CHICAGO — Michigan Gov. Rick Snyder has declared that Flint is in a state of financial emergency, setting up the long-struggling city for a state takeover.
Snyder formally notified local officials Tuesday after receiving a report from a review team that spent the last month reviewing Flint’s finances. The five-member team determined that a financial emergency existed in the city and that the state should appoint an emergency manager.
Problems include chronic deficits in most city funds, unrealistic budgets, and failure of elected officials to tackle the problems, the team said. Flint officials have done little to implement an existing deficit-elimination plan that relies heavily on the issuance of bonds to overcome a chronic deficit, the state said.
“The review team found that a financial emergency exists in Flint because there is no plan to resolve it, and the governor agreed with that determination,” said treasury spokesman Terry Stanton.
Flint is the first city to be declared in a fiscal emergency since the passage last spring of Michigan’s new financial management law, which significantly broadens the state’s powers to govern troubled localities.
If an emergency manager is appointed there, it will be the second time in 10 years. The state appointed an EM to oversee Flint’s finances in May 2002 until early 2006.
Located 60 miles outside Detroit, Flint has relied on the domestic automobile industry for most of its history. Like many older industrial cities, it is facing falling revenue due to a weak housing market and high unemployment. Nearly a quarter of its 100,000 residents were unemployed as of fiscal 2010.
The team did not recommend a consent agreement, a new option under state law that allows local officials to remain in power, in part because Flint officials appear to lack the political will necessary to manage its problems.
The state made its announcement late Tuesday while local voters were still headed to the polls for a mayoral election. Incumbent Dayne Walling was easily re-elected despite the announcement.
“The state’s decision shows how serious our financial challenges are in the city of Flint,” Walling said later in a statement. “Significant progress has been made to stabilize the city’s finances during a very difficult economy, but without shared sacrifice across the board, the city has not been able to implement all of the necessary cost savings.”
Flint has seven days to request a hearing with the governor or a designee and 10 days after that to challenge it in the Ingham County Circuit Court. But Walling said the city does not plan to appeal the declaration.
The review team’s 10-page report finds that city officials have not been following a deficit elimination plan submitted to the state in 2008. An updated plan submitted in 2010 did not anticipate elimination of a structural deficit until 2030 and relied on the proposed issuance of $12 million of deficit elimination bonds in 2013, the report said.
The team said city officials have a tradition of passing unrealistic budgets that inflated revenues, underestimated spending, and failed to tackle the city’s financial problems for years.
“The failure of city officials to have addressed the city’s financial problems with greater urgency and vigor appears consistent with observations made to the review team regarding a lack of political will among a succession of city officials to confront reality and render difficult but necessary financial decisions,” the team said in the report.
Flint had $134 million of outstanding bonds as of 2010, most of which are hospital revenue bonds issued for Hurley Medical Center.
The state has emergency managers in the Detroit Public Schools, and the cities of Benton Harbor, Ecorse and Pontiac. The Highland Park School District is under review.