Detroit’s Financial Crisis Now in Governor’s Hands

Corey Williams, Yahoo! News, February 20, 2013

The fiscal crisis plaguing Detroit is now in the hands of Michigan’s governor after a state-appointed review team determined the city was in a financial emergency with “no satisfactory plan” to resolve it.

Republican Gov. Rick Snyder has 30 days to decide if Detroit needs an emergency manager to take charge of its finances and spending, and come up with a new plan to get the city out of its financial mess.

After spending weeks looking at the city’s books, the independent review team released a report Tuesday saying Detroit’s deficit could have reached $900 million last fiscal year had it not borrowed enormous amounts of money. The city’s long-term liabilities, including underfunded pensions, are more than $14 billion.

The report also said the city’s bureaucratic structure makes it difficult to solve the financial problems.

Some fiscal experts believe the city’s only way out may be municipal bankruptcy, but state Treasurer Andy Dillon said answers could be found if the city and state work together.


But over the last nine months, that relationship has been strained. Detroit Mayor Dave Bing and the nine-member City Council entered into a consent agreement with Snyder in April that allowed some state oversight and help with Detroit’s finances—short of cash infusions—in return for certain fiscal reforms. However, the city often missed deadlines and benchmarks.

The ongoing cash crisis has threatened to leave the city, which has a current budget deficit of $327 million, without money to pay its workers or other bills. Dillon said the city has been running deficits since 2005, and masking over them with long-term borrowing.


Under state law, Snyder has 30 days following the review team’s finding to decide for himself whether there’s a financial emergency. Bing would have 10 days to request a hearing. The first-term governor could then revoke his decision or appoint an emergency manager.

The emergency manager would be responsible for overseeing all of the city’s spending. 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.


Bing said Tuesday’s report shouldn’t have surprised anyone.

“My administration has been saying for the past four years that the city is under financial stress,” Bing said in an emailed statement. “If the governor decides to appoint an emergency financial manager, he or she, like my administration, is going to need resources—particularly in the form of cash and additional staff.”


If Snyder appoints an emergency manager, Detroit would be the sixth and largest city in Michigan to have one. The cities of Benton Harbor, Ecorse, Pontiac, Flint and Allen Park are currently under state oversight. School districts in Detroit, Highland Park and Muskegon Heights also have managers.

A new state law taking effect in late March gives local governments the chance to choose their own remedy when a review team finds a financial emergency exists. However, Detroit loses those options if an emergency manager is put in place before the new law goes into effect, said Department of Treasury spokesman Terry Stanton.



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