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New deal for ailing Detroit aims to halt hemorrhaging

With a shrinking tax base, big debt, can city be saved?

DETROIT - Other cities and towns have teetered at the edge of financial disaster lately, but Detroit, the capital of America’s auto industry and once the nation’s fourth-largest city, has just become the most striking test case for a key question:

Can a city that has fallen so far be saved?

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A giant plot of land - 139 square miles - with only half the residents it once had, Detroit has watched in recent years as tax revenues slipped too low to support its costs, its debts swelled to a stunning $12 billion, and, this spring, its money nearly ran out.

Now, after months of wrangling over how and when and whether the state of Michigan should intervene to stem the hemorrhaging finances, officials here said that a historic deal, approved Wednesday, that grants the state oversight powers puts Detroit on a path to recovery at last.

The deal, which creates an advisory board to oversee financial decisions, spared the city fates that many viewed as far worse - a complete takeover by a state-appointed manager, bankruptcy, or default. But Detroit’s problems are far from over, and the new deal by no means assures success.

‘I don’t see anything happening anytime soon.’

Collin Northcross, Restaurant worker
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The financial woes of this city, now dependent on a tax base of just 713,000 residents (amounting to what is now only the 18th most populous city in the nation), are huge and fundamental - too sizable, some critics say, to be solved by monitors. Oversight agreements tried in other places have taken many years in some cases, and results have been mixed.

And, unlike full state takeovers that some cities have unhappily undergone, these sorts of deals require a high degree of political compromise and getting along, those who have worked on them elsewhere say. Detroit is still bitterly polarized over whether state involvement is needed at all.

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“The work begins today,’’ said Gary Brown, the City Council’s president pro tem, acknowledging the daunting task that lies ahead.

Around Detroit, residents tell of a city where streetlights fail, buses run late, and no one can be sure when the police will turn up. While some business owners and young entrepreneurs cite a private-industry renaissance in the city, the poor level of municipal services has created a deep-down pessimism about the notion that things will change now. “I just don’t see anything happening anytime soon,’’ said Collin Northcross, 21, a restaurant worker.

States have long used a range of methods to step in when municipalities fall into trouble, and some of the plans have worked. In the 1970s, a financial control board helped pull New York City from the edge. But the powers - and results - of such boards and appointed receivers vary widely, and some analysts expressed doubt that Michigan’s oversight of Detroit will go far enough.

“I just think it’s a toothless tiger,’’ said Pat O’Keefe, a Detroit-area financial consultant who has dealt with municipal turnarounds. “I just don’t think the political process has enough intestinal fortitude to make the restructuring changes they have to do in the short amount of time they have.’’

Under a consent agreement, approved reluctantly this week by divided Detroit leaders, a nine-member financial advisory board will be appointed to guide the city, which will be required to swiftly report any budget shortfalls and to hire a “program management director’’ to help oversee reforms.

The agreement also will reopen union contract talks and permit sharp cuts. It also considers the possibility of privatizing some city services and consolidating department powers that union leaders, who had been negotiating separate concessions with city leaders in recent months, object to furiously. And the deal cleared the way for refinancing of debt to solve the city’s imminent cash crisis.

Though many residents objected to the agreement as a seizure of city control, Governor Rick Snyder could have chosen a more sweeping step under Michigan law and called for an emergency manager to take over many of the powers of the local officials, as well as the ability to throw out existing labor contracts.

Detroit leaders loudly opposed that plan, as did Snyder, who has been widely criticized over his use elsewhere in the state of the emergency manager law, which is now the target of a repeal effort.

The political pressure not to send in an emergency manager grew intense in months of debate here. Some saw the question through a prism of race, arguing that it would amount to a white takeover of the state’s largest city where 82 percent of residents are black.

Others called it a union-busting maneuver by Lansing, the Republican-held capital.

But Geralyn Lasher, Snyder’s spokeswoman, said Snyder had always preferred some alternative to a full takeover. “He is the governor of the state of Michigan,’’ she said. “He does not have an interest in running individual cities.’’

Yet some critics wondered whether the city might be too far gone for anything short of the powers of an emergency manager, whether an advisory board would be willing to go far enough to fundamentally change the city and the services it is able to provide within its means.

“Sad to say it, but I think they’ll be bringing in an emergency manager eventually,’’ said one resident, Roy Raines, 53.

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