Michigan Set to Step in as Detroit Nears Financial Collapse

Article excerpt

With infighting paralyzing its finances, Detroit will run out of money before the end of June - likely forcing Michigan to step in 'with an outcome that neither side will find desirable,' say experts.

Just a few months ago, the face of Detroit was Clint Eastwood, an icon of American toughness and resilience featured in Chrysler's popular Super Bowl commercial. The symbol of American industrial decline showed some modest hope of bouncing back from the brink.

No longer. Now, the Motor City looks set to become mired in bankruptcy and state control, thanks in part to an unpaid water bill.

A political skirmish between Detroit Mayor Dave Bing and the city council is threatening to freeze the city's finances and leave it without money to pay its bills by the end of the month. The standoff is the latest chapter in an ongoing dispute about what role the state should play in keeping Detroit fiscally solvent.

Michigan Gov. Rick Snyder is threatening to withhold $25 million due to the city this month from state revenue-sharing payments. The next payment due the city is scheduled for June 27.

In a letter sent to the city last week, Michigan State Treasurer Thomas Saxton said the state would divert the money toward repayment of an $80 million bond if the city refuses to drop a lawsuit filed by city attorney Krystal Crittendon. Ms. Crittendon filed the lawsuit last month, claiming that the recent consent agreement reached between the city and the state in April is invalid because the state owes Detroit $4.75 million for a 2010 water bill and $224 million in state revenue sharing.

The majority of city council members, already angered by the state's involvement, support her actions and say Detroit should never have entered into the consent agreement because the city charter forbids contracts with entities that are in default to the city.

Treasury Department Spokesman Terry Stanton told reporters on Monday that Crittendon needs to withdraw her lawsuit because it will dissolve the consent agreement and the state will divert all remaining revenue-sharing payments that the city is due to pay off its $80 million debt.

"If the lawsuit is not withdrawn, the original bonds cannot be refinanced, which would lead to the intercept (not suspension) of revenue sharing monies," Mr. Stanton said.

Mayor Bing insists he cannot control Crittendon under the rules of the city's charter, which the state disputes. Bing described this latest chapter of Detroit's fiscal crisis as a "game of roulette" and appealed to the city council Monday to vote against the lawsuit, but they refused.

City Council President Charles Pugh said the state would be "irresponsible" if it refused the city the payments, causing it to run out of cash. The city attorney's "opinion does not prevent the state from living up to its responsibilities," Mr. …