(Reuters) - Detroit is in “extremely serious financial condition,” as it is projected to run out of cash next year and must take action to avoid a state takeover, Mayor Dave Bing said on Thursday.
Michigan’s largest city is facing a projected cash shortage of about $150 million by the end of March, a statement from his office said.
To avoid having a state-appointed emergency financial manager, the city needs to address pension and healthcare costs and “inefficient services” such as transportation and lighting, while labor union contracts need to be renegotiated before their expiration next June, the statement said.
“City government has to live within its means,” Bing said in the statement. “Continuing to do business the same way is not an option, given our extremely serious financial condition. The last thing I want is for Detroit to be run by an emergency financial manager, whether it’s me or someone else.”
The state said it is not contemplating appointing an emergency manager for Detroit right now.
Terry Stanton, a spokesman for the Michigan Treasurer’s Office, said there has been “no predetermination on Detroit’s financial status or next steps.”
“The first and foremost goal is avoid the need for emergency managers in any Michigan community, including Detroit,” Stanton said. “There is a clear process that would be followed and at this point, it’s inappropriate to speculate on what may happen in the future.”
Detroit newspapers reported on Thursday that Bing thought a state-appointed manager was a possibility and that he could fill that role.
That news came as a surprise to Detroit City Council President Charles Pugh, who said the council and the mayor had been working on a plan to keep the city solvent.
“We were all just blown away when we picked up the paper this morning and saw the headline,” Pugh told Reuters. “We all agreed we were going to take some time to develop this plan and then release it together to the public.”
Pugh said Detroit needs concessions from unions on heathcare and pensions and support from residents for service reductions that are bound to result from cost cutting. But he added the city does not need the state to appoint a manager.
“We need to act. We can’t irresponsibly let the city run out of cash,” he said. “We feel like we have the expertise and the resolve to get it done. We don’t need an emergency manager, we don’t.”
The specter of a state takeover of Detroit’s finances arose earlier this year as Bing unveiled his fiscal 2012 budget, warning of the possibility of a takeover if the city failed to cut spending.
A state law enacted in March bulked up Michigan’s ability to intervene in fiscally troubled local governments and appoint an overseer. It also gave state-appointed financial managers the power to modify or end collective bargaining agreements with public sector workers.
The state has already appointed managers for the cities of Pontiac, Ecorse and Benton Harbor and for the Detroit Public Schools. On Thursday, Michigan announced it launched a review of the Highland Park School District’s finances.
Detroit’s shaky finances are a major concern in the municipal bond market. Its debt rating has fallen into the junk category, stung by the city’s high debt levels, falling population, and dim economic prospects.
Reporting by Karen Pierog; Editing by Leslie Adler and Jan Paschal