Thursday, December 29, 2011

Fred Leeb: Detroit's Old Games Are Over

Fred Leeb: Detroit's Old Games Are Over

Detroit Has "Hit the Wall"
Those of us in the turnaround world have been waiting for decades for the City of Detroit to be in its current dismal financial condition with no easy way out. This is called "hitting the wall" when there is no cash available any longer to continue business as usual. We have been waiting for this because it is finally the time when people must step up and take positive actions -- there are no alternatives. When you are about to hit the wall, the old games are over. People are not impressed any longer with:

• Speeches full of promises,
• Macho tough-guy tactics,
• Elaborate analytical studies,
• Infinite variations of blaming others,
• Fancy job titles and sound bites from celebrities, or
• Refusing to compromise and being negative without proposing workable solutions.

Leaders must make drastic cuts in costs now but they also must develop and implement new far-reaching but practical strategies. They must take the personal risks necessary to take action or they must get out of the way. Turnaround professionals know this is the most critical and precious time to bring forward new ideas, settle on new short and long term strategies, organize teams, and implement change. A tremendous amount can be accomplished when all the stakeholders finally recognize that they are in the same boat, that the boat is in a severe storm, and that they all most row in the same direction if they are to have any chance of success in saving themselves.

Thursday, December 22, 2011

Fred Leeb: Detroit Can Be Great Again

Fred Leeb: Detroit Can Be Great Again

Fred Leeb

Detroit Can Be Great Again

Posted: 12/14/11 03:31 PM ET
I was the first emergency financial manager in Pontiac from March 19, 2009 through June 30, 2010 and I believe my experiences could be very applicable to Detroit. I know that, even though I have been a turnaround consultant for over 20 years, I learned a tremendous amount from actually going through the process.

We made some mistakes but we also achieved many successes as a result of listening to the city's staff personnel, respecting their expertise, encouraging new ideas and then enlisting their support to take action and implement the changes.

We didn't just create more reports or studies that went on someone's shelf. We were able to generate, even under the old Public Act 72, over $115 million in multi-year benefits for the city, upgrade the city's bond rating and generate two years of surpluses in a row after many years of deficits.

Virtually all the recent discussions about Detroit have focused on how much power either the mayor, the city council or an emergency manager could bring to bear to cut costs immediately. It is true that in a financial emergency the only controllable factor initially is expense so that must be addressed first. But cutting expense alone is overly simplistic and shortsighted. To be successful, Detroit must cut expense and increase its revenues. The major sources of city revenues are from property taxes and income taxes. These will increase only if more people and businesses, who are able to pay taxes, live or work in the city.

Detroit must have a plan to cut expense without drastically reducing services and to attract taxpayers to the city. Creativity and teamwork on the part of all stakeholders involved will be absolutely essential if Detroit is to both cut expense and attract major new taxpayers who are being courted by virtually every other community in the country. Detroit must compete for these taxpayers with a clear-cut turnaround plan.

The first step in the turnaround planning process is to stop all forms of denial. This is not to criticize or blame, but to understand the depth of what must be done. [Nobody should assume that any one person will be given a magic wand to cure-all Detroit's problems quickly.] Just a few statistics can help to begin the process to understand Detroit's competitive position and that its resources already are severely limited. For example, Detroit is now only the 18th largest city in the country based on 2010 data from the U.S. Census Bureau.

It is no longer in the top 10. Detroit also was ranked 522, of 540 cities listed by the U.S. Census Bureau based on per capita income of $14,213 (based on 2009 data). For comparison purposes, per capita income of Dallas, the 200th highest city, was $25,941, 82 percent above the level of Detroit. Detroit also had the lowest per capita income and the second highest level of individuals in poverty (at 36.4 percent, only better than San Juan, Puerto Rico) of the 50 largest cities in the U.S. (based on 2009 data). Despite these statistics, Detroit needs at least tens of thousands of additional people and/or businesses who can pay taxes.

We are now very late in the timeline to be able to be successful. Detroit cannot wait any longer to pull together and implement programs such as Detroit Works in order to increase the quality of services at a lower cost to a more concentrated community. If additional precious time is lost through continued infighting and tax revenues continue to decrease, the city's downward spiral will speed up and the city will never be able to cut its way to success. On the other hand, if the city, the county, the region, the state and the federal government have a workable and attractive plan for the future and pull together, Detroit can be great again.

Tuesday, December 13, 2011

Guest post: former Pontiac emergency manager Fred Leeb says PA 4 not necessary for success | Crain's Detroit Business

Guest post: former Pontiac emergency manager Fred Leeb says PA 4 not necessary for success | Nancy Kaffer
Crain's Detroit Business

Last week I blogged about the difficulties a (hypothetical) state-appointed emergency manager of Detroit would face if the new state law that grants an EM the ability to open union contracts were to be suspended or revoked.

My opinion was that an emergency manager in Detroit would largely have his or her hands tied without the ability to break union contracts, because it's generally agreed that reducing benefits for active and retired city workers is the sine qua non of balancing Detroit's budget.

Fred Leeb - who served as emergencey manager as Pontiac for 15 months, but resigned in large part due to conflicts with Pontiac Mayor Leon Jukowski – disagrees:

I was the first EFM in Pontiac and faced many of the issues that are now facing Detroit. I learned a huge amount from that experience, which was under Public Act 72, not Public Act 4.
We were very successful because we listened carefully, respected the knowledge and experience of the city's staff and then worked with them as team members to develop and implement a long list of tangible improvements.

For example, we were able to generate over $115 million in multi-year benefits, upgrade the city's bond rating during a time when many other cities with much less severe financial problems were getting theirs downgraded, and developed two years of surpluses in a row after many previous years of deficits.

In addition, we were able to successfully negotiate with the city's six unions to have them voluntarily agree, for the first time, to pay for the equivalent of 20 percent of their medical benefits.
Of course, these achievements didn't happen overnight or without a lot of work but they did not require all of the provisions of Public Act 4 to be successful.

I believe that the likelihood of a financial turnaround in Detroit will be much greater if people work together in the most cooperative manner possible.

No matter what, however, I am sure there will be a tremendous amount of controversy and purposeful misinformation on the part of certain people in the community.

There is a natural tendency to resist change and there are many people with vested interests who will actively try to undermine anything that puts their personal positions at risk but those problems should be expected.

Unfortunately, these relatively small groups of people who resist change are often much more vocal and emotional than the majority who appreciate the necessary improvements.

Somehow the leaders must enlist the silent majority to stand up and work together to support the change process. If the support is broad-based, there will be a much greater likelihood of success.