Now Listen to the City
Crooks Councilors Scream
ON FRIDAY MICHIGAN GOVERNOR RICK SNYDER formally declared Detroit to be in a fiscal emergency. His proclamation begins the legal process for the state to take control over the city's financial affairs and possibly lead it into bankruptcy procedings.
Detroit officials now have 10 days to request a hearing with the governor about his decision. Snyder said the hearing would be held on March 12. The nine-member city council has been preparing to argue that Detroit should not have an emergency manager and could also appeal the decision in state court.
After the hearing, Snyder will either confirm or revoke the declaration of emergency. If he confirms the emergency, as expected, management of Detroit's fiscal affairs would revert to a board composed of three state officials who will be Snyder appointees. The board would formally appoint an emergency manager, although in practice Snyder will make the final decision.
A court appeal of Snyder's decision would not delay the appointment of a manager, who could ultimately recommend Detroit file for bankruptcy in the largest such municipal filing in U.S. history.
Snyder based his emergency declaration on a report of experts that described a city sinking under more than $14 billion of debt and on track to end its current fiscal year $100 million in the red. Snyder said that Detroit's creditors should be brought to the table to renegotiate debt terms by possibly delaying or relieving payments.
A Michigan law that takes effect March 28 will allow existing emergency financial managers to remain in place and give them additional powers, including the ability to revise or terminate collective bargaining agreements.
"Citizens are not getting the services they deserve and need," Snyder said during a midday Friday public forum. "Public safety, lighting, transportation — all those areas need help and it's time to call all hands on deck and say let's all work together."
He also said there is no "big bailout coming" from the state. Emergency managers have the power under state law to develop financial plans, renegotiate labor contracts, revise and approve budgets to help control spending, sell off city assets not restricted by charter and suspend the salaries of elected officials.
"The role here is to be that supportive partner and to work on projects where we could really make a difference," the governor said.
The state's Financial Review Team released a report Feb. 19 stating Detroit is in a financial emergency because of an expected cumulative cash deficit of more than $100 million by June 30, a $327 million general fund deficit in fiscal year 2012, and more than $14 billion in debt.
Snyder said it would be "a year and a half or longer" before the mayor and Detroit City Council would be back in power, if an emergency manager is appointed.
Jim McTevia, managing member of Bingham Farms-based McTevia & Associates, said painful cuts await the city under emergency manager rule.
"When the city of Detroit begins to take steps to live within its income, and not borrow any money, there is going to be an enormous amount of pain and upheaval," he said, "but it’s going to have to be done and there’s going to be unrest in the streets."
Emergency managers have the power under state law to develop financial plans, renegotiate labor contracts, revise and approve budgets to help control spending, sell off city assets not restricted by charter and suspend the salaries of elected officials.
A review team first looked into Detroit's books in December 2011, but stopped short of declaring a financial emergency. The second team began to pore over the city's financial records this past December. That report said the accumulated deficit as of June 30, 2012, would have topped $900 million if Detroit leaders in recent years had not issued bonds to pay some bills.
The city's long-term liabilities — including underfunded pensions — now total more than $14 billion. And in recent months, Detroit has relied on bond money from an escrow account to meet its dwindling cash flow needs and to pay city workers. The review team also said that because of Detroit's cash deficit, the city would have had to either increase revenues or decrease expenditures — or both — by about $15 million per month beginning in January and running through March to "remain financially viable."
The team found that "no satisfactory plan exists to resolve a serious financial problem" in the city.
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