Six months have passed since Detroit declared bankruptcy, and over this time numerous ideas have emerged about how the former industrial power can scrap its way back. The wiser of these have resisted suggesting federal aid — which came nonetheless via a $300 million package from President Obama — and instead proposed that the city work on its own to institute growth-friendly reforms. These have included making Detroit a “charter city” along the lines proposed by Paul Romer (he was thinking of the Third World, but Detroit’s need is as great) or one of Rand Paul’s “economic freedom zones”; others suggest just selling off the city’s assets. In January, P. J. O’Rourke, in the Wall Street Journal, echoed several previous writers in proposing that the city become the American version of hyper-capitalist Hong Kong.
Tying these ideas together is the assumption that cities work best when they combine low taxes and light regulations with a public sector that is small and efficient and that holds businesses to clearly defined rules. Any one of these ideas would be sensible for Detroit, whose present government embodies the opposite. Today Detroit has one of the nation’s worst economic-freedom ratings, one of the most overstaffed public workforces, and the highest property-tax rates of any major city.
But the idea that Detroit could suddenly just create a cleaner government is unrealistic. It would be, as O’Rourke pointed out, politically infeasible in such an overwhelmingly Democratic city. And it would be legally infeasible because of the city’s governing document — the Detroit Charter.
For nearly a century, this charter has preserved some of the city government’s worst inefficiencies, making it difficult to privatize services, rein in retirement benefits, and lay off workers. This, in turn, has forced residents to pay higher taxes in exchange for horrible services, a bargain that ultimately drove their mass exodus and the city’s decline. Reforming this charter is essential if Detroit wants to function again, much less achieve Hong Kong–style prosperity.
Detroit didn’t even have the ability to write a charter until 1908, when Michigan passed an act granting cities “home rule,” which allowed residents to vote on charters for their cities. The one Detroit residents approved ten years later was designed to make the city’s government decidedly small and simple. It reduced the city council from 42 to nine members, limited its powers, and protected against the “rascals” and other bearers of corruption then invading the city halls of larger East Coast municipalities. Although amended heavily over the decades, the city government under this “horse-and-buggy-era” charter nonetheless oversaw the explosive growth of Detroit’s auto industry.
But by the 1960s the charter was thought to restrain the government’s ability to get things done. This was considered a problem in a city then pioneering top-down policies, from urban renewal to affirmative action to expansive social programs. In 1968 a commission was appointed to study the charter, and a revised one was soon voted into law. With fewer pages and simpler wording, it was meant to streamline government operations. One idea discussed at the time was “decentralization” — “moving one or more operations or decision-making responsibilities out of a central city hall and dispersing them into neighborhood areas, closer to the people of the city” — but ultimately the citizens voted to place power not in the neighborhoods but in the legislative and executive branches. This concept was expanded in the next charter revision, in 1997, which allowed the mayor to appoint executives for 18 city departments.
But this centralized model, whatever its merits, failed over time to reverse certain structural problems in Detroit. The boards that determine city retirement benefits, established by the 1918 charter, have long been stacked with public-employee representatives. Various attempts by officials over the decades to end this obvious conflict of interest have been successfully resisted by the public-employee unions, causing benefits to escalate to half of the city’s $18 billion debt.
Although the 1997 charter finally allowed privatization of some services, it still demanded a burdensome eight-step process — again because of union resistance. This has caused Detroit, which fails to keep many of its sidewalks clean and street lights burning, to lag at adopting a reform that has improved services elsewhere (not until last month did it finally adopt privatization, for trash pick-up). And the charter has made it impossible to consolidate some departments that are of minimal importance amidst Detroit’s dire circumstances, such as the ones overseeing the arts and the city zoo.
Detroit’s charter also maintained weak accountability rules, with a Board of Ethics that played only an advisory role. As a result it did not properly root out corruption, with the most infamous example being ex-mayor Kwame Kilpatrick. In 2008 Kilpatrick was indicted on eight counts, including perjury and obstruction of justice, following years of misconduct. But even then he couldn’t be removed by the city council, since the charter allowed this only for convicted felons.
In response, city voters approved the charter’s third-ever revision in 2011, after having elected a nine-member commission several years before to weed out counterproductive language. The purpose of this revision, said Jenice Mitchell Ford, chief of the commission, was to increase government accountability. It switched Detroit’s elections from at-large to ward-based, so that councilors now come from across the city, not just a few neighborhoods. It also balanced power better, requiring council approval of mayoral appointees in several key positions. And it established an inspector general, a more powerful Board of Ethics, and twice-yearly financial reviews to curb spending.
But the revision left problems unaddressed. During the process, said Ford, the commission paid very little attention to restructuring the language on retirement benefits. Other civil-service reforms — like ending collective bargaining for city employees, or removing a provision that prevents their discharge from classified positions — were also ignored. And the lengthy process for privatization was again vigorously defended by the unions. In this respect, the revision was yet another wasted opportunity to reform a famously inept bureaucracy.
If there is a silver lining in Detroit’s bankruptcy and state takeover, it is that none of these rules now have to be followed. Although the charter is still in effect, Kevyn Orr, the city’s emergency manager, can override it and various contracts if that’s needed to restore the city’s finances. Orr attempted this last week when submitting a financial restructuring plan, soon to reach federal court, that would cut pensions for general city retirees by 26 percent.
But whether Orr’s adjustments stick will depend on how the city is managed once he leaves, which could be as soon as September. Starting then, Detroit must strive internally towards producing a better bureaucracy, since that is necessary to help it obtain the low taxes and economic freedom of growing cities like Hong Kong. This will require further amending a charter that has discouraged such reforms for decades, making Detroit’s revival as much a legal matter as a political and economic one.
[Ed.'s note: Beyer originally wrote this article for National Review in early 2014, after Detroit's bankruptcy, citing the need for the city to reform its legal charter while under emergency management. Beyer will explore in the coming weeks whether these reforms actually occurred.]
Scott Beyer owns and manages The Market Urbanist.
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