June 2, 2013

Detroit's Need For Liquidity and The Mayoral Race

It appears Detroit has more than enough assets to solve its cash flow problems and put itself on solid footing, however there are two significant decisions that should be made prior to any disposal.

First, what assets should be disposed?  Below is a graphic from an article in the Detroit Free Press on June 2, 2013 titled, "Detroit Zoo giraffe? Belle Isle? Detroit's treasure trove could be vulnerable to sale to settle debt", that lists some of the city's major assets, including the artwork at the DIA and the DIA itself, Belle Isle, Windsor Tunnel, vacant land and homes owned by the city, vacant schools, police and fire stations, Joe Louis Arena, Hart PLaza and many others. Prioritizing these assets for sale to optimize the results is not an easy task. Many factors.must be taken into account including but not limited to:

  1. Which of these assets are needed for the city to attain its future objectives.
  2. Which of these assets will provide the best return to the owner in the future?
  3. What are the future plans of the city? What will be its population in five, ten, twenty years and beyond?  What will be the land use needs of the city? 
  4. Which assets can be converted to cash soon enough to keep the creditors away from the door? 
  5. What are the contingent liabilities and transaction costs related to the sale of each asset?
  6. What are the cash flow projections for the city in the future? If you don't know your cash needs in the future, how do you know you will get there?
Click To Enlarge
Second, prior to making these decisions the city needs a plan that describes where it intends to go, how and when will it get there and how will it fund the process. Disposing of some of the city's assets to keep the wolf from the door is futile if the city does not have a plan allowing it to operate in the foreseeable future.

This is a daunting task and the Emergency Manager (EM) is not focused on it, nor should he be. His tenure is scheduled to end in less than 16 months and his task is to solve the immediate financial crisis. The City Council and Mayor should be focused on the long term portion of the plan. Unfortunately it is election season and everyone is a lame duck and thinking only of their life after the election.

It is critical that voters of Detroit demand the Mayoral candidates focus on the long term plan for Detroit. The candidates must be forced to get specific; if not with a final plan, with at least the methodology of how  they will be reviewing the issues and what must be addressed. They need to clearly state their vision.

No one knows with certainty what the future holds. Everyone knows the future becomes more certain with a plan.

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