Save cities or let them go bankrupt?

Mark Aesch, CEO of TransPro Consulting, and member of the CNBC-YPO Chief Executive Network
People, mostly union and retired city workers, protest in front of the U.S. Courthouse where Detroit's bankruptcy eligibility trial began this morning October 23, 2013 in Detroit.
Getty Images

The not-so-surprising news of Detroit filing for bankruptcy has many people asking which community is next. It was clear to see that this day was coming for Detroit years ago. Yet Detroit ran up more debt, made more poor business decisions, and made the path to prosperity all the more challenging. So what can the Detroit situation teach other cities so that we can reduce our tax exposure, help struggling communities and begin to restore American greatness in our public services?

The answer is twofold and the first might seem surprising.

(Read more: Is Detroit eligible for bankruptcy?)

First, bankruptcy should be accelerated for a class of communities that clearly have demonstrated an inability to govern themselves.

Detroit had Emergency Manager Kevyn Orr appointed by Michigan governor Rick Snyder. His appointment usurped all the authority that previously resided in Detroit Mayor Dave Bing and the City Council.

Communities that are clearly on a path to collapse should have help accelerating that path. They should get into bankruptcy, reshape unsustainable pension liabilities, health-care premiums for retirees and bond creditors that will never be paid.

They must be prevented from continuing to dig a deeper hole.

Second, identify that second tier of communities that still have time to be saved from the path to collapse. As Americans, let's provide them the talent, structure and resources necessary from the financial calamity of bankruptcy that disrupts the lives of retirees, investors and residents.

(Read more: Bankrupt Detroit needs to cut red tape: Kid Rock)

Within 120 days of his first day on the job, Orr had taken the City of Detroit into bankruptcy. If we take the five largest municipal bankruptcies in American history, add them together and double it, we are not to the size and scope of the Detroit bankruptcy. If the emergency manager had four years rather than four months, there's a reasonable expectation the calamity of bankruptcy could have been avoided.

These tier two communities can still be saved but action must be taken in short order to prevent them from slipping on to the certain ramp of financial collapse.

Removing blight and rebuilding Detroit

By operating public agencies with a private-sector mindset and making market-driven decisions, rather than protecting the past, these communities can be positioned for a sustainable future. By improving the quality of service delivered to the citizens, and managing to results rather than effort, taxpayers can have a government worth paying for.

Applying private-sector principles to public-sector agencies is not a lofty notion that works in theory but could never be applied in reality. It can be done.

When I was the new CEO of the Rochester, NY Transportation Authority in 2004, I was confronted with calls for a fare hike, slashing service and laying off employees to cover a $27.5 million deficit. Our on-time performance mirrored that of the airlines—lagging at 76 percent.

Instead of asking customers to pay more for worse service, we approached the problem by improving the transit experience as a way to raise ridership and revenue. Using data to drive performance and tying compensation to our version of a "stock price," we succeeded in turning around a public agency — and actually cut fares for our customers, created a $35.5 million surplus and reduced our reliance on taxpayer dollars.

(Read more: Detroit gets $350M financing commitment from Barclays)

Certainly, the budget challenges Detroit and other cities are facing are broader than just their transportation systems. Nonetheless, a private-sector mindset can be applied across a spectrum of public sectors from health care to education to public safety.

Step by step, we can rebuild these tier two communities such that they don't wind up on the certain path to the bottom — where bankruptcy filings are only a question of when.

Let's immediately inject ourselves in the business of tier two communities so that we can restructure them, rebuild them and create an environment where business and taxpayers will choose to re-invest in them.

— By Mark Aesch

— Mark Aesch is the CEO of TransPro Consulting, which supports the private and public sector in the development of strategic plans. He is a member of the CNBC-YPO Chief Executive Network

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