Thursday, April 24, 2014
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Could Philly be the next Detroit?

Could Philly become the next Detroit?

Could Philly be the next Detroit?

Center City Philadelphia. (Elise Wrabetz, File / Staff Photographer)
Center City Philadelphia. (Elise Wrabetz, File / Staff Photographer)

Could Philly become the next Detroit?

Over the years, that’s the big question that many pundits have asked. As recently as this past May, even Jimmy Tayoun’s Public Record’s “Elephant Corner” – a weekly article scribed by a series of pseudonymous Republican activists – ran a column entitled “Detroit’s Fate Could Be Philadelphia’s Next.”

In that piece, the author ominously noted that “We in Philadelphia should look carefully at the situation in Detroit. Fifteen years ago, I am sure that few expected Detroit to devolve into its current status. I believe if we do not deal with our onerous, underfunded pension obligations, we will be facing serious fiscal problems sooner than many anticipate. Increasing tax rates is not the solution, as we saw in Detroit. Raising taxes in Detroit did not lead to higher revenues but rather it chased taxpayers out of the city.”

Look at Detroit now.

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Will the land of cheesesteaks, soft pretzels, and scrapple be next?

“I would describe growing Philadelphia differently, we have $328 million in business tax cuts in our 5 yr plan, the city is growing, revenues are higher than projected,” Democratic Councilwoman Maria Quinones-Sanchez told me last night. “The Mayor has enough resources to finally settle with the unions, provide funding for schools and create a plan, ie sales tax to fully fund pensions. We have challenges but are on the brink of a full revival. Why do you want to beat us up? We are on the right track.”

Beat up city government? Moi?

“The unfunded pension fund alone could cause dire economic consequences for our city's fiscal health within a decade,” observed Northeast Philadelphia State Rep. Kevin Boyle (D-172), adding, “The good thing is if we act sooner rather than later we can prevent this slide into insolvency. Unfortunately, our city all too often waits until the absolute last minute to act.”

Allan Domb, the Center City real estate broker specializing in condominiums, serves as the president of the Greater Philadelphia Association of Realtors. He echoes the importance of Philadelphia acting now. “Clearly we are at a crossroads of heading in the direction of Detroit or Boston! In the last few years we have made great strides to move more towards Boston but we need to clean up our delinquencies, continue to incentivize business growth thru the continuation of the 10 year tax abatement and job creation with tax breaks if necessary and eliminate or amend laws that burden our population like the lead base paint requirement.”

President Harry Truman once said, “Give me a one-handed economist! All my economists say, On the one hand on the other.”

That’s no different here, as two leading economists who know the Philadelphia economy as well as the back of their hands communicated different likely outcomes to me.

The sunny side.

 “I believe the probability of Philadelphia following in Detroit's bankruptcy footsteps is miniscule to nil,” chimed Stephen Mullin, president of Econsult Solutions Inc. “In the past decade Detroit passed a tipping point in its economy due to massive flight of people, businesses, production and tax base to support public services and income transfers to the poor. NOBODY and no business was/is moving into Detroit. And Michigan's economy is too weak to compensate and continue to cover up the declining productivity. Philadelphia never got even near that point and in the past decade has been moving in the right direction, albeit too slowly for my liking. And Pennsylvania's economy, while no match for Texas, is far stronger than Michigan's. And the ratings agencies agree with this assessment, given our recent GO debt rating upgrade. None if this suggests that our economy is growing as well as it could but Detroit is no comparison.”

The rainy side.

“In the short term, bankruptcy may be painful, but in the long run, it can actually be a good thing,” said Kevin C. Gillen, a senior research consultant at the Fels Institute of Government at the University of Pennsylvania. “Detroit's current situation is not the result of just a few recent adverse economic events, but is instead the outcome of decades of bad policymaking.  Insofar as the politicians and voters are unwilling to change course, a bankruptcy judge can have the authority and will to impose the requisite and fundamental changes that are needed: pension reform, tax reform, reductions in city workforce, service cuts and reforms of city agencies such as schools or housing authorities. It may not be pleasant, it may not be democratic, but ultimately it may be necessary.”

Michael Cibik, a local bankruptcy certified attorney specializing in both consumer and business bankruptcy,  supports Philadelphia electing bankruptcy. “Bankruptcy is a financial tool. Therefore, Philadelphia, you should seriously consider filing a chapter 9 bankruptcy. It's an opportunity to have an orderly process which is a legal Code oriented solution for the disposition of systemic municipal debt and mismanagement. Look, if Pres. Obama feels it's acceptable and a good policy for GM to file a bankruptcy reorganization; why not Philadelphia?"

Sometimes there’s value in talking to a long lost friend who’s now a Philly ex-pat – just to get some perspective from an outsider once intimately familiar with Philadelphia’s economy and spirit.

"It would seem on the surface that Philly has a much stronger tax base to begin with, a much more robust infrastructure, a natural base for tourism and thriving culture. So Philly has a hell of a lot more going for it," said Howard Altman, the former news editor of the City Paper. Altman now resides in Florida.

So will Philly turn out like Detroit?

Not yet, at least.

As Michael Saba said in this CNN article, “Philadelphia is, putting it mildly, the ultimate underdog city: Part Rocky, part Will Smith, all heart.”

John Featherman
About this blog
John Featherman is a contributor at Philly.com and writes about politics and consumer-related issues. Reach John at john@featherman.com.

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