DETROIT Dec 11 Cash-strapped Detroit will get
$10 million from Michigan after the city council dropped its
opposition to a key measure on Tuesday, but the state has
started a review of the city's finances that could lead it to
file the biggest municipal bankruptcy ever in the United States.
Terry Stanton, a spokesman for Michigan's Treasury
Department, said the council's action met conditions agreed to
by the state and Mayor Dave Bing for the release of $10 million
raised through a bond sale earlier this year. The release of
another $20 million remains tied to the city's meeting other
conditions, he added.
Michigan launched a process on Tuesday that could result in
an emergency financial manager for the city, who could decide
with the state's consent if Detroit should file for bankruptcy
protection from creditors. State officials frustrated by the
slow pace of reforms in Detroit moved ahead with a 30-day
preliminary review of the city's finances, according to Stanton.
Facing a possible state takeover and a growing deficit, the
city council reversed course and approved a controversial
contract that had been a sticking point for the release of some
of the money.
In a 5-4 vote, the council approved the appointment of law
firm Miller Canfield to work on issues related to a consent
agreement that earlier this year gave the state some oversight
of Detroit's finances. Last month, the contract with the law
firm was rejected by council members, who cited alleged
conflicts of interest by the law firm and concerns over its
Council President Charles Pugh told reporters after the
meeting that he "tried to hold his nose" to vote for the
contract so that the city could avoid a state-appointed
emergency financial manager.
"We're just trying to do what's right," he said. "It's a
dance. You've got to satisfy the citizens. You've got to satisfy
your colleagues. You've got to satisfy the mayor."
Other measures the state has tied to the release of some
bond money also received council approval, including contracts
for auditing services and for specific audits to uncover
potential worker's compensation fraud and to determine dependent
eligibility for city benefits.
The city of 700,000 has been hard hit by a steep population
decline, years of severe budget deficits and escalating employee
costs, all of which led state officials to begin an intervention
process last year.
Mayor Bing thanked council members for their actions and
reiterated that he is working to avoid the appointment of an
emergency manager by the state. Jack Martin, Detroit's chief
financial officer, said planning is still underway for unpaid
leaves and approximately 500 job cuts to deal with a cash
crunch. It is not clear for how long the release of $10 million
will forestall any immediate financial problem.
Michigan's Republican governor Rick Snyder also praised the
Detroit city council for its decisions but said that more work
"I think there is a fairly significant list of items that
still need to be addressed between the mayor and city council
and I hope they move very aggressively and proactively to get
those issues resolved. But it was a positive step from the few
items I did see that they voted on," he said.
A financial update released by the city on Monday indicated
its cash flow position could erode in the fiscal year that ends
June 30 to a negative $113.7 million from a negative $76.7
million that was forecast last month.
The city's oversight board, which was created under the
consent agreement that allowed Detroit to avoid a
state-appointed emergency manager, voted unanimously on Monday
to support Michigan Treasurer Andy Dillon's plan to launch the
Legislation that could be passed by the Michigan Legislature
this month could also give Detroit a path to a Chapter 9
bankruptcy filing. The bill would give fiscally struggling local
governments like Detroit options for fixing their problems,
including bankruptcy, emergency managers and consent agreements.