Are Detroit’s union contracts the cause of the city’s budget crisis?

In his Detroit News column a couple weeks ago, Paul Kersey, director of labor policy at the conservative Mackinac Center for Public Policy based in Midland, basically argued that if AFSCME Council 25 doesn’t voluntarily agree to deep pay cuts and other concessions for its members, then bankruptcy is the only option left for Detroit.

This was his boiled down argument:

As long as the unions refuse to make concessions, there appears to be no certain remedy for the city short of bankruptcy court.

That got me wondering if the choice is really that stark. Last week’s reporting in Michigan Messenger by me and Minehaha Foreman on AFSCME’s stalled contract negotiations with the city as well as new litigation on existing contracts, reveals a public employees union determined to get the best possible deal for its shrinking membership and ready to fight Mayor Dave Bing’s recent contract terminations.

Given the city’s worsening budget deficit – estimated at $300 million but probably already higher than that – we recently sought out the thoughts of a handful Wayne State University law professors with expertise in bankruptcy and local government.

Here’s what the first two responders to my query had to say about Kersey’s boiled-down analysis.

Professor Laura Bartell, a bankruptcy expert, signaled her agreement. “I agree,” she wrote, adding the following:

Detroit’s union contracts bind the city until they are either modified consensually by the unions and the city, or they are rejected by the city in a bankruptcy case.  That would be true of its non-union contracts as well.  If Detroit has to honor its current unfavorable contracts, it will face financial ruin.  Therefore, it will either have to obtain voluntary concessions, or negotiate new contracts in bankruptcy.

Professor John Mogk, a local government expert, also agreed, but he also went further and suggested that “the prudent action” by Bing would be to file for bankruptcy. He wrote the following:

The point is this.  Personnel costs are the major portion of the City’s annual budget, which is now grossly out of kilter.  Personnel costs can be reduced by laying off workers, reducing their compensation packages or both.  The likelihood is that this year the City could balance the budget by laying off workers.  However, at some point city services fall to levels unable to support a safe, functional community.  As services decline, more residents who can afford to leave the city move out.  This lowers the tax base, property values and support for adequate outlets of goods and resident services.  As this pattern unfolds, the prudent action by city officials is to file bankruptcy before the city becomes totally unsalvageable, rather than reducing the employment base further.  Concessions by workers will help to prevent this cyclical decline or slow its progress.

Stay tuned for Bing’s — or AFSCME’s — next move.