For Detroit, speculation mounts of Michigan-appointed manager

Wed Dec 5, 2012 5:39pm EST

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Dec 5 (Reuters) - Ongoing fiscal distress and political turmoil in Detroit are ratcheting up speculation that the state of Michigan could step in and appoint someone to oversee the city's finances.

State Treasurer Andy Dillon met with some top Detroit officials on Wednesday amid growing concerns about "the city's near-term ability to meet its financial obligations and its long-term viability," Michigan's Treasury Department said in a statement.

"While we continue to work collaboratively with the city to move it forward, the (emergency financial manager) option cannot be taken off the table," the statement said. "As the treasurer has noted many times, delaying reforms and tough decisions only promises to make eventual solutions more difficult and painful."

Mayor Dave Bing said his administration "has had discussions with the state regarding an emergency financial manager previously." But he noted that until the state makes a final determination, he was continuing to implement his restructuring plan.

The appointment of an emergency manager would bring Detroit a step closer to a possible municipal bankruptcy filing because a manager is a prerequisite for that move under a current state law. However, that law, which took the place of a stronger emergency manager law that Michigan voters repealed on Nov. 6, gives also the state the opportunity to block the path to bankruptcy court.

EMERGENCY FINANCIAL MANAGER HAS LESS POWER

Unlike an emergency manager under the repealed 2011 law, an emergency financial manager's power would be more limited and would not allow for the suspension of collective bargaining agreements.

The city of 700,000 has been hard hit by a steep population drop, years of severe budget deficits and escalating employee costs -- factors that led state officials to begin an intervention process a year ago.

Michigan's biggest city is projecting it will run out of cash this month unless it receives $30 million of bond proceeds. The state has tied the release of that money to certain conditions, including the hiring of law firm Miller Canfield to work on issues involving a consent agreement between Detroit and the state.

But the city council last month rejected a contract with the law firm and a coalition of Detroit public sector labor unions said on Wednesday they filed a complaint with Michigan's Attorney Grievance Commission alleging conflicts of interest by the law firm.

A comment from Miller Canfield was not immediately available.

The city council and the unions have been at odds with some of the changes Bing, state officials and an oversight board believe are needed to get Detroit's finances on better footing. The city's path to a fiscal restructuring is further clouded by ongoing litigation over the state's move to resurrect a former emergency manager law in place of the repealed 2011 law.

Using the former law to appoint a manager for Detroit would likely spark new litigation.

Meanwhile, the city council on Wednesday approved a budget amendment that Detroit finance officials said was needed to complete the city's fiscal 2012 comprehensive annual financial report (CAFR) by year end in order to receive state revenue- sharing payments. Michigan in the past has withheld the payments when Detroit was tardy in completing its CAFRs.

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