The dire financial situation faced by the city of Detroit could impact the cost of borrowing and access to credit by Michigan's government, according to a newly released report by the nonpartisan Senate Fiscal Agency.
Of pressing concern to the state is a bankruptcy by the city, or other fiscal or cash crisis, the report said.
The report referred to the financial problem as "contagion," where a default or near default by one borrower "has a negative spillover effect on other government borrowers."
The 13-page report used information from past audits, the city's deficit elimination plan, current budget and other sources.
Detroit has been in the financial dumps for the past few years. It faced an accumulated budget deficit of $331 million before selling off $250 million in fiscal stabilization bonds in April to reduce the shortfall, said City Council Fiscal Analyst Irvin Corley, Jr.
The city pledged to cover those bonds with state revenue sharing dollars, Corley said.
"Detroit still has a lot of challenges," he said.
Those include a deficit Mayor Dave Bing puts at about $85 million. Corley believes it's closer to $125 million.
The mayor's office and city council are cutting costs and reducing the size of city government with some layoffs and not filling many vacant positions.
"The city has sent more positive messages to the community that our investment house is coming into order," Corley said.
But the Senate Fiscal Agency report also warns that the city's reliance on bonds to pull itself out of the financial mire has added more long-term debt and debt payments. Detroit has more than $1.4 billion in outstanding municipal bonds.
Outside of selling off city assets and wagering taxes from the city's three casinos, Detroit has few reliable streams of revenue.
"It is likely that property and income taxes will continue to fall over the next year and after that may begin to stabilize," the report said.
Bing's office and several city council members did not immediately respond to messages seeking comment on Tuesday.