Detroit narrowly avoids state takeover

Detroit City Council President Charles Pugh responds during the open public forum during a Detroit City Council meeting discussing the city consent agreement at the Coleman A. Young Municipal Building in Detroit on Wednesday, April, 4, 2012. AP Photo

(AP) DETROIT - Detroit leaders reluctantly agreed Wednesday to let the state take a more active role in restructuring the cash-strapped city, reaching a deadline-beating deal that avoids the embarrassment of Michigan's governor appointing a financial overseer for City Hall.

By a 5-4 vote, the City Council decided to allow Michigan officials monitor and have input into how to fix Detroit's broken finances. Facing a $200 million deficit and $13.2 billion in long-term structural debt, the city is at risk of running out of cash by the end of May.

Gov. Rick Snyder had given the city until Thursday to sign off on the agreement or risk the appointment of an emergency manager to take over. The deal was expected to be signed by Snyder and Mayor Dave Bing, who was readmitted to a hospital Wednesday as a precaution because of discomfort following surgery to correct a perforated colon.

Although many of the details are unclear, the agreement lets Bing and the council keep authority over the city's finances and budget. However, they would be required to renegotiate recently ratified union concessions and share decision-making with a newly hired project manager and chief financial officer. A nine-member board would monitor the city's fiscal restructuring.

"The Detroit City Council's vote... represents a pivotal moment in Detroit's history," Deputy Mayor Kirk Lewis said in a statement. "It is time now to begin the monumental task of stabilizing Detroit's financial operations."

"The mayor and his administration worked with the City Council and the state to develop a consent agreement that we believe puts us on track to restructure our city financially and re-establish an infrastructure to make sure Detroit never faces these financial conditions again."

Snyder released a statement crediting the council for acting "responsibly to put Detroit on the path to financial stability."

"We all want Detroit to succeed," Snyder said. "While the council's action is a positive step, there's no doubt that much work remains. The magnitude of the city's financial challenges means that many difficult decisions lie ahead."

The Detroit case is the highest-profile yet involving a controversial year-old Michigan law that gives the state more power to intervene in financially troubled cities and school systems. Emergency managers have the power to toss out union contracts and strip locally elected leaders of authority. A petition drive aimed at overturning the Michigan law is trying to qualify for the November ballot.

The former manufacturing giant has been floundering financially for years, partly due to the ups and downs of Detroit's automakers and a declining tax base as people and businesses left the city. Past leaders also failed to curtail spending and cut jobs to keep pace with losses in revenue.

When Bing took office in 2009, the city's deficit topped $300 million. He has since cut 2,000 jobs through layoffs and by not filling open positions.

The deal reached Wednesday compels Detroit to meet timelines in putting together city budgets and to accurately update revenue predictions. City departments are expected to be slimmed down or consolidated if savings can be made. Work currently performed by some unionized employees could be outsourced to save money.

Missed deadlines and failure to comply with those and other terms of the agreement could be constituted as a breach of the deal and lead to the state's withholding of revenue sharing and preventing the city from entering the capital markets to sell bonds. At worst, the state Treasurer's office also could place the city in receivership.

The nine-member financial advisory board will monitor how Detroit manages its limited resources and report back to the state. It also will make recommendations to the mayor and help the city in preparing its 3-year budget.

Bing will hire a chief financial officer to supervise finance and budget activities. That person will be selected from a list of candidates agreed to by Bing and Treasurer Andy Dillon.

Still, it likely will be a matter of years before the changes to Detroit's financial and operational structure show results, Dillon said Wednesday.

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