CHICAGO – Michigan named financial review teams to examine the finances of two Detroit metro area governments – Royal Oak Township and Highland Park – launching the next step in a process that could lead to a state takeover.

The Dec. 2 appointment of financial review teams by Gov. Rick Snyder comes after preliminary reviews launched in September and conducted by the Local Emergency Financial Assistance Loan Board determined that “probable financial stress” exists in each community.

The board’s review was prompted by a preliminary analysis by the Department of Treasury. The review process is laid out under the state’s Local Fiscal Stability and Choice Act.

The loan board reached its conclusions last month that fiscal conditions warranted moving on to next stage of review. It found Highland Park had violated state requirements of the Uniform Budgeting and Accounting Act.

The city also was in breach of its approved deficit elimination plan filed in 2009, and its fiscal 2012 deficit elimination plan was not approved because it would not result in eliminating the city’s shortfall within five years. The city’s water and sewer funds have experienced operating losses since 2008, reducing cash flows and hampering its ability to pay bills.

The Department of Treasury’s preliminary review of Royal Oak Township found numerous conditions warranted the deeper review including violations of Uniform Budgeting and Accounting Act provisions. The township recorded $205,000 in unbudgeted expenditures and borrowed $300,000 without either authority to do so or approval from the Department of Treasury.

The township has operated with deficits in several funds over the past five years and submitted a deficit elimination plan deemed unacceptable by the state Department of Treasury.

Highland Park, which is located in Wayne County, has been under state control before and the Highland Park School District is already under emergency management. Royal Oak Township is located in triple-A rated Oakland County.

The review teams must report back to Snyder within 60 days of their appointment as to whether specific statutory conditions exist or are likely to occur, and must determine whether a financial emergency exists in the local government. A review team can request a 30-day extension.

If it’s determined that a financial emergency exists, local officials have four options: a consent agreement with the state; an emergency manager; a neutral evaluator; or Chapter 9 bankruptcy, with Snyder’s approval.

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