of mud slinging. I will say that there are things that people are responsible for. But where did blame ever get anyone? Unless it is a criminal act, what's the point? We all need to move forward 

Having seen the handwriting on the ballots myself at the Primary Election recount, seeing that thousands of ballots were in the same writing, I understand that what I thought was bad leadership were actually bad PUPPETS. Take a gander for yourself, but I warn you, its painful. http://detroitrecount.blogspot.com/2013/10/the-handwriting.html

People really believe their vote counts. That its their right. That in America this could never happen. It took me a few days of drowning in these ballots to accept it, to grieve it.  We may not have had fair elections here in my lifetime. When I asked the Lawyer's Committee for Rights Under Law to help us get this investigated, it fell on deaf ears. I wondered why. Then I looked on their board list to see Jones Day on there. It occurred to me that this dearth of leadership may not be a dearth at all in this country. It may be that more that just Detroit is having their leaders selected, not elected.
 
REAL STEPS TO TAKE 
1. We need an open source software suite (cheaper than proprietary) for collecting taxes, putting city, authority, pension funds and school system finances online for the public up the minute connected to campaign contributions. I am fairly certain the open source community would be willing to help Detroit with this. We need it to be customized to Detroit’s needs with training and ongoing security. It should have the capability to show our in an easy to understand format. Ann Arbor has a good example of online finances but it would be better for us if it had one more level of depth. For example, under vendor payments, it breaks it down into "expense type". There needs to be a real description of how that money was spent. We could also add names of people who are in charge of the companies the city does business with. It would be better if a user could click the names and it would search the campaign contributions for local elected officials. I think just having that system would cut down on a lot of unethical and illegal activity. The most important ingredient in transparency is the details.
2. We need to input all data into the systems. Who we really owe, how much and who owes us and how much needs to become crystal clear. Money owed to us needs to be collected, bills we owe need to be paid.
3. We need a real independent audit (NOT the city or the State/Orr's people), with macro and micro forensic auditing where it is needed along with money for prosecution of all guilty parties. A real house cleaning. Debt “Restructuring” from a law firm like Jones Day, which also represents the Bank of America to whom we owe money, is not the way to go.
4. The law department should pursue predatory mortgage lending, the mass neglect of property owned by banks, interest rate swaps and any other financial wrongdoings to Detroit and its citizens.
5. The department of administrative hearings (and all personnel in the departments that report the blight)  should aggressively pursue blight violations. A 311app and a working 311 phone line would allow citizens to assist in identifying blight. The city should start billing for mowing lawns and boarding up homes that belong to absentee property owners and banks.
6. I would institute a Community Financial Watchdog Committee, a volunteer group of ethical, financially savvy Detroiters who will watchdog Detroit's finances. No more good ideas lost to idle chatter. Now is the time for all financial minds to help. They will critique my team’s transparency efforts and cleaning out of the city departments and authorities. They will help the city pursue all money owed to us from the institutions who victimized Detroit as a city or individual citizens. In addition they will give input if the see grants or job producing opportunities that Detroit should be taking advantage of.
7. Clean up our elections in EVERY WAY.

Then lets see where we are and go from this educated position into the future, whatever that maybe. Then truly elected officials and citizens with their human rights fully restored decide on the best path to take for the immediate future and for future generations.


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