Bloomberg News

Michigan Governor’s Move Sets Detroit Takeover in Motion

March 04, 2013

Michigan Governor Rick Snyder

Michigan Governor Rick Snyder speaks at a public meeting in Detroit. Photographer: Jeff Kowalsky/Bloomberg

Michigan Governor Rick Snyder’s formal declaration that a financial emergency besets Detroit started the clock ticking for city leaders who may want to try to block a state takeover. It gave them 10 days.

Opponents can request a hearing before a Snyder-appointed representative to appeal his decision. Information presented in the session would be reported to the governor, who would then decide whether to stick by his declaration or revoke it, said Terry Stanton, a state Treasury department spokesman.

The governor has no deadline to make his call. If he keeps to his decision, a three-member state panel called the emergency loan board -- all appointees of the governor -- would select an emergency manager. Snyder, 54, would have input. City leaders can appeal to a court if he doesn’t relent, Stanton said. Critics of a takeover say it would hurt Detroit voters by letting a state manager strip power from their elected leaders.

“I fundamentally disagree with taking measures that disenfranchise the families I represent in Detroit,” U.S. Representative Gary Peters, a suburban Detroit Democrat, said in a statement. “Emergency managers in Michigan have consistently failed to address the systemic problems plaguing older urban areas like Detroit.”

Not Alone

The Motor City isn’t alone coping with deficits, climbing pension and debt costs and falling property values. From California to Rhode Island, communities have struggled as the lingering effects of the recession that ended in June 2009 constrained revenue.

Detroit, with a deficit of about $327 million and more than $14 billion in long-term obligations, would be the sixth Michigan city put under state control as Snyder tries to prevent what could be the largest U.S. municipal bankruptcy. No Michigan localities have sought court protection.

A review panel’s determination Feb. 19 that a financial crisis grips Michigan’s biggest city by population cleared the way for the March 1 declaration. State Treasurer Andy Dillon, a member of that panel, said last month the city’s fiscal straits are “fixable” without bankruptcy.

A state takeover is preferable to bankruptcy because it would keep control in the state and city and out of federal court, Dillon said. An emergency manager could recommend a Chapter 9 bankruptcy filing to Snyder and Dillon, and would have the authority to seek such protection.

Broad Power

Snyder made the declaration of a financial emergency under a 1990 state law. The process, weakened by voters last year, will be reinvigorated on March 27, when a new version of the law takes effect. It gives overseers in place at that time broader powers to restructure municipalities and school districts. They can sell assets, cancel union contracts and request elections to raise taxes.

A year ago, the governor avoided seeking an emergency manager in Detroit. Last week’s decision followed decades of decline in the home town of General Motors Co. (GM:US) The move fueled political tensions as it would mean a white Republican’s appointee taking control of a community that is predominantly Democratic and more than 80 percent black.

Mayor Dave Bing, a Democrat, said March 1 that he’d weigh Snyder’s decision and the options open to him in response.

Working Together

“If, in fact, the appointment of an emergency financial manager both stabilizes the city fiscally and supports our restructuring initiatives which improve the quality of life for our citizens, then I think there is a way for us to work together,” Bing said in a statement. “We have always said that we need help from Lansing to implement our initiatives such as public safety, transportation, lighting and others.”

The law that takes effect March 27 would let Detroit’s City Council remove an emergency manager after a year, with a two- thirds vote.

Snyder called for cooperation and constructive input in announcing his decision. He said those who “yell and say it doesn’t work and don’t come forward with solutions, I don’t expect they’re going to have a lot of influence on decisions.”

“Detroit can’t wait,” Snyder said. “We need to solve real issues here today, because citizens aren’t getting the services they need.”

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

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net.


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