Clock ticks down for decision on Detroit finances

Detroit's fiscal future could soon be out of its hands if a team of state officials determines that the nation's former auto and manufacturing giant is so firmly entrenched in a financial emergency that it cannot climb out on its own.
Associated Press
Jan 12, 2013

Mayor Dave Bing, who has been dead-set against state oversight, said earlier this week that results of a month-long review of the city's red ink-stained books could be presented as early as Friday to Gov. Rick Snyder.

But that will probably be delayed after Snyder on Thursday asked the state-appointed review team to take a closer look at Detroit's cash flow problems and potential options for addressing health care, pension and other long-term obligations.

If the governor determines there is a financial emergency, the mayor would have 10 days to request a hearing under Michigan law. Snyder could then revoke his decision or appoint a manager who would be responsible for overseeing all of Detroit's spending.

"I think we've proven to Lansing at this point in time that we are focused," Bing said Tuesday. "We're working very closely with Lansing in terms of what it is we need to do, what their expectations of us are, and we'll stay on target."

But the precise timing is uncertain. The process could span more than a month if the governor chooses to use the full 30 days allotted by law to make his choice, and if Bing seeks a hearing to argue against a state takeover.

The mayor said his team spent most of the holidays working on ways to fix a $327 million budget deficit and chronic cash-flow concerns.

The current review is led by state Treasurer Andy Dillon and includes Michigan's auditor general and private-sector financial experts. They started their work in mid-December.

A previous team did the same job 12 months ago and stopped short of declaring a financial emergency.

Instead, that team's work led to an agreement between Bing, Snyder and Dillon that allowed the mayor to continue his restructuring with some state assistance short of opening the Michigan Treasury's checkbook.

But the work has been slow and any successes modest. Snyder, a Republican, may have little choice but to turn the job over to someone else. That comes with its own dangers.

"There is a double-edged sword with the appointment of an emergency manager," said Genevieve Nolan, an analyst in the Chicago office of Moody's Investor Service. "The manager could come in and have additional tools for stabilizing the city's finances or possibly improving its cash position. But the appointment of an emergency manager is technically one step to bankruptcy."

Moody's in November further downgraded several of Detroit's bond ratings, indicating an increased risk of default or bankruptcy.

If a manager is appointed, Bing and the City Council would keep their jobs, but the manager would decide all financial matters. And only the manager would have the power to authorize the city to take the bankruptcy route.

"It's not quick and it is painful," said John Filan, vice president of Development Specialists Inc., Chicago-based turnaround specialists. "You go through a bankruptcy and a lot of things slow down. I can't imagine any governor wanting to see this unless it's an absolutely last resort."

What may work in Bing's favor is the apparent change of heart by at least six members of the nine-member City Council who this week approved more than $7 million in outside contracts required by the state as part of the mayor's restructuring. The council also backed Bing in removing a rogue city attorney who legally challenged the earlier agreement between the city and state.

In 2013, the city should see "a lot of the changes we implemented start to drop down to the bottom line," Bing said.

Some of those changes include pay cuts, changes in city employee benefits, as well as planned layoffs and unpaid furlough days.

The capitulation by the City Council may be enough to convince Snyder to let Bing continue his overhaul of city finances, Filan said.

"If an emergency manager comes in, there is going to be a lot of friction, resistance and pushback," Filan said. "It may ultimately work because hardball is hardball. A lot more gets done if there is cooperation."

Regardless of the review team's recommendations, Snyder has the option of determining that Detroit's financial problems are not serious enough for intervention or that a serious financial problem does exist but an agreement containing a plan to resolve the problem has been adopted.

Michigan Republicans pushed through a new emergency manager law during a lame-duck legislative session last month. It was signed by Snyder and takes effect March 27.

The law will give local governments and ailing school districts the opportunity to choose their own remedy. If a review team finds that a financial emergency exists, those communities can request an emergency manager, ask for a mediator, file for bankruptcy or submit a reform plan to the state.

Five other Michigan cities and three public school districts have emergency financial managers. Detroit would be the largest city in the state to get one if a manager is appointed.

 

Comments

Darkhorse

Having a 327 million dollar deficit is shameful. Sometimes going bankrupt has its advantages such as the state taking over and showing the cityhow it is done, chop, chop.

luvblues2

There is a boatload of money to be made if they "open-season" on the destruction of the dilapidated buildings alone. Think of all the wood, stone, brick and scrap metal to be salvaged. It's a freakin' gold mine.

bored reader

I believe a good deal of their debt was a result of the last democrat mayor that took the city for boat loads of money they will never see returned.

phroggy

Moderators have removed this comment because it contained Remarks that discriminate based on age, race, religion, disability, etc..

Contango

Detroit needs to figure out how to manufacture a hurricane.

luvblues2

Detroit needs to figure out how to raise Henry Ford back from the dead.

Dinghy Gal

40 years of Democrat mayors and control of city council did this to Detroit.

4shizzle

It took 8 years of a Republican president and his administration to destroy a country.

Contango

Yea Detroit was economically and fiscally in great shape before Pres. Bush. :)

Obviously, Pres. Bush was such an "evil genius" in destroying the U.S. economy and Pres. Obama is just far too incompetent to fix it.

Love the taste of that Obama-brand Kook-Aid.

2012 - $16 trillion Fed. deficit
2016 - $20 trillion Fed. deficit

FORWARD SOVIET!

coasterfan

Bush wasn't evil, and he absolutely wasn't a genius. Clueless would be a better description. He finished near the bottom of his class at an Ivy League college that absolutely would not have admitted him, were it not for daddy pulling strings on his behalf. He oversaw the dismantling of a surplus economy. By 2007, it was apparent that he was piddling down both legs with absolutely no idea how to stop the free-fall that his policies caused.

Some people (like Contango) still haven't quite figured out that it was Republicans who caused the current economic problems. In their warped world, everything was fine until January 2009. How else to explain the fact that they voted for a GOP candidate in 2012 who basically promised to double down on everything Bush did to the country.

doglegright

Hey Coaster...
We'll never know where Obama finished in his class (or whether he graduated) because he refuses to release his college transcripts. No one in the media will call him on that. Detroit was a government "model city", used to represent how America was going to be great. Now there are so many leeches that the city lost half its population. If you're delusional enough to think its Bush's fault, you got issues. And by the way, when does the clock run out on Bush's blame? The deficit was 9 trillion when Bush left after 8 yrs, Obummer is now up to $16 trill and counting.

Only if we just picked our own cotton......

Centauri

"Bush wasn't evil, and he absolutely wasn't a genius. Clueless would be a better description." I agree. Who was really in charge during Bush's two terms. Dick Cheney and a few others were. Bush didn't have a clue of how Cheney and others were really in charge.

http://tinyurl.com/bcnebko
Cheney was in charge, not Bush

http://www.time.com/time/photoga...
Detroit's Beautiful, Horrible Decline

deertracker

Coaster is right, GWB wasn't a bad guy but he was CLUELESS and yet he got/stole a second term. It was a daddy thing. It was! You CONS can "cry me a river" but you still caused this entire mess. It's like some of you are just "stuck" on stupid! I am not trying to be cruel but get a clue please!

There you go again

You forgot to mention that Obama started with $10 trillion. Then raised it to $16 trillion and looking to top off at $20 trillion. Doesn't take a math major to see that Obama has raiaed the deficit by $10 trillion. Has any president topped that?!?!

4shizzle

@ contango

Do you realize how dumb your statement is?:
"Obviously, Pres. Bush was such an "evil genius" in destroying the U.S. economy and Pres. Obama is just far too incompetent to fix it. "

goofus

Why, makes sense to blame the whole economy on one man Bush.

Fromthe419

It took Bill Clinton signing NAFTA and signing the repeal of Glass-Stigall to take all our jobs away and nearly nuke our financial systems. While I'm at it, it took Jimmy Carter deregulating the trucking industry to shutter 100's of trucking companies and hundred of thousand of TEAMSTER jobs. Guess them Dems love the unions

4shizzle

Contango Jr.

Fromthe419

Thanks for the compliment 4shizzle, just an American that is concerned about the long term sustainability of our nation. I remember our Dear Leader saying that elections have consequences and I agree yes they do...in the next year or so we are going to have to put up or shut up, lots of bonds to roll over and they ain't gonna be cheap

4shizzle

You both sound the same. Twisted.

Contango

@ 4shizzle:

So have you recently purchased a new GM or Chrysler and put your money where your mouth is?

4shizzle

Yep, Contango Jr :)

Contango

@ 4shizzle:

So what are you the proud owner of?

4shizzle

Ford. And you?

Contango

@ 4shizzle:

Ford wasn't part of the bailout. So why didn't you support your Prez?

4shizzle

Because I already owned a car. I don't need more than one.

4shizzle

Dodging again? Jap car is it?

4shizzle

.

4shizzle

Oops, My reading is bad, I thought I was addressing Fromthe419

Fromthe419

Glad I made a lasting impact. I proudly drive a Honda Accord...made in America by American workers and good on gas mileage, not a car partly made in America by a bailed out and failing car manufacturer. Check the content stickers on the cars and you find the most American made cars are Hondas and Toyotas.

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