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Jan 24 (Reuters) - Two Detroit-area local governments face such severe financial difficulties that an official emergency exists, Michigan Treasury officials declared on Friday, setting the stage for the potential appointment of emergency managers to restructure their finances.
State treasury officials announced that review teams appointed in December determined that a financial emergency exists in the city of Highland Park and Royal Oak Township. That action sets a 10-day deadline for Governor Rick Snyder to agree or disagree with the determinations.
If Snyder, a Republican, agrees with the recommendation, the two local governments would join Detroit and six other cities, along with four school districts, as operating in a condition of "financial emergency."
Eight are operating under state-appointed emergency managers and three with consent agreements, according to the state Treasury's website.
Determinations of a fiscal emergency are pending in one other city and two school districts. The cities of Ecorse and Pontiac are transitioning out of their financial emergencies under the guidance of state-appointed advisory boards.
Under a 2012 Michigan law, local governments have four options for dealing with their financial emergencies: a consent agreement, an emergency manager, a neutral evaluation process or Chapter 9 municipal bankruptcy. The law allows for a bankruptcy only with permission of the governor.
In the case of Detroit, Snyder in July gave the green light for the largest-ever municipal bankruptcy filing. Kevyn Orr, the city's emergency manager, opted for bankruptcy to help Detroit deal with a debt burden that topped $18 billion.
In the latest two cases, a state review team found Highland Park's deficit in its water and sewer fund more than doubled to $12.5 million at the end of fiscal 2013, while its unpaid bills at the end of October totaled about $19.5 million, including $18.2 million owed to Detroit for water and sewer services.
Royal Oak Township's review team found the local government failed to adopt budgets in a timely manner and did not amend spending plans when revenue fell below budgeted amounts. The township also had a deficit of nearly $300,000 at the end of December 2012.