Bloomberg News

Michigan Panel Gives Detroit 10 Days to Reach Finance Deal

March 26, 2012

Detroit (9845MF) has 10 days to agree to a financial recovery plan that would forestall the appointment of an emergency manager by Michigan (STOMI1) Governor Rick Snyder, a state review panel decided.

Snyder said he’s close to a deal with the city that would avoid a manager. He said he had “fruitful” discussions with six of nine City Council members today. A final agreement is possible by March 30, said state Treasurer Andy Dillon, who led the review team.

“My goal is for the state to provide a supporting resource, to be a partner in helping achieve success,” Snyder, 53, told reporters before the review team met.

Detroit, whose population fell by a quarter in the past decade, has at least $12 billion in long-term debt. The fight to keep it solvent has pitted the white, Republican governor against Mayor Dave Bing, a black Democrat in a city that is 83 percent African-American.

The review team meeting in Detroit was disrupted repeatedly by several dozen opponents of state action, who shouted “no takeover,” and sang the civil-rights anthem “We Shall Overcome.”

Some audience comments hurled at the review team were racially charged. Dillon, who leads the team, is white and a former Democratic candidate for governor.

Stressed Out

The 10-member panel declared the city -- Michigan’s largest and home of General Motors Co. (GM) -- in severe financial stress. That gives Snyder time to negotiate with Bing on a way to give the mayor broader power to reduce costs, and buys time to solve the city’s fiscal crisis, which deepens daily.

Detroit’s operating deficit might balloon to $270 million by June 30, according to a February City Council report. It will run out of cash by the end of May, according to Dillon.

Still to be resolved is how much authority an appointed board would have over Detroit’s finances, said Dennis Muchmore, Snyder’s chief of staff.

“It’s all about accountability,” he said.

Bing’s office issued a statement that said “significant progress” has been made in talks with the state.

Sick Call

An agreement may be delayed because Bing is recovering from emergency surgery March 24, after he was hospitalized with an inflamed intestine. He’s expected to remain in the hospital for as long as seven days and recover fully in three weeks, according to spokesman Robert Warfield, who said in an e-mailed statement that Bing, 68, has resumed limited work.

An emergency manager would have authority under a 2011 law to cut spending, sell assets and nullify union contracts. Bing and the council rejected Snyder’s plan to control the city’s finances with a nine-member board appointed jointly by Snyder and the city.

City officials derided Snyder’s plan as a virtual takeover. Snyder and Dillon are considering Bing’s counterproposal, in which he and the council would retain financial authority with state oversight.

Concessions by city employee unions may not be enough to allay the crisis, said Terry Stanton, spokesman for Dillon.

Thirty unions representing about 6,000 of the 11,000 municipal employees ratified three-year agreements that include 10 percent pay cuts and reductions in pension and health-care benefits.

Time to Unwind

That will save the city $60 million over three years, said Ed McNeil, assistant to the president of AFSCME Council 25, which led bargaining for the unions.

Yet to be ratified are concessions by the police and firefighters.

Detroit must cut spending by $360 million through June 2013, Bing has said, and he began firing 1,000 employees in February. He told Bloomberg News last week the city has an estimated $200 million in uncollected income taxes, which he said the state could help collect.

Bing said he’ll try to negotiate with banks to reduce $350 million in fees the city owes to unwind interest-rate swaps triggered by last week’s downgrade of more than $2.5 billion of debt by Moody’s Investors Service.

To contact the reporter on this story: Chris Christoff in Lansing at cchristoff@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net


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