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Detroit in ‘financial emergency,’ could get state appointed manager

DETROIT — 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.

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

Detroit faces a $327 million budget deficit in the current fiscal year and chronic cash-flow issues that have threatened to leave the city without money to pay its workers or other bills.

The review team pointed to the city’s ongoing cash crisis. It noted that the city’s total deficit could have reached more than $900 million in fiscal year 2012 if the city had not issued enormous amounts of debt; that Detroit has long-term liabilities, including underfunded pensions, of more than $14 billion; and that the city’s bureaucratic structure make 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.”

Each of the six review team members agreed on the financial emergency determination, Dillon said.

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.

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. Those communities can request an emergency manager, ask for a mediator, file for bankruptcy or introduce a reform plan with the state. Detroit loses those options if an emergency manager is put in place before the new law goes into effect, said Terry Stanton, Treasury spokesman.

Snyder spokeswoman Sara Wurfel said he will review the report carefully and closely.

“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 the report shouldn’t have been a surprised to 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.”

If Snyder moves ahead and 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.

City Council President Pro Tem Gary Brown said the pace of fiscal change in Detroit has been too slow.

“The political will has often not been there to make the necessary and bold fiscal reforms,” Brown said in a written statement. The statement went on to say, “Without a doubt, we need the support and accountability that a State of Michigan partnership offers. We cannot address our legacy obligations alone. And, as Detroit goes, so goes Michigan.”

The six-member review team began looking closely at Detroit’s books in mid-December. Another team had done the same about 12 months earlier, but stopped short of declaring a financial emergency. That team’s findings eventually led to a consent agreement in April between Snyder and Detroit Mayor Dave Bing.

Bing’s administration has struggled in meeting some of the consent agreement requirements, partly due to conflicts with the City Council and a challenge to the deal by then-Detroit corporation counsel Krystal Crittendon. The City Council voted earlier this week to “unappoint” Crittendon from that position.

After receiving the review team’s report it would be difficult for Snyder not to appoint a fiscal overseer to Detroit, said Doug Bernstein, managing partner of the Banking, Bankruptcy and Creditors’ Rights Practice Group for Michigan-based Plunkett Cooney law firm.

The report confirms “part of what we’ve already seen, in that the deficits have been running for the better part of a decade,” Bernstein told The Associated Press Tuesday afternoon.

He also said the city’s underfunding of its pension liabilities is huge.

“I don’t know if the word ‘shocking’ is the right word,” Bernstein said. “It’s just the magnitude. That’s going to be a major hurdle. How you fix that is going to be a major, major undertaking.”

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Associated Press writers David Eggert in Lansing, Mich., and Ed White in Detroit contributed to this report.



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