In a new column, I analyze the plan of adjustment released last week by Detroit Emergency Receiver Kevyn Orr, specifically with regard to how the plan addresses future city government operations via the privatization of services and assets. In short, the more services and assets privatized, the more manageable the emergence from bankruptcy and the smoother the path to long-term fiscal and financial sustainability—which translate into improved quality of life for Detroit’s citizens and businesses. However, on both fronts—outsourcing and asset privatization—the proposed plan of adjustment is a mixed bag.
Here’s an excerpt:
Detroit’s plan of adjustment offers a good start with regard to service and asset privatization, but at this stage of the bankruptcy proceedings, a “good start” is too little too late. The current plan leaves a lot of opportunity on the table in terms of potential revenue generation and cost savings, which does not bode well for the city’s future fiscal and financial recovery moving forward out of bankruptcy. It leaves too many pre-bankruptcy government structures in place.
One of the silver linings of bankruptcy is that it presents a major opportunity for reinvention and restructuring, but the current plan does not seem to fully leverage the transformation moment. Rather, it seems to seek to avoid pain for the city as much as possible, while inflicting more of it on pensioners and creditors to varying degrees. Ironically, internalizing more of that pain now through more aggressive restructuring of city services and assets would best protect the city from having to revisit that pain later in another bankruptcy.
The full article is available here. Also, be sure to check out Reason colleague Anthony Randazzo’s analysis of the plan of adjustment’s proposed pension reforms here, as well as our joint op-ed in The Detroit News last week.