How are Municipal Bankruptcies Changing the Playing Field for Nonprofits?

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July 5, 2012; Source: Stateline

As truly distressing as the stories about bankrupt or nearly bankrupt municipalities might be, we suspect that the role of nonprofits in these environments is more crucial than ever before.

In Detroit, for example, the operating environment for nonprofits has shifted mightily. In April the city and the state put the finishing touches on a “grand bargain” consent agreement that allows for more powerful state intervention into Detroit’s affairs. Any nonprofit leader paying attention will see a new playing field.

We would hypothesize that the context of municipal bankruptcy changes the nonprofit narrative in all cities, whether it is the Stockton, Calif. Emergency Food Bank or the city’s University of the Pacific. Can you imagine Stockton nonprofits simply continuing to operate without asking, what does the city’s bankruptcy mean for what we now have to do?

The press coverage is typically that these cities—like Stockton, Vallejo, Central Falls (Rhode Island), Jefferson County (Alabama), Prichard (Alabama), or communities such as Harrisburg, Bridgeport, Benton Harbor (Michigan), and others that either filed and withdrew or filed and were placed under the state-mandated control of an emergency fiscal manager—were out of control governmental ATMs tossing underfunded pension mandates at municipal employees, with the union jackboot on mayors and city councils. Nonprofits have to know the alternative and more contextualized stories: that places like Stockton collapsed under massive housing market foreclosures, that Central Falls saw almost a dozen textile mills close in a short period of time, and Detroit watched the implosion of the automobile manufacturing industry—a slow-moving economic tsunami that fundamentally changed the economic base of southeastern Michigan.

“Financially beleaguered” is the frequent description applied to Detroit, where the state of Michigan and the Detroit mayor and city council reached a consent agreement in April on state intervention in the city’s financial operations short of a state-appointed emergency fiscal manager taking the place of Detroit’s elected officials. The city was just about to go under fiscally before both sides agreed to the consent agreement, which is basically a structure of shared governance in return for the state’s bailing out the municipal treasury.

There are plenty of people in Detroit—including various public officials—who chafe at the consent agreement, including some who believe that the state actually owes the city money from previous deals struck with past administrations prior to Governor Snyder in the governor’s mansion and Mayor Bing in city hall. Nonetheless, the consent agreement spells out specific agenda items for both parties that by anyone’s reading have nonprofit implications and roles built in, including public safety initiatives, demolition of vacant structures, and real estate management.

We’ve met with and talked to some Detroit nonprofits and foundations about their big plans for changing the city, major collaborative efforts on employment, land use, and education, often with major foundations prominent in the mix. At the same time, however, we are interested in learning from Detroit nonprofits about what the city/state consent agreement and Detroit’s various fiscal beleaguerers have done to affect their day-to-day operations. Besides the obvious, that the demand for services and programs must be up, what is different about working in a city where the mayor, city council, and governor all agree about one thing, that the city is in huge fiscal trouble?—Rick Cohen