CHICAGO - A Michigan board has determined that Wayne County faces probable fiscal stress, the first step toward a partial or full state takeover.
The Michigan Emergency Loan Board announced its decision after a special meeting Wednesday where it heard testimony from Wayne County officials.
Wayne County Executive Warren Evans asked the state on June 17 to declare the county to be in a financial emergency. The move would allow the county to enter into a consent agreement with the state and broaden the government's power to tackle areas that include its legacy debt and labor contracts.
The process of declaring a financial emergency can take weeks or months, but the state has fast-tracked the Wayne County review.
Wayne, which carries junk ratings, is home to Detroit, which emerged from its own bankruptcy late last year, and is Michigan's most populous county. Evans has repeatedly warned that it is facing a liquidity crisis and could run out of money by next summer.
"While county officials have taken some important steps in an effort to remedy the current crisis, the county continues to face significant financial difficulties that must be addressed now," said Michigan Treasurer Nick Khouri, the chair of the three-member loan board. "Given the issues noted in the final preliminary report, many of which county officials agree with, we feel a finding of probable financial stress is warranted."
A spokesman for Evans reportedly told the loan board that the county has made some positive changes but that it needs more work to achieve long-term financial health. He also said the county's legacy cost issues can't be handled without a consent agreement, according to reporters at the meeting.
The emergency loan board's declaration is the first step in the process of declaring a financial emergency. Gov. Rick Snyder will now appoint a review team to delve deeper into the county's finances. The team will then make a recommendation to Snyder, who will make the final decision. If Snyder agrees to a financial emergency, Wayne has four choices: bankruptcy, an emergency manager, a consent agreement, or a neutral evaluator.
Standard & Poor's, which rates the county's limited-tax general obligation bonds BB-plus, put the speculative rating on Creditwatch with negative implications on June 23 after Evans asked the state to step in.
Moody's Investors Service on June 22 affirmed its Ba3 rating and negative outlook on $336 million of GOLT debt. The county has about $654 million of limited-tax general obligation bonds.