After teetering on the brink of insolvency, the Detroit-area city of Hamtramck is on its way back to financial health and stability following the state's appointment of privatization expert Louis Schimmel as the city's emergency financial manager.
Schimmel is recently retired from the Municipal Advisory Council of Michigan, a nonprofit statistical clearing house for investment bankers throughout the United States who underwrite and/or invest in Michigan municipal bond issues. He had planned to spend his retirement building houses in and around his home of Waterford Township, but state officials had other ideas.
Gov. John Engler and a five-member state review panel selected Schimmel in November 2000 to help the cash-strapped city of Hamtramck erase its enormous $2.4 million debt. Mayor Gary Zych had requested state help after failing to gain economic concessions from the city employees' union, some members of which balked at performing such basic services as garbage collection.
In early December, Schimmel got to work by immediately shaving 30 non-essential city jobs from the budget, saving the small community $600,000. More changes designed to make the city solvent again include the reduction of frivolous city employee benefits, such as "accumulated time off." Accumulated time off allows workers to be paid for unused time off at the end of their careers. This policy has cost the city a fortune because accumulated time off is paid based on an employee's final salary rate, which is almost certain to be higher than the salary rate at which the unused time was originally accrued.
Schimmel is currently attempting to gain the right to contract out for garbage collection, street and water system maintenance, and sewer services in the Department of Public Works. He may also sell city-owned property such as Hamtramck City Hall and the current police headquarters as well as "lay off" one of the two local judges. He recently received permission from the Wayne County Commission to negotiate with the Wayne County Sheriff's Department over inter-governmental contracting for services. Ultimately, he may replace Hamtramck's city police force with Wayne County officers, and halve the cost of paying for police protection in the process.
Union opposition to Schimmel's efforts has delayed these changes because, under state law, an emergency financial manager may only renegotiate contracts instead of setting them aside entirely. Consequently, Schimmel and the city employees' union appear to be at an impasse on several negotiation fronts. For instance, Schimmel wants to privatize 100 percent of the city's Department of Public Works (DPW), but the union representing DPW workers is only willing to part with half.
Schimmel did have words of praise for the city's fire department, though. He reports that the fire department is comprised of "a very thoughtful group of people who work hard and want to do what is right for the city."
This is not the first time Schimmel has applied his expertise to a distressed municipality. In 1986, the state appointed him receiver of the bankrupt city of Ecorse, which was saddled with a $6 million debt. By 1990, Schimmel had largely solved the problem and stepped down as receiver, continuing to watch over Ecorse's finances until the city made its last loan repayment to the state in August 1999.
"Much of the deficit was eliminated by the privatization of nearly all city services," Schimmel explained in the spring 1996 issue of Michigan Privatization Report. Within weeks of taking over Ecorse's financial matters, Schimmel transferred responsibility for such services as trash collection and snowplowing from government to private service providers, reaping tremendous savings and reversing Ecorse's financial decline.
"Schimmel is credited with making the tough decisions that helped turn the city [of Ecorse] around," a recent Detroit Free Press article concluded. Schimmel's background in municipal finance, including his service on numerous boards and committees, and his experience with successful privatization, will certainly serve Hamtramck well as it struggles to get back on its financial feet.
David Bardallis is managing editor of publications for the Mackinac Center for Public Policy.