State recommends EFM for Detroit
By Mike Sandula
The Michigan Citizen
DETROIT — On Feb. 19, the unofficial became official: Detroit is in a financial emergency. The state’s six-member financial review team, appointed in December, made the announcement at 4 p.m. Gov. Rick Snyder has 30 days to review the report and determine whether he will proceed with the group’s recommendation and appoint an emergency financial emergency (EFM).
“This review team spent two months pouring over the city’s finances, taking careful consideration of both long- and short-term issues, including recent actions by the administration and City Council,” said State Treasurer Andy Dillon, who’s on the review team. “While we appreciate the steps the city has taken over the past number of weeks, key reform measures have not occurred quickly enough, if at all. The team collectively believes the city needs assistance in making the difficult decisions necessary to achieve the significant reforms that are so crucial to the city’s long-term viability.”
According to the review team, Detroit will have an estimated cumulative cash deficit of more than $100 million by June 13. Meanwhile, the general fund deficit was $327 million in fiscal year 2012 and the city’s long-time liabilities — which include accrued pension liabilities and other post-employment benefits — exceeded $14 billion as of June 30, 2012.
The review team added that the city does not have an adequate plan in place to address its long-term financial issues. Dillon blames this on the city’s government structure.
“It would be very difficult to restructure this city and have to adhere to all of the requirements of the (City) Charter,” Dillon said. Bankruptcy, he said, is not a viable option.
Mayor Dave Bing said in a statement he was “not surprised” at the review team’s findings, but said his administration did, in fact, have a plan in place to address the financial emergency.
“My administration has worked diligently to develop and implement a restructuring plan for the city of Detroit. In fact, our plan was reviewed and accepted by all stakeholders, including the state and the Financial Advisory Board. We have the plan, but we face significant challenges executing it in a timely manner. We are hindered by several factors, including the City Charter, labor agreements, litigation, governmental structure, and a scarcity of financial and human resources. Further exploration of ways to mitigate these barriers for more timely implementation of my initiatives should be examined.”
Sherriff Benny Napoleon called the announcement the “worst-kept secret.”
“I firmly believe that each and every community has a right to elect local leadership to address that community’s problem and I campaigned to repeal Public Act 4 with that belief,” he said. “That said, it is incumbent upon the local officials to recognize that there is a problem; how dire that problem is; and to make the tough decisions to address them. We have not done that here in Detroit, which is why we are having this conversation today.”
Sen. Coleman A. Young, Jr., D-Detroit, also spoke on behalf of local control.
“This is going to be a usurping of our democracy. I feel this was a set-up from the word ‘go,’” said Sen. Young. “If the state listened to reform measures suggested by citizens in the city of Detroit, we would not be in this situation. How can the state fix something they are culpable for? I am as outraged as I am heartbroken about this systematic dismantling and take-over of our city. The people will not let this stand, nor will I.”
Former Corporation Counsel Krystal Crittendon, said the following day on WCHB 1200 AM that if the mayor had allowed her “to go after half the money owed to the city, we wouldn’t be having a conversation about emergency financial management, right now.”
Crittendon was demoted last month for filing a lawsuit against the Consent Agreement between the City and the State in June 2012. She recently announced her run for mayor.
Council President Charles Pugh said Feb. 20 that Council was working on a resolution stating the city does not need an emergency financial manager and has other options. The resolution was not complete by the time this paper went to press.
The financial review team consists of Andy Dillon; Thomas McTavish, auditor general for the state of Michigan; Ken Whipple, chairman of the board of Korn/Ferry International; Darrel Burks, senior partner, Pricewaterhourse Coopers; Ronald Goldsberry, independent consultant; and Frederick Headen, legal adviser for the Michigan Department of Treasury.
The review team is operating under Public Act 72, which does not allow an EFM to terminate labor contracts. Public Act 436, the Local Financial Stability and Choice Act, will take effect March 28.
Contact Mike Sandula at email@example.com