CHICAGO -- Michigan treasurer Kevin Clinton announced Jan. 24 that a state review team has found two municipalities in the Detroit metro area to be in a state of financial emergency.

The cities are Royal Oak Township and Highland Park.

Under state law, Gov. Rick Snyder now has 10 days to consider the reports and reach a determination on the cities' financial condition.

It's the first step toward a possible state takeover or even filing for Chapter 9.

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 Royal Oak team found that, among other things, audit reports for the last three years showed variances between revenues and expenditures, with actual general fund revenues coming in short for two of the three years.

Township officials also failed to adopt a budget for the current fiscal year that began on Jan. 1, 2014, according to the treasury department.

Highland Park saw a 126% increase in the negative fund balance in its water and sewer fund in 2013, while officials have been unable to issue timely or accurate water and sewer bills, the state said. As of the end of October 2013, the city owed about $19.5 million to various vendors, including $101,000 to the state of Michigan for principal and interest on outstanding emergency loans.

The review teams were appointed Dec. 3, after a preliminary analysis showed that "probable financial stress" existed in each community.

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