State and Local Government: Shrink to Grow?
Glenn Watson, Free Vector Advisors
We have followed the GM saga since its bankruptcy announcement in the summer of 2009, and chronicled its massive efforts to shed capacity by cutting employees, factories, dealers and brands to the core. The result of this painful process was a quarterly profit and a highly successful IPO. GM had become so bloated in almost every category of measurement, that it was no longer a profitable company, and creating future pension liability at an alarming rate. In other words, GM became an unsustainable business and had to shrink to survive.
On the Free Vector blog, we have also discussed the impact of declining businesses, declining tax revenues, declining property values, increased health care and pension obligations on governmental operations (Balancing a governmental budget in the “New Normal” 30 January 2010, and The Next Big Risk to Economic Recovery: State and Local Government Bankruptcies, 28 January 2010). Is there a link between the efforts of GM and the plight of the governmental units in the GM footprint?
Not only do we believe this to be the case here at Free Vector, but so does Dave Bing, the new mayor of Detroit (Forbes, 8 November 2010). Bing is deploying a radically different strategy than the one we typically see associated with economic development (new stadia, shopping malls, casinos, redevelopment, etc.) Instead, he understands the physical footprint of Detroit developed a support infrastructure that fit the city in 1950, when its population was more than double. Today, there are fewer residents, fewer tax payers, aging infrastructure, but no reduction in organized City labor cost. In terms of neighborhoods, many are vacant or under populated, and contribute to urban blight and crime.
His plan is to tear down unused housing by leveraging federal neighborhood stabilization funds, and then create fewer but stronger neighborhoods, giving prosperity a better foothold.
The entire “rust belt” of the country features cities like Detroit, all of which could benefit from a fresh approach that recognizes the limitations of the old economy.
Free Vector Advisors can help your municipality restructure its operations with strong ideas and analytics harvested from our private and public sector clients.
