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.

shucks

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?!?!

shucks

@ 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

shucks

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

shucks

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?

shucks

Yep, Contango Jr :)

Contango

@ 4shizzle:

So what are you the proud owner of?

shucks

Ford. And you?

Contango

@ 4shizzle:

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

shucks

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

shucks

Dodging again? Jap car is it?

shucks

.

shucks

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.

Fromthe419

Not twisted, as I said in my previous post...just concerned about the long term sustainability of our nation. Pretty soon all of our cities are going to look like Detroit if we don't get our house in order

shucks

@ 419
Talk to the GOP about "getting our house in order."
They want to burn the house down but they're so near-sighted and dumb , they forget that they're in it too.

shucks

.@ 419
Yes, twisted half truths, and spin. Example? :
"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"

You should get your head out of Fox News.

Fromthe419

Is it true that Clinton signed NAFTA, is it true that Clinton repealed Glass-Stigall in 1999? How is that a half truth? Did Carter deregulate the trucking industry in 1980? I knew this before I started watching Fox News. By the way, I get most of my news from CNBC and the Wall Street Journal...and here at the SR forums ;)

shucks

@Fromthe419

Don't twist and spin the facts just to take a cheap shot.

It seems to me as those were good calls. They were for the good of the country.

Unlike the Republicans who would destroy a country to get what they want.

doglegright

4shizzle,
The destroying is going on by your man Owebama. All the Libtards sat back and complained about all the money spent under Bush (who had a full Democratic Congress for two years by the way), but its really under Owebama that the debt has exploded.

shucks

doglegright
You should do a better research and be fair and balanced.

looking around

Who signed what?

http://msnbc.msn.com/id/35183753...

check out slide 25 0f 33

Nabobs of NAFTA

Bush caps his pen after signing the North American Free Trade Agreement at the Organization of American States headquarters in Washington D.C., in December 1992. Looking on are Mexican Ambassador Gustavo Petricioli, left, U.S. Trade Representative Carla Hills and Canadian Ambassador Derek Burney.

KURTje

Well then dogleright using your logic. All southeners owe the North born people $$. The southener caused the Civil War & the Income Tax (that tax was from the GOP).

doglegright

Straight from the Income tax wiki page:

United States
Main article: Income tax in the United States
In order to help pay for its war effort in the American Civil War, the US federal government imposed its first personal income tax, on August 5, 1861, as part of the Revenue Act of 1861 (3% of all incomes over US $800) ($20,693 in 2013 dollars).[16][verification needed] This tax was repealed and replaced by another income tax in 1862.[17][verification needed]
In 1894, Democrats in Congress passed the Wilson-Gorman tariff, which imposed the first peacetime income tax. The rate was 2% on income over $4000 ($107,446.15 in 2013 dollars), which meant fewer than 10% of households would pay any. The purpose of the income tax was to make up for revenue that would be lost by tariff reductions.[18] In 1895 the United States Supreme Court, in its ruling in Pollock v. Farmers' Loan & Trust Co., held a tax based on receipts from the use of property to be unconstitutional.

Bluto

Graduating from Harvard with the honors he did , would be enough for most people , I think .

Bluto

Why does M-a-g-n-a C-u-m L-a-u-d-e trigger the spam filters on here ?

goofus

But without verification and transcripts, how do you know???? Admission to Harvard could be affirmative action, but alas we will never know.

T. A. Schwanger

Real eye opener::: Detroit worlds biggest Ghetto

www.youtube.com/watch?v=SWEdjiEJg0U

2cents's picture
2cents

I posted these a week ago, makes you shutter!!!

http://www.youtube.com/playlist?...

Fromthe419

It's a shame, those old abandoned factories once were filled with people making a decent wage and taking care of their families. There is enough blame to go around both democrats and republicans...I call the Demopublicans...all they have is artifice and rhetoric. We need to take our country back and hold those that are in office accountable. The US is becoming a 3rd world country.

2cents's picture
2cents

I go to HGR now to look around at things local plants are liquidating. Then and now links below. The Detroit videos, it is strange looking at them and imagining the guys building it all,the time used, the material, the kids playing outside the homes in the past.

http://images.ulib.csuohio.edu/c...

http://www.hgrinc.com/index.do

shucks

shudder

2cents's picture
2cents

K, but I enjoy photography, spell check must know this : )

shucks

Sorry, I'm just the Grammar Police doing my duty.

luvblues2

T.A.S. I'm tellin' ya. There is a chunk of change waiting to be taken with tearing those old buildings down in ALL inner cities and abandoned burbs. Not only for the recycling of materials but for some of the remnants/antiquities still left on-site.

I am seriously considering contacting some officials who may steer me in the right direction. This is an oppurtunity. Not to mention the open land that can be reclaimed and re-built on.

KURTje

luvblues there was someone that did that in the late 70's/early 80's. He has a construction business outside of Maybe, Mich. He razed the dwellings, cherry picked beveled glass, oak trim,etc. I can get his name if interested. Also understand you'll have MANY challenges here, though your idea could be compared to covered wagons going west. Good luck on your venture.

luvblues2

Don't wish me luck just yet, kURTje. It's just that I'm looking into it. It seems as if it's a viable opportunity, but damn if it doesn't mean a lot of red tape and therefore, money up front. It kinda holds the guy with dreams back a bit, but diligence is never easy.

Contango

coasterfan writes:

"...it was Republicans who caused the current economic problems."

Didn't read the report of the FCIC did ya?

http://fcic-static.law.stanford....

So everything was OK in what yr.? 2000?

You're too focused on recency. Ya need a much, much longer time line.

Try maybe LBJ's inflationary "guns and butter" budgets or FDR's funny money spending of the 1930s.

The "housing bubble" started in the mid-90s. Pres. Clinton help remove the cap gains.

The "chickens" of decades worth of poorly executed and poorly understood Keynesian economics are comin' home to roost!

Why didn't the Fed Resv. sound the alarm? Why didn't the Dems who in early '07 controlled both houses of Congress sound the alarm?

The Fed. Resv. was created in 1913 to help control economic "booms and busts." How have they done since?

So what's your plan on getting Detroit to fiscal and financial health?

wetsu

Brooksley Born tried from 1996-99 to get things straightened out with the OTC market, but, Greenspan, Rubin, et al shut her down. Women, go figure.

Contango

@ wetsu:

Mr. Rubin: Wall St.- Washington revolving door.

Is the economy hummin'? Do people have jobs? Then NO ONE in DC cares.

Where were the alarms from the govt. talking heads leading up to Bear Sterns?

All DC did was take Too Big To Fail and pump it up into Too "Bigger" To Fail.

It ain't over by a long shot!

New movie:

http://thebubblefilm.com/

wetsu

Do you think that John Kasich knew or should of known about the vulnerabilities since he was working for a major player?

Contango

@ wetsu:

Mr. Kasich was supposed to know that Lehman Bros. wasn’t gonna get bailed out?

Speakin' of woman; I like Sheila Bair. If Mr. Romney woulda won, woulda liked to have seen her as Tres'y Sec.

http://knowledge.wharton.upenn.e...

wetsu

I was referring to the over-the-counter derivatives market specifically. It seems unlikely that he would have anticipated a Lehman bail out, but, that was not my question. Moreover, how far down the pecking order would one have to go before not being aware of the dark market?

Contango

@ wetsu:

IMO, Mr. Kasich and Lehman are past history. Besides, Mr. Kasich was a bit player.

There are trillions of dollars more in deriviatives sloshing around the globe now than even before the '07 credit crisis. I've read estimates of $255 trillion.

Our entire world-wide credit and monetary system is based on trust.

In the scheme of things, about the only thing that I care about is protecting me and my own. I've taken measures for yrs. and I've got some new ones for 2013 and beyond.

wetsu

Based on the article I like her as well. Also, concerning an earlier link you provided, are we simply blowing up another bubble?

Contango

@ wetsu:

A "bubble"? Yes.

Knowing the when and the hows is the tough part.

IMO, preparation is the key.

Contango

The UAW is pushin' for a Chrysler IPO.

I urge all supporters of Pres. Obama's Detroit bailout to buy current GM stock. And if and when a Chrysler IPO becomes available to show their support with share purchases.

http://www.leftlanenews.com/uaw-...

Put your money where your mouth is.

shucks

.

shucks

.

goofus

With Detroit being under a Democratic administration almost forever, why isn't it a UTOPIA with everybody running around singing KUMBAYA ghettoless.

Dr. Information

Dont forget Clinton. He is the one that started the entire housing mess. He said everyone deserved to own their own house and the FDIC then forced banks to hand out a crap load of risky loans or face deduction in their bank rating. Yes Clinton did this, he was a Democrat and yes Bush was on record several times warning that this housing bubble was going to break....to bad the Democratic controlled houses didn't listen.