Detroit’s Debt Crisis Even Worse than Thought, State’s Review Reveals

A state financial report released Wednesday moved Detroit closer to appointment of an emergency manager and painted a bleak picture of a city digging an ever-deeper hole by taking on long-term debt to pay its everyday bills.

The findings by the Treasury Department trigger a more in-depth study by a team of state-appointed officials and set the stage for a possible consent agreement that would head off a state takeover.

City Council President Pro Tem Gary Brown warned that the city could be broke if it waits for Gov. Rick Snyder to name an emergency manager and called for immediate negotiation of a consent agreement.

“We need to give unions the motivation to accept meaningful cuts in health care and pension benefits before we are run into bankruptcy,” Brown said.

The new study can take 60 days, though Treasurer Andy Dillon said he would expedite it, as Detroit could run out of cash by April. The preliminary review could have taken 30 days but was done in half that time.

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The report pegged the city’s long-term debt, including unfunded pension liabilities, at more than $12 billion. That’s $2 billion higher than Dillon’s estimate when he asked for the preliminary review earlier this month.

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Last year, the city–whose three biggest revenue sources for its general fund total $538 million–spent more than $597 million just to make debt payments, the report said.

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Under a bill Snyder signed into law in March, emergency managers may take near-total control of financially distressed cities and school districts and can amend or scrap union contracts. Under a consent agreement, there would be no emergency manager and local officials get increased powers to take corrective action. They can’t scrap contracts but could impose new ones when existing ones expire in June.

A petition drive is under way to have the emergency manager law repealed. That complicates the picture, because if the required signatures are certified, the law could be suspended from early next year until the November election. Snyder and legislative leaders may seek an interim replacement law.

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In 2010, the city had net assets worth $265.1 million and long-term debts of $8.6 billion, according to the report and Treasury officials. This year, the value of the city’s net assets is a negative number, and its long-term debt exceeds $12.3 billion.

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Opponents warned that state intervention will lead to community resistance.

“We are going to mobilize and continue to organize around this issue,” said the Rev. Charles Williams II, a civil rights activist who is helping lead an anti-emergency manager protest outside Snyder’s house in Superior Township on Martin Luther King Day next month. “We are going to send Snyder a strong message that we care about our communities and our democracy, and we won’t tolerate dictators in our community.”

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