(Updates with union leader’s comment in ninth paragraph.)
Jan. 27 (Bloomberg) -- Joe Duncan said he’s never seen things this bad.
The president of the Detroit Police Officers Association said a proposed 10 percent pay cut for his 2,200 members -- who are paid a maximum $53,253 -- shows the city’s desperation to avoid a state takeover.
“We haven’t had a raise since 2008,” said Duncan, a 56- year-old officer who joined the force 35 years ago. He has proposed savings in the department to preserve wages.
“Nobody wants to take it, but as a practical matter, if you don’t, an emergency manager comes in and does it anyway,” he said. “You can only give so much.”
The fiscal crisis in the city that has lost a quarter of its population since 2000 is coming to a head. The state is combing Detroit’s books for evidence of financial emergency. Meanwhile, Democratic Mayor Dave Bing is racing to wrest concessions from 48 bargaining units to erase a $200 million deficit in the home of General Motors Co. and the cradle of the U.S. auto industry.
Otherwise, the city of 714,000 dominated by Democrats may face a Republican-appointed manager with authority to sell assets and nullify contracts. State Treasurer Andy Dillon has said Detroit will run out of cash by May, and called for concessions by early February.
This week, Bing began firing 1,000 of Detroit’s 11,300 employees. The mayor also proposes a 10 percent cut in payments to vendors and doubling the 1 percent tax on corporations.
Bing, 68, has said the city must trim annual employee benefit and pension costs, which have risen since 2001 to $35,000 per employee from $18,000.
“We are meeting, not daily but more than weekly, and there are sidebar conversations every day,” said Al Garrett, president of AFSCME Council 25, which represents about 3,000 employees. “I’m not sure an emergency manager would be any more Draconian than what the city itself is asking, but it’s a real possibility.”
Negotiations are “very solid at this point,” Naomi Patton, Bing’s spokeswoman, said in a telephone interview this week.
Still, talks Jan. 23 with bus drivers went poorly, said Brian Miller, vice president of Amalgamated Transit Union Local 26.
“My president asked 20 questions and got no real answers,” Miller said. “Until we get answers, we can’t say we’re negotiating.”
Doing the Necessary
Republican Governor Rick Snyder, 53, appointed a 10-member review team Dec. 27 after a preliminary survey found “probable financial stress.” Dillon heads the team, which must report by March.
Depending on the severity of the situation, the state might appoint an emergency manager or impose a consent agreement giving the mayor and City Council more power to rein in costs.
Bing and Snyder have said they don’t want an emergency manager, although the governor has said he’ll do what is necessary to avoid bankruptcy.
Besides its deficit, Detroit carries at least $12 billion in long-term debt and has trouble filling its pension funds, according to the preliminary review.
The city faces a potential $400 million payment to terminate interest-swap agreements negotiated as part of a 2006 debt sale to fund pensions. The payments would be triggered by an emergency manager’s appointment.
Those swaps cost the city $1.1 billion in hedging derivatives it must pay over the life of the debt because of an unanticipated drop in interest rates, according to the preliminary report.
In August 2009, Moody’s Investors Service reduced Detroit’s general-obligation bonds one step to Ba3, three levels below investment grade. The ratings company warned of another possible downgrade on Dec. 7.
The finances of the nation’s 19th-largest city have been in a downward spiral with deficits of at least $155 million since 2005, according to the preliminary review.
Last year, the state gave emergency managers appointed by the governor broader authority to manage finances of distressed cities and school districts.
Four other cities are under emergency managers -- Flint, Pontiac, Benton Harbor and Ecorse. Detroit public schools also have a state-appointed manager.
--Editors: Stephen Merelman, Mark Tannenbaum
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