Review: Detroit not reaching consent deal targets

AP News
Posted: Dec 14, 2012 9:35 PM

DETROIT (AP) — A preliminary review of Detroit's finances has determined that the city is not on target to fulfill promises to the state that allowed the city to avoid having an emergency manager appointed to oversee it, the state Treasury Department said Friday.

The review started Tuesday "has found that a serious financial problem exists in the city," Treasury spokesman Terry Stanton said in a news release. The state will likely appoint a review team to take a closer look at the city's books, he said.

That could lead to the appointment of an emergency manager and state oversight of the city under the state's current emergency manager law. The Legislature passed revised emergency manager legislation this week, but it would have no bearing on Detroit's situation because Gov. Rick Snyder hasn't signed it and if he does, it wouldn't go into effect until March, Stanton said.

There is no timeline under which a review team has to be appointed, according to Stanton.

Detroit's has been experiencing a fiscal meltdown for years, so the finding of the preliminary review by Treasurer Andy Dillon's office is not surprising.

"This is part of the process. There is nothing new here," Mayor Dave Bing said Friday night in a statement. "We continue to be focused on our financial restructuring plan."

But the Democrat Dillon and Republican Gov. Rick Snyder have complained that Bing's restructuring is taking too long to show positive results.

The city is billions of dollars in debt and has a budget deficit of more than $200 million. Detroit has been meeting payroll and paying some of its bills from millions of dollars in bond money released by the state from an escrow account.

Some of the payments have been delayed while the city worked to meet certain "milestones" tied to improving its finances. Most recently, the state withheld $10 million after the City Council failed to approve the contract for an outside law firm to assist Bing.

The council finally approved that $300,000 contract and other measures this week and the state released the money to the city.

But the Treasurer's preliminary review still determined that Detroit has violated the Uniform Budgeting and Accounting Act, which requires the city's budget to be amended as soon as it becomes apparent that an amendment is necessary.

Due to financial reporting problems, the city's cash flow projections also fluctuate monthly. That makes it difficult to "make informed decisions regarding its fiscal health," according to Dillon's office.

An estimate in August projected a cash deficit of $62 million by June 30, 2013. But an October estimate placed the projected deficit at $84 million, while November's had it at $122 million.

Bing has said he will lay off 400 to 500 city employees in the new year, roughly 5 percent of the workforce, to help straighten Detroit's poor public finances and avoid an emergency manager.

Bing, Snyder and Dillon entered into a consent agreement in the spring that would allow Bing to implement his changes with help from the state without an overseer appointed by Snyder.

The cities of Benton Harbor, Pontiac, Flint, Ecorse and Allen Park currently are under managers, as are the Muskegon Heights, Highland Park and Detroit public school districts.

The state Legislature, in an effort to bolster the emergency manager law, passed a bill this week requiring financially troubled local governments to choose one of four state-imposed remedies and replaces a similar law rejected last month by voters. Those options include acceptance of an emergency manager, bankruptcy, enter into mediation or join the state in a consent agreement similar to the current one involving Detroit.

Critics say each is trip-wired to ensure the same thing that voters rejected at the polls: state-imposed oversight.


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