A market-driven “Plan Detroit” can work

Still, as Atlanta rose from the ashes following General Sherman’s practice of “total war” to become the economic engine of the Southeast, out of Detroit’s dust could emerge a revitalized metropolis.  The path to resurgence for the Motor City, however, will require some brutally tough love, especially for municipal employees and retirees, labor unions, and political bosses.

A traditional “bail out” for Detroit, in which taxpayers foot the bill by shoveling billions into the city’s depleted treasury to pay bloated pensions and benefits, is not and should not be part of any “Plan Detroit.”

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Resurrecting principles of fiscal responsibility and creative, market-based solutions, on the other hand, could pay positive long-term dividends, and set an example for other cash-strapped municipalities.

A Chapter 9 Bankruptcy proceeding already is underway, having been initiated in July by Detroit’s “Emergency Manager” who was appointed last spring by Michigan Gov. Rick Snyder (R).  In such proceedings, virtually all fiscal activities involving the bankrupt party are frozen; and all actions affecting the entity’s assets are managed under the court’s supervision.  This, of course, limits – but does not necessarily prohibit -- steps that could be taken by outside interests. 

And this is no run-of-the-mill bankruptcy.  This is the future of America’s 11th-largest city, and perhaps the first of many more depending on how this one is handled.  Fortunately also, the Chapter 9 proceedings are at an early stage; with the preliminary determination as to whether the city even qualifies for bankruptcy protection not scheduled until November. 

Thus, there is time for concerned parties, from the state of Michigan to private foundations and corporate giants like the Big Three automakers, to propose creative but hard-nosed alternatives.  And, if such are forthcoming, it is likely the Emergency Manager and the bankruptcy judge would listen and allow time and flexibility to implement them.

Such solutions could include, for example:

•    Tax-free zones.
•    “Charter industries” or “charter regions,” similar to economist Paul Romer’s proposed “charter cities” concept, which has seen remarkable success in such an unlikely venue as mainland China, to attract investment.
•    “Relocation vouchers” to incentivize unemployed or underemployed workers to live and work in the inner city; something akin to a plan proposed by economist Enrico Moretti.
•    Selling some of the city’s marketable assets, such as its world-renowned art collection, real estate, and office buildings.
•    Sale of certain transit modals to buyers such as Windsor, Canada, which already has expressed interest in purchasing the underground tunnel connecting the Motor City to its northern neighbor.
•    Loan payment extensions.
•    Sales of shares in the city’s future to private investors.

The Emergency Manager and bankruptcy trustee should avoid considering such utopian solutions as turning the city’s “green spaces” into farm zones.  Nor should they heed the union leadership, especially AFSCME and UAW, representing the city’s municipal workers and auto workers, who already have made known their absolute opposition to any action that does not put their members at the very front of the line to receive every cent of the bloated pensions and benefits that are a major cause of the city’s fiscal woes in the first place.

The fact that the Emergency Manager has filed a bankruptcy petition limits the options at this point, but need not preclude an aggressive and multi-pronged series of steps relying to a larger extent on market-based solutions than would be possible in a pure bankruptcy context.  Abandoning Detroit to court-appointed handlers virtually guarantee a far more limited resolution than would be possible if Michigan’s congressional delegation, the Big Three automakers, major foundations, Detroit’s sports teams, and others work jointly to produce a plan relying on market-based solutions, as an alternative to a forced bankruptcy.

The easier path would be to simply leave it to the Bankruptcy Court and those appointed by it, to add up Detroit’s massive debts and decide which creditors receive a small return on their investments.  Such a move will result in years of litigation – largely fueled by the unions – and would neither save the city nor provide a model for other municipalities facing serious fiscal woes. 

The harder path – but one with potential for far more positive long-term benefits – is to launch a multi-faceted, largely market-driven, and creative Plan Detroit incorporating elements as noted above.  The window within which such action is possible, however, is fast closing – a window being pushed closed by the Obama Administration already injecting federal funds to shore up the unions.

Barr represented Georgia's 7th Congressional District from 1995 to 2003. He was the Libertarian Party's nominee for president in 2008.