GOP Mich. Gov. Snyder, Democratic Detroit Mayor Clash on Fiscal Fix

Tuesday, 13 Mar 2012 06:47 PM

 

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DETROIT — Plodding progress in dealing with Detroit's crisis prompted Michigan Gov. Rick Snyder on Tuesday to push for a consent agreement to save the city from a state takeover — an effort the city's mayor has rejected so far.

The Republican governor said he made the move because a workable plan from city officials was not forthcoming.

"Over time, it has become increasingly clear that may not come to fruition," Snyder said. "If the city cannot implement its own recovery plan to address both short and long-term problems, a consent agreement is the next best option."

The draft document presented to city officials on Tuesday would keep the mayor and city council in power, but create a nine-member financial advisory board that would have considerable oversight of Detroit's finances, including approval of its budget and debt structures. The board would also appoint new officers who would be responsible for the city's financial management and restructuring.

The mayor and council would also have to promise to take various steps in the consent agreement.

Detroit's long-term liabilities are estimated to top $12 billion, while the city's annual budget is put at around $3.1 billion. With the U.S. auto industry's contraction, the city of 714,000 has faced hard times and lost 25 percent of its population between 2000 and 2010.

Detroit Mayor Dave Bing slammed Snyder and criticized his proposal as a way of circumventing the authority of the mayor's office and city council.

"The governor is being disingenuous when he says he has become frustrated by our lack of responsiveness. My team and I have been waiting for several weeks for the governor and his team to respond to the tentative labor agreements and for an offer of tangible financial and operation assistance," Bing said in a statement.

The Democratic mayor added that the proposed consent agreement will not solve Detroit's problems and that the governor has been provided with a "reasonable and achievable" action plan from the city to resolve the financial shortfall with support from the state.

The governor's draft agreement, dated March 12, envisions a broad restructuring of Detroit's government that would cut workers, outsource some services, modify taxes, and potentially sell assets. The oversight board would have final approval of any changes in collective bargaining pacts.

If city officials fail to comply with the consent agreement, the state could cut off revenue-sharing funds or appoint an outside emergency manager to run the city, the draft said.

 

The deal would be sweetened by a plan to allow the city to restructure some outstanding bonds to push $37 million in April 1 and May 1 debt-servicing payments into future years and issue $100 million of new bonds to fund its fiscal 2012 and fiscal 2013 self-insurance payments, according to Tom Saxton, a deputy state treasurer.

"That along with the (bond) restructuring will provide them with significant cashflow relief," he said.

Although Detroit's bond ratings are in the junk category, the state would intercept the city's revenue sharing to make the bond payment. That will improve the ratings on the debt, Saxton said, adding that Detroit officials would have to accept the consent agreement for the bond deal to happen.

Snyder spokeswoman Geralyn Lasher said if the proposed consent agreement fails to win support, the review team that Snyder assembled in December will continue toward a March 26 deadline for recommending whether or not Detroit needs an emergency manager, who would essentially run the city in lieu of its elected officials.

"An emergency manager is not what the governor wants to see happen," she added.

Lasher said the state was still operating under the assumption Detroit will run out of money in April or May, hurting its ability to deliver basic city services to the public.

"The focus has to be to make sure people get paid and when (residents) call 911, the police actually come," she said.

If an emergency manager is tapped for Detroit, the move would trigger the termination of interest-rate swap agreements, forcing the city to pay investment bank counterparties an estimated $400 million unless the agreements can be restructured.

The 10-member Detroit review team has until Friday to formulate its opinion of the proposed consent deal. As for the city council, Michigan Treasurer Andy Dillon said he plans a meeting with its nine members next week.

Earlier on Tuesday, city council members expressed concern about a previous draft of a consent agreement proposal that called for more drastic intervention from state appointees. Under that plan, elected officials would have lost considerable power.

© 2014 Thomson/Reuters. All rights reserved.

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