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Michigan Town Is Left Pleading for Bankruptcy

Monica Davey|The New York Times
Tuesday, 28 Dec 2010 | 10:00 AM ET

Leaders of this city met for more than seven hours on a Saturday not long ago, searching for something to cut from a budget that has already been cut, over and over.

This time they slashed money for boarding up abandoned houses — aside from circumstances like vagrants or obvious rats, said William J. Cooper, the city manager. They shrank money for trimming trees and cutting grass on hundreds of lots that have been left to the city. And Mr. Cooper is hoping that predictions of a ferocious snow season prove false; once state road money runs out, the city has set nothing aside to plow streets.

“We can make it until March 1 — maybe,” Mr. Cooper said of Hamtramck’s ability to pay its bills. Beyond that? The political leaders of this old working-class city almost surrounded by Detroit are pleading with the state to let them declare bankruptcy, a desperate move the state is not even willing to admit as an option under the current circumstances.

“The state is concerned that if they say yes to one, if that door is opened, they’ll have 30 more cities right behind us,” Mr. Cooper said, as flurries fell outside his City Hall window. “But anything else is just a stop gap. We’re going to continue to pursue bankruptcy until the door is shut, locked, barricaded, bolted.”

Bankruptcy, increasingly common among corporations and individuals, remains rare for municipalities. Local leaders who want to win elections find it unappealing and often have other choices for solving financial woes. Besides, states have a say in whether a municipality may pursue bankruptcy at all, and they have every reason to avoid such an outcome, not least of all for fear of a creating a ripple effect that could cripple the municipal bond market and drive up the cost of borrowing.

Yet with anemic property tax revenues and forecasts of more dire financial times ahead, some experts and elected leaders fear that more localities may have to at least consider bankruptcy.

“There could be many cities in this position next year,” said Summer Hallwood Minnick, director of state affairs for the Michigan Municipal League, who added that in this state, cities had already struggled with billions less than expected in state revenue sharing. “All our communities have done is cut, cut, cut. They’re down to four-day workweeks and the elimination of parks, senior centers, all of that. So if there’s anything else that happens, they will be over the edge.”

This month, the authorities in Rhode Island said the City of Central Falls could face bankruptcy if immediate, drastic changes — perhaps the city’s annexation into a neighboring municipality — failed. Some leaders in Harrisburg, Pa., which owes millions in debt payments tied to an incinerator project, say bankruptcy may eventually be the only choice.

Prichard, Ala., which stopped paying monthly checks to retired city workers when its pension fund ran out last year, is appealing a bankruptcy judge’s ruling that it did not qualify for Chapter 9 under Alabama law.

Only about 600 cities, counties, towns and special taxation districts have filed for bankruptcy (known as Chapter 9 for these sorts of entities) since 1937, said James E. Spiotto, a municipal bankruptcy expert at Chapman & Cutler, a law firm in Chicago, and fewer than 250 in the last three decades. In part, it can be hard — even impossible — to do: about half the states have statutes authorizing such filings, but some of them set limits or require elaborate approval processes. Other states have no specific provision allowing cities to pursue bankruptcy, and at least one, Georgia, bans such moves.

So far, the financial misery of the past two years has not caused a surge in bankruptcy applications; about 15 municipalities pursued bankruptcy in the last two years. But if revenue forecasts continue as predicted, 2011 might bring a rise in cities faced with such a fate.

Hamtramck (pronounced ham-TRAM-eck) did not anticipate its current circumstances. Officials in Detroit announced this year that they had for years overpaid Hamtramck in a revenue-sharing deal related to a General Motors plant that sits smack on the border of the two cities. The dispute is likely to be resolved, eventually, in court, but meanwhile, Detroit has stopped paying $2 million a year, and Hamtramck is watching a growing gap in its $18 million budget.

A Cadillac plan

Here, the urgent search for services to cut has turned all attention to a realm that is also emerging at the center of budget debates in cities and states around the country: the costs of salaries, benefits and pensions of public workers.

Mr. Cooper, the city manager, says that everything else that could be cut already has been, while the city goes on spending 60 percent of its total general fund to pay for its police and firefighting forces — 75 current police officers and firefighters and about 240 former workers and spouses now on pensions. Mr. Cooper said that an entry-level police officer costs the city about $75,000 a year in salary and benefits, and yet repeated efforts to renegotiate contracts have failed.

“They kind of have the Cadillac plan,” Mr. Cooper said, “and we’d kind of like the Chevy.”

The police and firefighters question whether the city’s bankruptcy talk is really just a scare tactic for negotiation. Earlier discussions with city officials, they say, have urged them to accept pay cuts, layoffs, increased worker payments to pensions and even a suggestion that officers might pay for part of their own bulletproof vests — all this while the city has opted not to increase taxes.

"We’ve trimmed every bit of fat. What else are we going to do? Borrow money from our dying grandmother?”" -Coffee shop owner, Shannon Lowell

“Nobody likes the police until you need them,” said Jon Bondra, the incoming president of Hamtramck’s police union.

(Found, Mr. Cooper says, posted on the wall of the firefighters’ barracks was his name — crossed out — on a list of former city managers and the word “Next?”)

Hamtramck, all 2.1 square miles of it, is a gritty city, a proud one and a place “that can do more with less than anywhere on earth,” in the view of Greg Kowalski, 60, who has lived here since childhood. Immigrants have arrived in waves over time, leaving layers like sedimentary rock — from Germany, Poland, Bosnia, Albania, Bangladesh, Yemen and more. Along Joseph Campau Street on a recent morning, a woman in a burqa strolled past Stan’s Grocery, which boasts about its Polish pierogi and kielbasa.

Hamtramck — once a community of more than 50,000 people but now fewer than half of that — grew up around an enormous auto factory that John and Horace Dodge built here a century ago. It remains a city woven together by union history, a fact that makes the turmoil filtering out from City Hall all the more pronounced.

“Look, if I was king of the world, I’d give them all a million dollars,” Charles Sercombe, the editor of The Hamtramck Review, the local newspaper, said of police officers and firefighters. “But this is the new economy, welcome to it.” He noted that his own job was now part time and that he received no health benefits.

Although Mr. Cooper says he believes bankruptcy, which could allow the city to “start over” with its labor contracts, is the only solution, the authorities in the State of Michigan have so far rejected the city’s request that the governor issue an executive order allowing Hamtramck to file for bankruptcy. An official from the state’s Treasury Department said that no city in Michigan had gone through bankruptcy, and that the governor had no such authority; the state has specific provisions for authorizing a bankruptcy filing, including intervention from an emergency financial manager and an emergency loan board. The current administration, which will be departing later this week, has urged Hamtramck to seek state assistance, including a possible emergency loan.

Rick Snyder, a Republican who is to be sworn in as governor of Michigan on Saturday, said the circumstances in Hamtramck concerned him, particularly for what it might bode elsewhere.

“We could have a large number of jurisdictions facing insolvency,” Mr. Snyder said. “Major reinvention” will be a necessity, he added, including taking a serious look at the structure of local governments and the possibility, in some places, of consolidation of services.

A new fear is bubbling up along the streets here: that Hamtramck, in so much fiscal distress, may ultimately disappear (either through bankruptcy or, simply, default), and wind up sharing services with or becoming a part of Detroit, a place many here describe as painfully rundown and unsafe.

“I’m not going to wait for two hours for a cop to show up,” said Shannon Lowell, the co-owner of a coffee shop. “We’ve trimmed every bit of fat. What else are we going to do? Borrow money from our dying grandmother?”

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