Legal challenges stall Detroit's fiscal fix

Reuters News
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Posted: Apr 03, 2012 7:59 PM
Legal challenges stall Detroit's fiscal fix

DETROIT (Reuters) - A plan to fix Detroit's shaky finances through a consent agreement before a Thursday, April 5, deadline remained in limbo on Tuesday amid a swirl of unresolved legal challenges.

The Detroit City Council did not vote on a deal at its meeting on Tuesday. It is scheduled to return to session on Wednesday at 5 p.m. Eastern Time, according to a spokeswoman for Council President Charles Pugh.

Meanwhile, a Michigan appeals court agreed to quickly hear the state's appeal of an Ingham County Court judge's temporary restraining order issued late on Monday that led to the cancellation of Tuesday's meeting of a state-appointed review team charged with recommending how to solve Detroit's fiscal problems. The appeals court could rule as soon as Wednesday, when the case will be fully briefed.

The complaint, brought by community activist Robert Davis, contended the review team's charter ended on March 26 under state law so it was no longer authorized to meet or take action, according to Davis' attorney Andrew Paterson.

The review team had been expected to take up a consent agreement on Tuesday that is being deliberated by Detroit's City Council.

A separate action brought in U.S. District Court by a coalition of the city's labor unions is also casting a shadow over a potential consent agreement.

The unions are asking the court to prohibit the review team appointed by Governor Rick Snyder in December and city officials from taking action on a consent agreement that would impair tentative labor agreements some of the unions ratified last month.

"I'm not ready to decide this case," said federal Judge Arthur Tarnow, who told the attorneys to file additional materials by noon Eastern Time on Thursday. "The likelihood of getting (a judgment) Wednesday is remote."

Thursday is the deadline for the governor to act on the team's recommendations for Detroit.

'BANKRUPTCY NOT AN OPTION'

Without an approved consent agreement, Snyder would be forced to make a decision based on the team's March 26 recommendations that Michigan's biggest city is in severe financial stress but lacks a consent agreement, according to Snyder spokesman Terry Stanton.

Snyder would then have to decide whether or not to declare a financial emergency for Detroit, he added. A financial emergency, which the city could contest in a hearing before the Michigan Financial Authority, could lead to the appointment of an emergency manager, who would essentially run the city for the duration of the emergency.

Michigan's Republican governor and Detroit's Mayor Dave Bing and elected officials have said they prefer a consent agreement over an emergency manager. A scramble is on to get a deal done by Thursday's deadline.

"We appreciate the seriousness with which the Detroit City Council is deliberating. This is one of the most critical decisions in this city's history," Detroit Deputy Mayor Kirk Lewis said in a statement.

"However, Mayor Bing and the administration believe Governor Snyder will act on Thursday, April 5, according to law, regardless of any related, current legal challenges to the process," Lewis added. Legal challenges have repeatedly slowed the work of elected officials and their staff members as they try to craft a comprehensive restructuring plan for Detroit. The deepening financial crisis in Detroit emerged last fall when auditors revealed the city would run short of cash.

Since receiving a draft of the agreement last week, the City Council has listened to hours of testimony from citizens, union officials and community advocates encouraging elected officials to not cooperate with the state.

On Tuesday, outspoken union activist Gregory Murray told the council to exercise "do nothing democracy" in hopes that legal objections to Snyder's actions would put a stop to the state of Michigan's effort to intervene in Detroit's finances.

Proponents of Snyder's plan have said that the city will no longer be able to pay its bills without help from the state.

During the City Council's morning deliberations, President Pro Tem Gary Brown said the council needs to find a solution to financial issues because "bankruptcy is not an option." He said Detroit would spend several years in court and a filing would render the city unable to pay vendors and employees.

"You will exacerbate the problem," Brown said.

The city has won concessions from some of its 48 unions in an effort to avoid a state takeover via an emergency manager. Bing's administration, however, has recommended abandoning those concessions in order to seek another round of negotiations and agreements that would meet Snyder's demands.

(Reporting By Karen Pierog and John D. Stoll; Editing by Padraic Cassidy and Jan Paschal)