Could it happen here?

Detroit Looks to Re-Engineer How City Government Works

As City Prepares to Exit Bankruptcy, It Focuses on Ways to Provide Services Within Budget

ENLARGE

Detroit resident Tonja Boyd and her daughters wait at a bus stop last week. The city plans to improve its transit system as well as boost police and fire services and upgrade computer systems under its post-bankruptcy restructuring plan. GETTY IMAGES

By 

MATTHEW DOLAN

Updated Nov. 10, 2014 6:38 p.m. ET

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DETROIT—The nation’s largest municipal bankruptcy case revealed a startling level of dysfunction inside Detroit’s government, including meter maids who were required to wear pants without pockets to prevent the theft of city funds and a jury-rigged firehouse alarm system that relied on a fax machine.

“We found many practices that made no sense,” said Chuck Moore, a consultant from restructuring firm Conway MacKenzie Inc. whose team has been embedded in the city’s government for more than a year.

As the city prepares to exit bankruptcy court, it will have to learn a new approach to providing basic services while staying within its means. Detroit plans to spend $1.7 billion over the next decade to improve services, earmarking about $400 million to tear down abandoned houses, $100 million toward a more reliable bus system, $260 million to make its streets safer and more than $150 million to upgrade outdated technology.

“Detroit’s inability to provide adequate municipal services runs deep and has for years,” U.S. Bankruptcy Judge Steven Rhodes said in his ruling Friday approving the city’s restructuring plan, which calls for cutting $7 billion in debt. “It is inhumane and intolerable, and it must be fixed.”

The judge has yet to set a formal date for Detroit’s exit from court supervision, but it could come as soon as this month. A state-appointed emergency manager pushed the city into bankruptcy in July 2013.

Overseeing it all will be a nine-member financial review commission with the power to approve city budgets and review contracts and labor agreements. It is set to be controlled mostly by appointees of Republican Gov. Rick Snyder or state officials.

On Monday, Mr. Snyder named his four commission appointees, one being the city’s former deputy emergency manager. He also named former New York Lt. Gov. Richard Ravitch , who helped steer New York City’s financial restructuring in the 1970s, as the commission’s senior financial adviser.

Mayor Mike Duggan, a Democrat, pledged Friday to cooperate with the GOP-led state government and brushed aside concerns by Judge Rhodes that the mayor would appoint himself to the commission slot he controls. The mayor has endorsed the restructuring plan.

Among the city’s top priorities: improving public safety. On Monday, Federal Bureau of Investigation statistics for 2013 once again showed Detroit was the nation’s most crime-ridden large city, despite a drop in violent crime. Police and ambulance response times have improved but still fall short of national standards.

The process of re-engineering how Detroit works is expected to be bumpy. Some potential divisions over the plan flared up Monday as one city lawyer said Detroit needed more time to examine more than $140 million in fees charged to the city for the restructuring by lawyers and consultants. Earlier, a firefighters union president said he feared the judge was racing to conclude the case without “genuine inquiries into the high fees that have the unmistakable whiff of plunder.” The judge sharply disputed that account Friday, but said an examination of the fees is ongoing.

More broadly, financial experts who examined the city’s operations say Detroit remains burdened by out-of-date union rules, local laws and charter provisions. People who had no training were bumped into more senior city positions simply because of their years on the job, Mr. Moore said. Detroit’s employee-training system was almost nonexistent, and the performance-evaluation system “had stopped being used for several years,” he said. The technology is so creaky that some computers take nearly 10 minutes to boot up, according to Detroit’s chief information officer.

Municipal unions still wield substantial power in Detroit. Despite pension cuts, work-rule changes and a slimmed-down retiree health system for current workers, the city is increasing wages and hiring, which could boost union ranks.

Many worker representatives are still bitter over the bankruptcy, which emerged out of a state takeover. “I’ve been disgusted with this thing from the beginning,” said Ed McNeil, special adviser to the president of Michigan Afscme Council 25, the city’s main public-worker union.

Mr. McNeil argued the city could have avoided bankruptcy if it had implemented cost savings pointed out by union officials. Now, he said, the city needs to stop pursuing unnecessarily costly contracts to privatize work done by union employees.

Detroit faces pressure to change the way it does business. Much of the planned spending hinges on the city doing a much better job in collecting revenue from its 688,000 residents as well as businesses based here.

One part of the program counts on $34 million in additional collections by billing people assisted by fire and emergency medical personnel. In the past, Mr. Moore said, “EMS had become a taxi service.” It wasn’t unheard of for Detroiters to call 911 claiming a medical emergency when they sought a ride to see a doctor or visit a sick friend at a hospital, he said.

Already there are signs of progress. New regional authorities are preparing to run large swaths of the water and transit systems, as well as the city’s convention center that hosts the important annual auto show.

Detroit shut down many parks during its financial crisis; most have reopened and are being maintained by volunteers. Millions of dollars in donations funded new police cars and ambulances along with spruced-up firetrucks that have started to help reduce response time.

While serving as Detroit’s emergency manager, Kevyn Orr has kept a list of three cities inside his wallet—New York, Washington and Miami—with dates under each to mark their fall into financial ruin and later rebirth. Detroit, he said, will be able to add 2014 as its start date if it follows the court-approved restructuring plan when he leaves.

“You just keep trying to go up,” he said.