Michigan's largest city, Detroit, is in a serious fiscal predicament. It faces a budget deficit this year in excess of $100 million and a shortfall in 1993 that could approach $300 million. Financial collapse is no longer remote; indeed, it is highly likely if Detroit does not fundamentally alter its policy direction. The city's crisis, it is important to understand, is for the most part not the consequence of outside intervention. It is a self-inflicted crisis, the consequence of disastrous public policy.
The philosophy which has framed the city's direction for at least three decades is the philosophy that bigger government means a better life for the city's residents. Public sector spending has raced well ahead of either personal income or inflation. Subsidies from state and federal governments have poured into Detroit's coffers, making the Motor City hostage to the whims of distant politicians.
City services are rife with overstaffing, inefficiency and political influence. City government has with almost monotonous routine used its eminent domain authority to oust private people from their property for the benefit of other private interests. Faced with one of the most onerous tax and regulatory burdens in the nation, fourteen percent of Detroit's population between 1980 and 1990 fled the city and took their businesses and earning power with them.
To solve its problems, Detroit does not have to consult textbooks or indulge in ivory tower theories. It must learn from the successes and failures of other communities, and it only has to look a few miles south to learn some valuable lessons about saving a city.
Ecorse, a small city of 12,100 people among the seventeen communities in the "Downriver Detroit" area, has been through the economic ringer in recent years. Paralleling Detroit's decline, it was a city on a spending spree throughout the 1970s and 1980s. Tax burdens soared as corruption and inefficiency reigned in public sector services. That all came to a head in 1986, when Ecorse – facing a massive budget deficit – became the first Michigan community to be placed in receivership. A remarkable man by the name of Louis Schimmel became the court-appointed receiver. His mission: turn the city around and get its fiscal house in order.
As this report by Mackinac Center Privatization Policy Analyst Robert J. Daddow shows, Schimmel met the challenge through an aggressive policy of privatization of city services. Though the principal focus of this report is on the Department of Public Works, Schimmel's approach encompassed every aspect of city services. He cut waste and abuse from budgets, fired political appointees, renegotiated labor and other contracts, and exerted the kind of forceful leadership in selling assets and contracting services that eventually eliminated a gaping $6 million deficit.
Daddow conservatively estimates that the privatization of Ecorse's Department of Public Works has saved the city more than $400,000 per year. Few people have questioned the level of quality of the privatized services. Indeed, both Schimmel and the City Controller believe that the quality provided by the private sector is superior to what was once delivered by an insulated, indifferent and politicized city bureaucracy.
The numbers Daddow provides show conclusively that privatization can be made to work It ought to be the centerpiece of any city's effort to streamline its operations, save taxpayers money, and assure quality service. For that reason, Detroit must take a cue from this small, nearby community and put privatization to work for it too.
The Mackinac Center for Public Policy