City of Detroit is in financial emergency

The sun highlights the General Motors world headquarters in downtownDetroit on Thursday, Dec. 11, 2008. (AP Photo/Carlos Osorio)

February 19, 2013 1:15:47 PM PST
A state-appointed review team has determined Detroit is in a financial emergency, paving the way for Republican Gov. Rick Snyder to appoint an emergency manager.

The team released its findings Tuesday, saying in a report to Snyder that no satisfactory plan exists to resolve a serious financial problem."

Detroit faces a $327 million budget deficit in the current fiscal year and chronic cash-flow issues that have threatened to leave the city without money to pay its workers or other bills.

The review team pointed to the city's ongoing cash crisis. It noted that the city's total deficit could have reached more than $900 million in fiscal year 2012 if the city had not issued enormous amounts of debt; that Detroit has long-term liabilities of more than $14 billion; and that the city's bureaucratic structure make it difficult to solve the financial problems.

If Snyder moves ahead and appoints an emergency manager, Detroit would be the sixth and largest city in Michigan to have one. The cities of Benton Harbor, Ecorse, Pontiac, Flint and Allen Park are currently under state oversight. School districts in Detroit, Highland Park and Muskegon Heights also have managers.

The Associated Press was seeking comment from Bing on the ruling, but the first-term Democrat has said an emergency manager would do no better in correcting the city's financial condition and long-term structural problems without an infusion of cash from the state.

If the governor determines there is a financial emergency, Bing would have 10 days to request a hearing under Michigan law. Snyder could then revoke his decision or appoint an emergency manager.

However, it wasn't immediately clear what affect such a decision would have. A new state law that taking effect in just a few weeks gives local governments the chance to choose their own remedy when a review teams finds a financial emergency exists. Those communities can request an emergency manager, ask for a mediator, file for bankruptcy or introduce a reform plan with the state.

If Detroit decides it wants a financial manager, that person would be responsible for overseeing all of the city's spending. Bing and the City Council would keep their jobs, but the manager would decide all financial matters. And only the manager would have the power to authorize the city to take the bankruptcy route.

The six-member review team, which includes Treasurer Andy Dillon, began looking closely at Detroit's books in mid-December. Another team had done the same about 12 months earlier, but stopped short of declaring a financial emergency. That team's findings eventually led to a consent agreement in April between Snyder and Detroit Mayor Dave Bing.

Bing's administration has struggled in meeting some of the consent agreement requirements, partly due to conflicts with the City Council and a challenge to the deal by then-Detroit corporation counsel Krystal Crittendon. The City Council voted earlier this week to "unappoint" Crittendon from that position.