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Is Detroit near bankruptcy after years of exodus, neglect, corruption? Add to ...

These are stories Report on Business is following Tuesday, June 4, 2013.

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Detroit on the brink
Is Motor City headed for bankruptcy?

That prospect is certainly being raised today in advance of a key meeting this month between Detroit’s emergency manager and stakeholders.

There are signs that manager Kevyn Orr is “laying the groundwork” for a bankruptcy filing within months, The Wall Street Journal reports. That would be the biggest such collapse in U.S. history.

Mr. Orr, who was appointed to the post by Michigan’s Governor as the once powerhouse city sank deeper and deeper, will meet with creditors, pension funds and union officials over the next few weeks, the Journal says.

There are several proposals on the table in Mr. Orr’s latest report, which is grim, to say the least.

“Current levels of municipal services of all types to residents and businesses within city limits, including public safety services, are inadequate,” he said in the mid-May document.

“With high crime rates and poor public services in many areas, the health, safety and quality of life of Detroiters has suffered materially,” he added.

“Tax revenues have decreased over time as the population of the city has dwindled to less than half of its postwar peak and the local economy has suffered, with unemployment tripling since 2000.”

From 2008 to 2012, Detroit’s spending has eclipsed revenues by an average of $100-million (U.S.) a year, he noted, citing a deficit of $326.6-million at the end of the last  year, which will swell by some $60-million more this year.

“The city of Detroit continues to incur expenditures in excess of revenues despite cost reductions and proceeds from long-term debt issuances,” Mr. Orr said in his first report to Michigan’s government.

“In other words, Detroit spends more than it takes in – it is clearly insolvent on a cash flow basis.”

By April 26, the municipality had just $64-million cash on hand, with obligations of $226-million.

One of Mr. Orr’s points is “blight,” which he calls a public safety and health issue.

In 139 square miles, Detroit is now home to at least 60,000 parcels of vacant property and 78,000 vacant buildings, some 38,000 deemed as potentially dangerous.

“This surplus land presents enormous socio-economic challenges and affects public health, crime rates, economic development and property values.”

Mr. Orr, while proposing a widespread restructuring plan, was scathing in terms of how the city was managed in the past, citing outdated policies, practices and systems not fit for a municipal government in the 21st Century.

“The city’s operations have become dysfunctional and wasteful after years of budgetary restrictions, mismanagement, crippling operational practices and, in some cases, indifference or corruption,” he said.

Canada nixes telecom deal
The Canadian government has rejected a deal between Telus Corp. and upstart wireless carrier Mobilicity, saying it’s committed to a “competitive marketplace and consumer choice.”

“Our government has been clear that spectrum set aside for new entrants was not intended to be transferred to incumbents,” Industry Minister Christian Paradis said today.

As The Globe and Mail's Sean Silcoff reports, Mr. Paradis warned he won't approve any deal that would see the wireless spectrum set aside for new entrants before the five-year moratorium expires.

“Our government will continue to allow wireless providers access to the spectrum they need to compete and improve services to Canadians," he said.

"We are seeing Canadian consumers benefit from our policies and we will not allow the sector to move backwards. I will not hesitate to use any and every tool at my disposal to support greater competition in the market.”

It's the second time in as many days that the government or one of its agencies has moved on an issue dear to the hearts of Canadians.

Yesterday, the telecom regulator unveiled a code of conduct for wireless players that allows consumers to cancel their contracts after two years without incurring fees.

CP shares dip
Canadian Pacific Railway Ltd. stock slipped today in the wake of the decision by the man behind CP’s turnaround to sell some 7 million shares.

As The Globe and Mail’s Richard Blackwell and Guy Dixon report, Mr. Ackman’s Pershing Square Capital Management plans to divest up to 7 million shares over six to 12 months, in the wake of the tremendous run-up in the stock.

The shares have tripled in value since Pershing Square’s initial investment, which led to a battle with the CP board and the appointment of Hunter Harrison as chief executive officer.

Mr. Ackman said Pershing Square still expects to be the largest shareholder in the railway, but its stake has swelled to now account for some 26 per cent of the holdings of its funds.

“Although CP’s share price has more than tripled since Pershing first began investing in the name, we view yesterday’s announcement as a slight negative in view of the shorter-than-anticipated timeframe of Pershing’s investment,” said analyst Benoit Poirier of Desjardins.

“Pershing’s typical holding period for an active investment is four years; in the case of CP, it is surrendering a large portion of its holdings well in advance of this timeframe.”

Manitoba recruits from Europe
Manitoba is trying to help fill a skills shortage by recruiting workers from the crippled countries of Europe.

Provincial officials will be interviewing candidates for its “southern Europe recruitment mission” in Greece, Italy, Portugal and Spain this month, looking for temporary and permanent workers.

Workers interested in the program had to e-mail officials by the end of May.

It’s part of what is known as the Manitoba provincial nominee program, and this recruitment drive in particular is being launched “with the co-operation of Manitoba employers and the Greek, Italian, Spanish and Portuguese cultural communities,” the government says in its pitch to potential workers.

Manitoba is looking for people, between the ages of 21 and 45, for “pre-arranged jobs in industry, business, service, trades and other skilled occupations,” it says, noting the program is based on a reconfigured points system.

“’Friendly Manitoba’ actively seeks immigration applications from educated and experienced workers with job-ready English because our province is facing a shortage of skilled workers,” the government says on its website, citing more than 250,000 job openings in various categories by 2020.

Manitoba boasts an unemployment rate of 5.8 per cent, the third-lowest in Canada behind Saskatchewan and Alberta.

Greece and Spain, of course, are crippled by high levels of unemployment of about 27 per cent, with youth unemployment at 62.5 per cent and 56.4 per cent, respectively.

Portugal and Italy are faring better, but jobless levels are elevated there, too, at 17.8 per cent and 12 per cent.

Trade deficit widens
Canadian exporters lost ground in April as imports climbed, leading to a fatter trade deficit for the country.

Exports slipped 0.2 per cent while imports climbed 1.2 per cent, widening the shortfall to $567-million from $3-million in March, Statistics Canada said today.

Notable in today's report is that imports climbed for the fourth month in a row, and stand at a record $40.8-billion. From the United States alone, imports increased 1.9 per cent to also hit a record, at $26.2-billion. Imports of energy products led the gains.

Canadian exports to the United States, the country's biggest market, climbed 1.8 per cent, but those to other nations slipped 5.6 per cent.

"Overall, the rise in two-way trade volumes is encouraging, but the message for the [Canadian dollar] is that we will need a firming in resource prices to bring about the sort of trade surpluses that would sustain a stronger loonie," said chief economist Avery Shenfeld of CIBC World Markets.

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