Regional News

Detroit Suburb Denied Bankruptcy

CHICAGO — Michigan officials Wednesday said they denied a request by the Detroit suburb of Hamtramck for permission to file for bankruptcy.

Hamtramck city manager William Cooper wrote a letter to the state Treasury Department last week asking for permission to “move quickly to bankruptcy,” or else the city would run out of money by Feb. 1, 2011.

Treasury officials Wednesday morning told Hamtramck officials that filing for bankruptcy was out of the question, according to spokesman Calub Buhs.

Instead the state offered three choices: an emergency loan, a tax anticipation note loan, or authorization to borrow by issuing fiscal stabilization bonds.

“Bankruptcy isn’t an option, and we had to take that off the table when we talked to them,” Buhs said.

No Michigan local government has ever filed for bankruptcy. The state’s 20-year-old Public Act 72, or Local Government Fiscal Responsibility Act, is the primary tool for helping fiscally stressed local governments and school districts. Only an emergency financial manager can declare bankruptcy for a municipality in Michigan.

Detroit Public Schools EFM Robert Bobb last year publicly mulled bankruptcy, but later rejected the idea, saying the district was able to negotiate satisfactory new agreements with its creditors.

Hamtramck spent years under state emergency financial management, but emerged in 2006.

Cooper told the state in his letter that a new EFM would not solve the city’s problems.

Hamtramck’s fiscal situation briefly stabilized after 2006. But since 2009, an ongoing dispute with Detroit over payments tied to a General Motors assembly plant located on the border between the two cities has cramped Hamtramck’s cash flow.

The city is facing a $5 million accumulated shortfall by the end of fiscal 2011, and expects to fall $2 million short every year, Cooper said. Annual revenues total $18 million. Without help, the city expects to exhaust its general fund and budget stabilization fund by Jan. 31, 2011.

The city’s main problems are the dispute with Detroit, police and fire union contracts, and rising pension contributions and health insurance costs, Cooper told the state.

This time around, a declaration of a fiscal emergency can’t help the city, Cooper wrote in a letter to state officials.

“The fact is that an EFM will not be able to accomplish anything more than we have accomplished over the past few months,” he wrote.

“We need to work closely with your department in order to move quickly to bankruptcy, the only option available, to our knowledge, where we can set aside our union contracts,” the letter said. “While this step may seem radical in its approach, it is the only approach that will quickly and effectively allow us to address our shortfall.”

There was no move toward declaring another fiscal emergency in Hamtramck after Wednesday’s conversation, Buhs said.

The city is now apparently considering whether to take advantage of the three types of loans offered by the state.

A 20-year emergency loan of up to $3 million would be made available through the Emergency Municipal Loan Act. A tax anticipation loan allows a city to borrow as much as half of their property-tax levy payable after 12 months. Michigan law allows a stressed city to issue fiscal stabilization bonds — with state backing — for up to 3% of the city’s assessed value.

Hamtramck officials did not return calls for comment.

No rating agency maintains an underlying rating on the city. It is unclear how much outstanding debt the city has, though it issued fiscal stabilization bonds while under state emergency management. Cooper said Hamtramck is now paying $600,000 a year in debt service for the bonds.



Upcoming Events

Already a subscriber? Log in here
Please note you must now log in with your email address and password.