CHICAGO — Detroit can avoid a state takeover if city officials reach a deal with unions by early February, Michigan Treasurer Andy Dillon said Tuesday.
Dillon made the remarks after the first meeting held by the review team examining the city’s books to see if there is enough fiscal stress to warrant appointment of an emergency manager. The team, which includes the treasurer, held a brief press conference after their meeting.
Dillon said he is “cautiously optimistic” that unions would agree to concessions proposed by Mayor Dave Bing, which would likely end the state review.
“There’s a very good chance that they’re able to cut a deal on their own and this review team’s work will be suspended,” Dillon said. “We want to give the city the chance to negotiate with labor and do the work on their own,” he said. “The city deserves the chance to work this out, and that’s the best outcome we could have.”
He added that the mayor needed union concessions so the city can avoid going broke by spring, and said the team gets regular updates on union negotiations from Bing and his chief of staff Kirk Lewis.
Bing is pressing unions for up to $100 million of concessions, including a 10% pay cut for police and fire.
Bing, who is opposed to a state intervention, last week released revised budget figures that he said showed the city could remain solvent past April. Previous budget estimates showed that the city would go broke by April without union concessions or other significant cuts.
“It’s my understanding that April has been pushed back to May,” Dillon said.
Dillon said the city’s financial problems fell into three categories: a cash crunch, a balance sheet problem, and an operational problem.
Retiree health care liabilities presents one of Detroit’s biggest long-term challenges, more so than the city’s unfunded pension liability, which is about 75% funded, Dillon said.
The team, meanwhile, is aware of the threat of potential termination payments associated with interest rate swaps that could be as high as $400 million if an emergency manager is appointed, but it is not a “driving factor” behind the team’s analysis, Dillon said.
“The numbers will fall where they fall,” he said. “This team will decide what they think needs to happen to get the city on solid footing.”
Dillon said the press conference was likely the only time the team would make public comments over the next 60 days as it conducts its investigation, the results of which it hopes to send to Gov. Rick Snyder by late February or early March.
Snyder appointed the 10-member review team in late December. It is a diverse mix of high-profile state officials and local community leaders and businessmen.
Besides Dillon, Lansing-based officials on the team are Doug Ringler, director of the Office of Internal Audit Services in the Department of Technology, Management, and Budget; Frederick Headen, director of the Treasury Department’s Local Government Services Bureau; and Brom Stibitz, senior policy advisor for the Treasury Department.
Local retired professionals and community leaders on the team include Irvin Reid, retired president of Wayne State University; Isaiah “Ike” McKinnon, a retired police chief of Detroit; and Glenda Price, retired president of Marygrove College.
Also on the team is Shirley Stancato, president of New Detroit, a group that aims to improve race relations in the region; Conrad Mallett, the president of Detroit Medical Center Sinai Grace; and Jack Martin, a public accountant and founder of Martin, Arrington, Desai & Meyers PC.
The team can report a range of findings. It can conclude that Detroit is not in financial stress, is in a condition of mild financial stress, or is in a condition of severe financial stress but that the issues can be resolved with a consent agreement. It can also find that a financial emergency exists and that there is no satisfactory plan to resolve it. Snyder could then appoint an emergency manager.
A preliminary financial review in November concluded that the city faces “probable fiscal stress.”
A report from that review cited several factors leading to the fiscal stress, including the city’s violation of state budgeting and accounting rules by failing to adjust its budget on a timely basis; its inability to avoid fund deficits; an improper reliance on inter-fund and other borrowing to deal with cash-flow strains; and a failure to file an adequate or approved deficit elimination plan for the fiscal year ending June 30, 2010. Detroit has also relied on unrealistic plans to balance its budgets, including restructurings, consolidations, and union concessions that failed to materialize, the report said.
The city faces a rising debt load, with total long-term liabilities — which include pension-related liabilities — estimated at more than $12 billion. It has failed to address its unfunded non-pension other post-employment benefits liabilities and has struggled to make required payments to its pension plans.
All three rating agencies put the city’s GOs at junk levels. Detroit has $453 million of unlimited-tax GO debt and $486 million of limited-tax GO bonds.
