Economic Inequality

Detroit and Flint keep relying on private money to solve public problems. Why?

Nov 27 '18
A student holds a cup for water dispensed from a cooler in the hallway at Gardner Elementary School in Detroit on Sept. 4 after the discovery of elevated levels of lead or copper in the school system’s water supply. (AP)

In most U.S. public schools, it’s no big deal when students sip water from a drinking fountain — but it is in Detroit and Flint, Mich. Detroit’s 2018-2019 school year began with the school system’s water shut off because of elevated levels of toxic lead. In Flint, school officials have kept the tap water off since the 2014 lead-in-water crisis; this year, they sought funding for drinking water stations for the 2018-2019 school year.

Americans often look to philanthropy or charities, such as the Red Cross, after natural disasters. That’s happened in both Flint and Detroit — even though their crises were unnatural disasters, caused by public policy decisions.

Philanthropists as saviors

By early October, both school districts had found money from private donors. In Detroit, 13 donors — ranging from United Way to Quicken Loans — committed to funding school hydration stations. For Flint, Elon Musk, the billionaire founder of SpaceX and Tesla, donated the full cost of water stations and filtration in schools.

Both Detroit and Flint have been relying on private generosity to address public problems since high-profile crises — Detroit’s 2013 municipal bankruptcy and the Flint water crisis. In Detroit, 12 foundations promised more than $300 million for the “Grand Bargain,” which salvaged the Detroit Institute of Arts and the city’s pensions plans. Immediately after the Flint water crisis, 10 foundations created a pool of more than $125 million for recovery.

When state policy inhibits urban recovery

Our research shows how Michigan policies sharply limit local governments’ and school districts’ ability to pay for infrastructure, personnel and other basic functions, creating a strong incentive for local officials to seek private funding. As we explain below, these pressures are present in many states but intensified in Michigan.

State legislatures and governors have extraordinary influence over what local governments can and cannot do. Every U.S. state has limited local governments’ revenues, through a variety of measures. Many have passed tax and expenditure limits that limit property tax increases, require voter referendums for new taxes or limit tax rates. State policies on pensions and employee health care also affect local labor costs. For example, in California, state court decisions have sharply limited local efforts to reform costly public employee pension systems.

Michigan policy strictly limits local governments’ revenue options by reducing the amount of state revenue shared with local governments and maintaining high public employee costs through pension and health-care obligations. Moreover, Michigan cities have faced the consequences of economic decline, including deindustrialization, population loss and sharp reductions in property values.

Between a rock and a hard place

As a result, 18 Michigan jurisdictions — 11 cities, five school districts, one county and one village — have had state-designated financial emergencies since 1990. While economic devastation has challenged other Rust Belt states, Michigan has a high concentration of financial emergencies. Law professor Michelle Wilde Anderson identified 28 cities with more than 15,000 residents that entered bankruptcy or state receivership during the Great Recession from 2008 to 2013. Of these, six were in Michigan. Neighboring Ohio had only three, and Indiana and Illinois had one apiece. Only Pennsylvania had more than Michigan, with eight. But state receivership in Pennsylvania is widely lauded by local governments, since it expands their power to tax.

Michigan sends no additional financial aid and offers no additional taxing powers. Instead, since 1990, Michigan has empowered the governor to appoint an emergency manager to replace local elected officials, as has happened for Flint, Detroit and the Detroit school system. Michigan voters rejected the emergency manager law in a 2012 referendum — but the state legislature restored it a month later.

The emergency manager can override elected officials, who merely advise. These emergency managers have greater power than local officials do to cut city spending, such as the unilateral power to modify collective bargaining agreements. While declaring a financial emergency involves a review by the state treasurer and the governor, it’s discretionary; no automatic trigger institutes an emergency manager. Political scientists Jamil Scott and Erika Rosebrook find that the governor is more likely to appoint an emergency manager for cities with black mayors who have strong mayoral powers.

As our research shows, the combination of fiscal and economic pressures with emergency management governance in Flint and Detroit meant severe cuts in local government spending. For instance, from 2003 to 2016, Detroit lost about 29 percent of its residents and cut more than half of its city government workforce. Flint lost 22 percent of its population between 2000 and 2016 — and city government reduced its workforce by 56 percent. A 2015 Government Accountability Office report on municipalities in fiscal crisis links fewer government employees with the loss of federal revenue streams for housing, Head Start and other functions. Without the managers who can seek that funding or oversee its use, the report states, Detroit does not “have the capacity to improve its capacity.” To compensate, nonprofit groups in both cities have expanded services, including for water-crisis recovery in Flint and activities ranging from infrastructure to neighborhood development to social services in Detroit.

Local Michigan school districts face similar fiscal constraints and state takeovers. Detroit’s schools were under emergency management from 2009 to 2016. Michigan school facilities are funded solely by local property taxes. That’s not true in most other states; more than 75 percent give local districts grants or aid for school construction, which can reduce district inequalities. Michigan’s failure to offer state aid is a problem for ailing cities like Detroit and Flint, where low property values result in low property tax revenues — but where residents are so poor that even those taxes are a serious burden. Children in poor areas therefore face crumbling facilities, compounding poverty’s existing disadvantages.

Making matters worse for Detroit, the district cannot even raise funds locally. The Detroit school district is blocked from issuing new school bonds until at least 2040, due to bailout legislation that imposed a moratorium on new debts. That leaves private donations as one of the few possible solutions.

Donors on call

Private donations can fill gaps, but they cannot replace more reliable streams of funding for essential public services such as clean drinking water, fire and police protection, and public education. Donors might gain stature and gratitude for these contributions, but cities receive only a short-term reprieve from long-term challenges.

Sarah Reckhow is an associate professor of political science at Michigan State University.

Davia Downey is an associate professor of public administration at Grand Valley State University.

Joshua Sapotichne is an associate professor of political science at Michigan State University.