CHICAGO — A state-crafted consent decree aimed at stabilizing Detroit’s finances will likely benefit the city, but problems remain so deep and pervasive that success is far from certain, according to Moody’s Investors Service.
City and Michigan officials crafted the historic agreement during weeks of intense negotiations under the spectre of Detroit running out of money in early May.
The agreement features several strategies and reforms that could benefit the city, Moody’s said. Chief among those is the creation of a nine-member financial advisory board that, along with the newly created offices of chief financial officer and program manager, will oversee Detroit’s finances.
The agreement also features a number of specific goals and strategies, such as triennial budgets and twice-annual revenue-estimating conferences, that will help clarify and stabilize the city’s fiscal position, analysts said.
Those aspects of the agreement “are credit-positive for Detroit, and reduce the city’s near-term risk of a bankruptcy,” Moody’s said in a comment included in the rating agency’s weekly credit outlook.
The agreement also allows for a formal state role in the city’s fiscal management, which Moody’s also considers positive. If Detroit fails to reach or maintain certain goals, it faces severe consequences, including the loss of state revenue or the appointment of an emergency manager and the loss of all local control.
“Given the magnitude of the problems facing Detroit, the success of the agreement is far from certain, but the ability to stem further fiscal deterioration would be substantially more challenging without the political buy-in of city officials,” Moody’s said in its analysis.
Kirk Lewis, the deputy manager who is running the city while Mayor Dave Bing recovers from recent surgery, said the agreement provides a “framework where we’re going to be able to put the financial house of the city of Detroit in order.”
“This was a real tough decision that the City Council and mayor’s office had to make, but it was the right decision,” Lewis said in a brief video discussing the agreement. Lewis said the first few years would be painful and big changes might not come for another two to five years.
“We have 30 to 40 years of issues that we’re really finally coming to grips with,” he said. “It’s going to be painful — we’re really restructuring the city.”