Review Team: Detroit is in Financial Emergency

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  • DETROIT (AP) — A state-appointed review team has determined Detroit is in a financial emergency, paving the way for Republican Gov. Rick Snyder to appoint an emergency manager who would need to come up with a new plan to get the city out of its fiscal crisis.

    The team released its findings Tuesday, saying in a report to Snyder that “no satisfactory plan exists to resolve a serious financial problem.”

    The review team pointed to the city’s ongoing cash crisis, which have threatened to leave the city without money to pay its workers or other bills. It noted that the city’s deficit could have reached more than $900 million in fiscal year 2012 if the city had not borrowed enormous amounts of money; that Detroit has long-term liabilities, including underfunded pensions, of more than $14 billion; and that the city’s bureaucratic structure makes it difficult to solve the financial problems.

    “The cash condition has been a strain on the city,” said state Treasurer Andy Dillon, a member of the review team. “The city has been running deficits since 2005 … (and) masking over those with long-term borrowing.”

    Under Michigan law, Snyder has 30 days to decide for himself whether there’s a financial emergency. Mayor Dave Bing would have 10 days to request a hearing. Snyder 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.

    James McTevia, president of a Michigan-based firm that specializes in turnaround management, said an emergency manager could halt the city’s borrowing, freeze debt and restructure finances, including voiding contracts. “The checkbook needs to be taken from the politicians,” he said.

    However, others said that even with an emergency manager, municipal bankruptcy may be the city’s only way out of the financial mess.

    “Is it imminent? Well not tomorrow,” said Doug Bernstein, managing partner of the Banking, Bankruptcy and Creditors’ Rights Practice Group for Michigan-based Plunkett Cooney law firm “You need to give a financial manager the opportunity to formulate a plan and let the plan have a chance to succeed or fail. It may not avoid a bankruptcy, but you don’t need to do a bankruptcy today.”

    Snyder spokeswoman Sara Wurfel said he will review the team’s report carefully.

    “He won’t make a determination immediately, but sooner rather than later,” she said. “The governor believes that a strong and successful Detroit is key to Michigan’s continued comeback.”

    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.

    “As I have said before, my administration will stay focused on the initiatives that most directly impact the citizens of Detroit: public safety, public lighting, transportation, recreation and neighborhood blight removal.”

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