Debt-Laden Detroit Makes One Last Bid to Avert Fiscal Takeover by State

By Guarino, Mark | The Christian Science Monitor, March 12, 2013 | Go to article overview

Debt-Laden Detroit Makes One Last Bid to Avert Fiscal Takeover by State


Guarino, Mark, The Christian Science Monitor


Officials from the nearly bankrupt city of Detroit made a last- ditch attempt Tuesday to stave off losing control of city finances to a state-appointed emergency manager, arguing that more time is needed for fixes applied as a result of a state-city agreement last summer to show results.

Their appeal, made at a one-hour hearing in Lansing, Mich., the state capital, is the last step before Gov. Rick Snyder (R) gives final word on whether he will name an emergency financial manager to intervene in Detroit's finances in a bid to cope with its huge debt and continuing deficit. Most city officials have resisted such a draconian step ever since it became clear in late 2011, when Detroit almost did not make its payroll, that the Motor City was in dire straits. Governor Snyder is expected to say later this week what he will do.

If Snyder does appoint an outsider to seize control of the city's finances, Detroit will make history as the largest city in the US to be directly controlled by an emergency financial manager.

On Tuesday, Detroit finance officers said the consent agreement between the city and the state of Michigan, signed last year, establishes benchmarks for progress and a monitoring process, and that the state should stick with it.

In my neighborhood, we were taught a deal is a deal we have a deal on the table and its not over, said David Whitaker, Detroits director of research and analysis.

Earlier this month, the governor declared that the city is in a state of financial emergency, citing findings from a state review team that Detroit has had annual deficits since 2005 that it unsuccessfully sought to fix through long-term borrowing. Not even counting debt repayment, the citys deficit for the fiscal year ending in June is set to total $937 million. The review team also said the city has amassed $14.9 billion in long-term debt, primarily from unfunded pension and employee retirement benefits including health care.

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Detroit officials do not deny that a crisis is at hand. But they do contest the reports conclusion that Detroit has not shown it has a plan to return to financial solvency. Mayor Dave Bing and City Councilman Gary Brown are the only city officials who say they agree with the reports recommendation for an emergency financial manager to intervene.

After Tuesday's hearing, Mayor Bing said in a statement that he sympathizes with the City Council's antipathy toward a state takeover, but "did not agree" with its decision to appeal the review team's finding. "I do not believe it will change the governor's decision to appoint an emergency financial manager," he said.

Tuesday's hearing, before a representative of Michigan's Treasury Department, was set in motion by a 7-to-1 City Council vote earlier this month to appeal Snyders decision. Detroit's central claim is that it needs more time to allow the initiatives established in last years consent agreement to take effect. Twenty of the 25 initiatives in that agreement, such as monthly financial reporting to the state and restructuring of pension contracts, are in progress, Irv Corley, fiscal analyst for the Detroit City Council, said at the hearing.

"The existing plan has not proceeded as quickly as one would like, Mr. Corley said, because of legal challenges from members of the City Council and others to block the consent agreement, lack of resources at the leadership management staffing level and challenges with employee morale, and the need for the City Council to conduct its due diligence in reviewing the contracts and proposals. …

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