December 11, 2012 / 1:00 AM / 5 years ago

Detroit oversight board signals support for state review of city

DETROIT (Reuters) - Detroit’s oversight board unanimously voted on Monday to support a move by Michigan’s treasurer to begin a process that will likely lead to the state appointing an emergency financial manager for the city.

Frustrated by the slow pace of fiscal reform and worried about Detroit’s long-term viability, the state is poised to start a 30-day preliminary review as early as Tuesday to determine the extent of the city’s financial crisis, said Terry Stanton, a spokesman for the Michigan Treasury Department.

A report by city officials to Detroit’s financial advisory board on Monday indicated that the city’s 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 latest forecast assumes the city will not receive from the state $81.7 million of proceeds from a bond sale earlier this year and includes a pension payment that was not budgeted for in fiscal 2012, according to a copy of the report obtained by Reuters.

The appointment of an emergency manager would bring Detroit a step closer to a possible bankruptcy filing, as would legislation that could be passed by the Michigan Legislature this month that would give fiscally struggling local governments like Detroit options including Chapter 9 municipal bankruptcy, emergency managers and consent agreements. Consent agreements would allow the state to help fix local finances

Detroit avoided getting an emergency manager earlier this year by signing a consent agreement that gave the state some oversight of Detroit’s finances. However, Mayor Dave Bing and the nine-member city council have been at odds over some of the measures the mayor and state officials believe will lift Detroit out of its fiscal hole.

Bing said last week that he would urge council members to approve at their meeting on Tuesday several conditions tied to reforms that state officials want in order to release $30 million of the bond proceeds for Detroit’s near-empty coffers.

One of those conditions is a contract with law firm Miller Canfield to deal with issues related to the consent agreement. The council rejected that contract last month, citing concerns over potential conflicts of interest by the firm and the validity of the contract.

The council on Tuesday will also take up a resolution from member JoAnn Watson demanding that the state treasurer either turn over all of the bond money to the city or face court action to force the move.

Reporting By Eddie B. Allen Jr., additional reporting by Karen Pierog in Chicago; Editing by Bob Burgdorfer

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