After weeks of protest, Detroit's city council agrees to a deal
that directs budgetary matters to an outside advisory board, but
avoids the sweeping state takeover that many residents opposed.
Nearly bankrupt Detroit has taken the first step down what is
likely to be a long road to solvency, agreeing to strict state
oversight but averting a full-blown takeover of its finances. But
Michigan has promised no bailout money, and Detroit will be
subjected to more stringent review than is customary for floundering
cities, as it grapples with how to meet $12 billion in pension and
benefit obligations and how to close a $200 million budget deficit.
In a vote late Wednesday, the Detroit city council approved, 5 to
4, a consent agreement with the state that permits tough, outside
fiscal oversight from an advisory board. If the council had failed
to act, Michigan Gov. Rick Snyder (R) could have appointed an
emergency manager, which would have stripped both the mayor and the
city council of control of all financial matters.
Compared with similar agreements between state authorities and
cities that faced bankruptcy, such as Philadelphia, New York City,
and Washington, the deal worked out between Michigan and Detroit
gives greater authority to the state should city officials fail to
execute changes or fail to meet budgetary deadlines. For example,
should Detroit violate certain parts of the agreement, powers of
both its executive and legislative branches could shift to the newly
appointed chief financial officer and chief operating officer, and
the state could withhold state aid or appoint an emergency manager.
Detroit's agreement is more stringent than those in other
financially strapped cities "given the history of corruption and
mismanagement that has been very well documented at this point" in
Detroit, says Eric Scorsone, a professor of economics at Michigan
State University in East Lansing.
However, Mr. Scorsone says the consent agreement fails to specify
how to ease the city's long-term cost burdens, such as its
retirement obligations. Also problematic: The agreement does not
define the criteria for success in renegotiating union contracts of
"There are a lot of pitfalls here," he adds. "The state was
trying to be creative and compromise, but in a way, it made life a
little more difficult potentially."
Michigan State Treasurer Andy Dillon said late Wednesday that it
is likely to be five years or more until the city sees a turnaround. …