Union Cuts Needed to Avert State Takeover, Detroit Mayor Warns

Detroit risks a state takeover and “control of our destiny” unless the city restructures its operations and employees agree to wage and benefit concessions, Mayor Dave Bing said.

Bing called today for the city’s 12,000 employees to pay more for health care and share in pension and other benefit costs as part of his 2012 budget proposal, saying, “Everyone must accept that times have changed.”

Detroit recorded a 25 percent decline in population --about 65 people per day -- in the past decade, reducing the city to 713,777 from a peak of 1.85 million in 1950, according to the Census Bureau.

“We face challenges unlike any the city has ever seen, challenges that demand bold action,” Bing said in his budget presentation to Detroit City Council.

“We do not have the luxury of waiting for someone else to solve our problems,” he said in a prepared text.

Detroit, the largest U.S. city whose debt is rated below investment grade, warned investors in bond documents in March 2010 that it might have to consider reorganizing under Chapter 9 bankruptcy protection. Bing later said insolvency was no longer an option.

The mayor said today that the city’s $155 million current- year deficit could balloon to $1.2 billion by 2015 without spending discipline.

Stopping the Exodus

“The state has made it clear that any city that fails to address its financial issues on its own will have an emergency financial manager appointed,” Bing said.

Under the $3.1 billion budget plan from Bing, 67, city unions would have to agree to renegotiate their contracts. The budget proposal is part of a five-year plan intended to eliminate the deficit and reduce the risks of a state financial takeover.

Bing also proposed a one-year, $20 million increase in the city’s casino tax, noting that gambling houses in Detroit pay lower taxes than those in neighboring Indiana and Ohio.

Detroit’s population is the smallest since 1910, according to the census. Michigan’s population fell 0.6 percent in the past decade to 9,883,640, census data show. Michigan is the only U.S. state to lose population in the past decade.

“The decline in services had a direct effect on the exodus of people in the last decade,” Bing said. “Some argue the answer is to make unprecedented cuts to city services and lay off hundreds of employees. Fundamentally, that is just the wrong approach.”

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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