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Detroit Council Approves Contracts, Hopes to Stave Off State Takeover

DEC 11, 2012 3:11pm ET
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CHICAGO - Under the growing threat of state takeover, the Detroit City Council Tuesday approved a series of measures that state officials said are necessary to win release of badly needed bond proceeds.

Among the measures was a controversial contract to hire well-known Michigan public finance firm Miller, Canfield, Paddock and Stone PLC to handle the city's consent agreement signed last spring with the state. The council, which had previously rejected the contract, narrowly approved it Tuesday in a 5-4 vote.

Mayor Dave Bing had asked for a new vote on the contract. He thanked the council afterward and said he would request that the state release $30 million of bond proceeds it has been holding in an escrow account.

"We look forward to working with you to stabilize the city's finances," Bing said.

The bond proceeds are part of $86 million of proceeds from a state-led bond sale last August that the city needs to stay afloat during the fiscal year.

The state has made the release of the money contingent on the approval of several measures, including the Miller Canfield contract.

Michigan Treasurer Andy Dillon last week met with local officials and announced that the state would begin a new review into the city's finances on Monday. The review, allowed under the state's current emergency management law Public Act 72, could take up to 30 days and lead to the appointment of an emergency financial manager.

Dillon said the city is taking too long to implement the consent agreement and that its worsening cash position could make the appointment of an emergency financial manager unavoidable.

Also Monday, the financial advisory board that oversees the consent agreement endorsed the review, and board members said they doubt Detroit will be able to climb out of its current cash crisis.

After the advisory board meeting, Dillon told local reporters that an EFM would be able to bypass the city council and corporation counsel on many decisions and would have the ability to quickly hire consultants to help.

"We've had two months in a row of significant erosion of cash," Dillon said. "I hope that's the end of it. there's just not enough cushion."

The city's latest figures say that it could face a $113 million deficit by next July.

In a press conference Friday, Bing said the city would likely have to lay off up to 500 employees over the next several months. He also said he understands but doesn't support the state's move toward the appointment of an EFM.

"I am hopeful that [the council's approval of previously rejected measures] will indicate to Lansing that we're serious about moving forward, and that we can't continue at the pace we've been on," Bing said. "I do understand the frustration of the governor and the treasurer," he said. "We are equally frustrated. We are well past the time to come to the table as a cohesive executive and legislative office to get things done."

Bing, meanwhile, met with President Barack Obama Monday during Obama's visit to Michigan. The mayor said in a statement that he discussed the city's financial situation with the president, including the possibility of getting personnel to help with the city's restructuring plan.

Besides the Miller, Canfield contract, the council approved a contract with Plante & Moran, audits of the workers' compensation system and employees' dependents, as well as a resolution to more quickly approve contracts in the future.

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