CHICAGO — Officials in Hamtramck met with the current and incoming state treasurers this week to continue to press their case for the cash-strapped city to become the first Michigan municipality to file for Chapter 9 bankruptcy.
Michigan law prohibits cities from filing for bankruptcy. In a Monday afternoon meeting, treasury officials repeated earlier refusals and again offered a menu of loans to help the Detroit suburb make it through the end of the fiscal year.
Hamtramck officials said they would consider taking a $3 million emergency loan. However, they plan to continue their push to file for bankruptcy once Governor-elect Rick Snyder’s administration takes office in January.
“What they’re saying is that our timing is terrible and there’s no way that the current administration is going to approve bankruptcy only a month before a new administration comes in,” city manager Bill Cooper said in an interview Wednesday afternoon. “We realize that if we are granted permission to go into bankruptcy, there are a lot of other communities in Michigan alone that would very possibly want to pursue the same option.”
Hamtramck officials hope that Synder’s administration, which includes incoming treasurer Andy Dillon, will be more open to the idea of their filing for Chapter 9.
Dillon, a Democrat who is currently speaker of the House, indicated in the meeting that he is willing to meet again with city officials after the new administration takes office in early January, Cooper said.
“That means there is some possibility that bankruptcy is still an option,” Cooper said. “Gov. Sndyer is going to have to take a very hard look at this.”
Snyder’s transition team did not respond to a request for a comment.
Michigan has one of the nation’s highest unemployment rates and reported an unadjusted jobless rate of 12.3% in October, compared to an unadjusted national rate of 9%. However, the area around Hamtramck has been hit much harder, with Detroit posting a 22.6% unemployment rate in September, according to the federal Bureau of Labor Statistics.
The city sent a letter to the state Nov. 10 asking for permission to file for bankruptcy, warning that it would run out of money by Feb. 1, 2011. The state immediately denied the request and offered three loan options instead: a 20-year emergency loan, a property tax anticipation note, or authorization to borrow by issuing fiscal-stabilization bonds.
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, according to state rules.
Cooper said city attorneys believe that the governor could allow a municipality to file for bankruptcy— even if it is not under emergency financial management.
In their meeting with state officials, Hamtramck attorneys cited New York City Off-Track Betting Corp.’s Chapter 9 filing as an example of how a governor’s executive order could pave the way for bankruptcy.
In that case, a federal judge found that the OTB was eligible for Chapter 9 since its status as a municipality was the result of a legal executive order by the governor of the state.
Cooper said the city is now considering taking a $3 million emergency loan from Michigan, which it would pay off over 20 years at an interest rate of less than 1%.
Hamtramck’s annual budget totals roughly $18 million. It had a population of about 22,976 in 2000, according to the U.S. Census Bureau.
City officials believe only bankruptcy will give the city what it needs over the long term, namely authority to dissolve its union contracts.
Cooper said that unlike other cities in Michigan, Hamtramck is not saddled with debt and has no plans to default on its existing bonds.
“There are a total of 68 communities in Michigan under some form of watch by the state,” Cooper said. “Most if not all are waiting to see what happens with us.”
Hamtramck spent just under six years in emergency financial management, starting in 2000. During that time, it sold two fiscal stabilization bond issues that totaled $4 million, according to Cooper.
The city is currently paying $600,000 in annual debt service on those bonds and does not expect to miss a payment, he said.
Hamtramck has no other outstanding bond debt.