By Karen Pierog
Dec 6 (Reuters) - Michigan officials will likely launch a
review of Detroit's dire fiscal situation next week that could
lead to a determination the city needs an emergency manager to
oversee its finances, a state treasury spokesman said on
Ongoing fiscal distress and political turmoil that has
derailed reform measures in Detroit have heightened concerns by
state officials about the city's long-term viability.
"No one seems pleased with the pace of reforms that have
occurred," said Terry Stanton, a spokesman for Michigan
Treasurer Andy Dillon, confirming the review was likely to start
The appointment of an emergency manager to oversee the
city's finances would bring Detroit a step closer to a possible
municipal bankruptcy filing because a manager is a prerequisite
for that move under a current state law. However, that law,
which took the place of a stronger 2011 emergency manager law
that Michigan voters repealed on Nov. 6, also gives the state
the opportunity to block the path to bankruptcy court.
Meanwhile, a new emergency manager bill that includes a
bankruptcy option for local governments and that has the backing
of Governor Rick Snyder's administration surfaced in the
Republican-controlled House this week.
A Chapter 9 filing would make Detroit the United States'
biggest municipal bankruptcy in terms of population, according
to James Spiotto, a municipal bankruptcy expert at law firm
Chapman and Cutler.
The city with its $8.2 billion of outstanding debt would
also eclipse Alabama's Jefferson County, which filed the biggest
muni bankruptcy ever in November 2011 with $4.32 billion of
Detroit, a city of 700,000, has been hard hit by a steep
population drop, years of severe budget deficits and escalating
employee costs, factors that led state officials to begin an
intervention process a year ago.
Stanton said if a serious financial problem is uncovered by
a preliminary 30-day review, the governor would appoint a review
team, which would have 60 days to determine if an emergency
financial manager is needed. If that determination is made, the
governor would ask the state's Emergency Loan Board to appoint a
The new legislation, which is winding its way through the
House, would keep intact any ongoing review process, existing
consent agreement and appointed manager.
However, it would give the elected officials of local
governments determined to be in a fiscal emergency the option to
chose between filing for bankruptcy, having an emergency
manager, arbitration with a neutral party or entering into a
Detroit, Michigan's largest city, avoided the appointment of
an emergency manager earlier this year by signing onto a consent
agreement that created an oversight board and other measures
aimed at bolstering the city's sagging finances.
Detroit is projecting it will run out of cash this month
unless it receives $30 million of bond proceeds. The state has
tied the release of that money to certain conditions, including
the hiring of law firm Miller Canfield to work on issues
involving a consent agreement between Detroit and the state.
But the city council last month rejected a contract with the
The city council and the unions have been at odds over some
of the changes Mayor Dave Bing, state officials and the
oversight board believe are needed to get Detroit's finances on
better footing. The city's path to a fiscal restructuring is
further clouded by ongoing litigation over the state's move to
resurrect the former emergency manager law in place of the
repealed 2011 law, although the passage of a new law could end
(Additional reporting by Michael Connor)
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