Michigan governor wants review team to assess Detroit cash flow

Thu Jan 10, 2013 7:00pm EST

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Jan 10 (Reuters) - Whether or not the state of Michigan takes over Detroit's finances could depend on recent action by the city council to approve contracts tied to city's restructuring and oust the corporation's counsel.

Governor Rick Snyder said on Thursday that the Detroit Review Team he appointed last month to assess the city's finances would "analyze whether the actions ... were sufficient to actually address the city's short-term cash crisis."

The Republican governor also said he wanted the team to consider the city's options for addressing long-term liabilities.

"It is also clear that the city faces significant and daunting long-term financial obligations that continue to threaten its viability and future," Snyder said in a statement.

The additional tasks could extend the time it takes the review team to make recommendations.

Frustrated by the slow pace of fiscal reform and worried by Detroit's bleak long-term outlook, state officials launched a review on Dec. 11 that could culminate in the appointment of an emergency financial manager, who could take the city into federal bankruptcy court. That move could in turn be blocked by the state.

A Chapter 9 municipal bankruptcy filing by Detroit would be the largest ever in the United States.

The city of 700,000 has been hit by a steep decline in population, years of severe budget deficits and escalating employee costs. The state intervened in late 2011, which led to a consent agreement giving it some oversight over its biggest city.

The process has been slowed by disagreements between Mayor Dave Bing and the nine-member city council on reform measures and litigation challenging the validity of the consent agreement brought by Detroit's corporation counsel.

On Tuesday, the council in a 6-3 vote approved four contracts that are among goals set by Michigan officials for the release of $30 million in proceeds from a bond sale that raised $137 million for the city's near-empty coffers.

In December, Detroit received $10 million of the proceeds after the council agreed to another prerequisite: Hiring law firm Miller Canfield to work on consent agreement issues.

The contracts covered financial restructuring and review work and an evaluation of the city's pension and healthcare cost reduction alternatives. The council also approved Bing's request to remove Krystal Crittendon from her position as the city's corporation counsel.

In a statement, Bing said he welcomed the governor's action to ask the review team "to acknowledge the progress being made by the city."

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