January 8, 2013 / 9:50 PM / 5 years ago

Detroit City Council bows to Michigan, approves key contracts

3 Min Read

DETROIT, Jan 8 (Reuters) - In an effort to avoid a state takeover and gain much-needed cash, the Detroit City Council on Tuesday passed a series of key contracts tied to restructuring the city's sagging finances.

The approval could trigger the release of $20 million of bond proceeds by the state of Michigan.

The council also agreed with a request by Mayor Dave Bing to remove the city's top lawyer.

In a 6-3 vote, the council ousted Krystal Crittendon from her position as Detroit's corporation counsel. Crittendon, who was appointed to the position prior to Bing's 2009 election as mayor, triggered a city cash-flow crisis last year by fighting a consent agreement between Detroit and the state of Michigan in court.

The agreement gave the state some oversight of Detroit finances. The lawsuit, which was dismissed by a state judge in June, delayed the sale of bonds needed to raise $137 million for the city's near-empty coffers.

Crittendon did not immediately respond to a request for comment. Bing told reporters he will be picking her replacement.

The council also passed in a 6-3 vote four contracts that are part of a series of goals set by Michigan officials for the release of $30 million in proceeds from the bond sale. The city in December received $10 million of the proceeds after the council agreed to hire law firm Miller Canfield to work on consent agreement issues.

Bing said Tuesday's action on the contracts will hopefully free up the remaining $20 million. A spokesman for Michigan's Treasury Department said the department would review the actions "if and when a draw request were to be submitted."

Michigan officials have stepped up pressure on Detroit to speed up progress on reforms by launching last month a review of the city that could ultimately lead to the appointment of an emergency financial manager. That manager in turn could decide to take Detroit to federal bankruptcy court unless the state blocks the move.

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

The city of 700,000 has been stung by a steep population loss and sinking revenue. The city ended fiscal 2012 on June 30 with a $326.6 million cumulative deficit that was up from $196.6 million in fiscal 2011, according to an audit released last week.

Contracts approved by the council on Tuesday were for Ernst & Young LLP for financial restructuring work, for Milliman Inc to evaluate pension and healthcare cost reduction alternatives, for Miller Buckfire and Co to conduct a financial review of the city, and for Conway Mackenzie Inc to assist the city in evaluating, developing, negotiating and executing a restructuring plan.

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