Regional News

Detroit Edges Closer to Takeover

CHICAGO — Michigan Gov. Rick Snyder said Thursday he expects Detroit officials will soon request a preliminary financial review — the first step toward a state takeover of the city.

Snyder’s comments came hours after Mayor Dave Bing gave a televised address outlining the city’s fiscal problems. Bing said the city would run out of cash by April and fall $45 million in the hole by the end of the current fiscal year next June.

“Mayor Bing and I have worked closely over this past year and I remain supportive of the city’s efforts to resolve its financial problems,” the governor said.

“As I have said previously on this issue, I want to avoid an emergency manager if at all possible. Based on the mayor’s remarks and the severity of the situation he described, we anticipate he will be submitting a request for a preliminary financial review in the near future,” Snyder said.

The governor’s office added that a preliminary review is “just one step in a longer process” under the state’s newly broadened law for fiscally stressed local governments.

“It does not automatically lead to or equate to the appointment of a financial review team or an emergency manager,” state treasury officials said.

Bing’s warnings and Snyder’s comments are the latest and most dramatic in a series of warnings that the Motor City could be headed for insolvency and some form of state takeover.

The mayor also appeared on at least one national morning show Thursday to discuss the city’s problems.

“If [unions] don’t come to the table, there’s the potential of an emergency manager to come in, and he could void all of their contracts,” Bing said on CNN’s American Morning. “He or she could fire everybody.”

The city’s problems can be solved without a state takeover, but it would take more than what Bing proposed, said Louis Schimmel, a long-time public finance figure in Michigan who has been emergency manager of Hamtramck and court-appointed receiver for Ecorse, and is now the EM for Pontiac.

“It’s fixable,” he said. “I’d suggest it’s pretty difficult to do without a manager, though you could if you do what Bing said and a whole lot more.”

Schimmel said the cuts would have to be deeper and coupled with more layoffs, though he added that it’s impossible for people outside Detroit to really understand the situation without first reviewing the city’s books.

Detroit already meets several of the triggers under the new law. In addition to the appointment of an emergency manager, the new measure also features a less dramatic option for the city — the crafting of a consent agreement between state and local officials.

That would allow local officials like Bing to stay in power while giving him authority to terminate or amend labor contracts unilaterally.

In Wednesday night’s talk, Bing repeatedly said during the speech that he does not want the state to step in and take over the city’s finances. He proposed several steps he said would avoid a state takeover, including unions agreeing to $40 million in cuts, by accepting 10% across-the-board pay cuts and higher health care and higher pension contributions.

He wants the city’s current 22,000 retirees to agree to the same medical and pension concessions, saving another $8 million annually.

Bing also proposed a sale or lease of the Detroit lighting department, which needs at least $300 million in capital improvements, and privatizing management of the city’s troubled bus system. The mayor said the state should release $220 million of revenue aid that was promised to Detroit several years ago when the city agreed to lower its income tax.

“The reality we’re facing is simple,” Bing said. “If we continue down the same path, we will lose the ability to control our own destiny.”

Two weeks ago, when Bing began warning of the city’s imminent cash-flow problems, he raised the possibility that only an emergency manager would have the tools necessary to solve Detroit’s fiscal problems, and left the door open to taking on the role himself.



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