UPDATE 1-Michigan gov. to declare Detroit fiscal emergency -source

By Dawson Bell

LANSING Mich. Feb 28 (Reuters) - Michigan Governor Rick Snyder will officially declare a financial emergency for Detroit on Friday, paving the way for a state takeover of the city, a state government source said on Thursday.

At a forum in Detroit, the Republican governor will endorse the Feb. 19 findings of a six-member review team that concluded the city's dire financial situation constituted an emergency, according to the source, who asked not to be identified.

Sara Wurfel, Snyder's spokeswoman, said the governor will outline "his determination on whether or not there is an emergency."

The official declaration of an emergency for Michigan's biggest city will trigger a 10-day deadline for Detroit officials to request a hearing with Snyder. It will likely result in the appointment of an emergency financial manager to manage its fiscal affairs.

The review team said the city is plagued by "operational dysfunction," but made no official recommendation on the need to appoint an emergency financial manager, leaving that to the governor.

Detroit, which has been struggling for years with a falling population, shrinking tax base and large payroll for city services, has been operating since April 2012 under an agreement that gave the state some oversight. But the slow pace of reforms led Snyder to launch a new review of the city last December.

If the state decides to appoint an emergency financial manager, that person could decide the city's only course for survival would be a bankruptcy filing in what would become the largest municipal bankruptcy in the United States.

The emergency manager would be officially chosen by a state board composed of the state treasurer, budget director, and licensing and regulatory affairs director - all of whom are Snyder appointees.

Snyder has publicly discussed qualifications he would seek in the manager and has said he had a short list of candidates for the job.