Detroit may use unpaid leave to deal with cash crunch

Reuters News
Posted: Nov 21, 2012 5:48 PM
Detroit may use unpaid leave to deal with cash crunch

By Bernie Woodall

DETROIT (Reuters) - Detroit plans to put workers on unpaid leave starting January 1 to prevent the city from running out of money if the city council continues to balk at reform measures and the state of Michigan blocks the release of much-needed funds.

The furloughs and other cost-cutting measures outlined by Mayor Dave Bing and top city officials on Wednesday are meant to offset $30 million that Michigan is withholding from the city unless certain conditions are met.

"These actions are necessary to keep the city from falling into further financial distress," Bing told reporters.

While the mayor said public safety services would not be adversely affected, details on the furloughs were not available.

The nine-member city council has resisted some of the measures aimed at restoring Detroit's fiscal health sought by the state and agreed to by Bing. Earlier this year, the city reached a consent agreement with Michigan that gave the state some oversight and allowed the mayor to disregard collective bargaining agreements. But the city has been criticized by state officials for slow progress on its financial reforms.

On Tuesday, the city council rejected one of the conditions for the state's transfer of an initial $10 million - the proposed hiring of law firm Miller Canfield Paddock & Stone to help with legal issues related to the financial stability deal with the state. That raised the risk of Detroit running out of money by the end of the year.

Projections presented this month by city officials to an oversight board in charge of Detroit's finances showed the city's weekly cash flow at just $4.1 million in mid-December and on course to drop to a negative $4.8 million a week at the end of the year.

Jack Martin, Detroit's chief financial officer, said that scenario will not happen.

"The mayor, the administration is planning to implement additional cuts to ensure that the city won't run out of money," Martin said.

Officials also said the city would not miss any payments on outstanding debt. A cash-flow crisis earlier this year led Detroit to warn it could default on some bonds. That was averted by the sale of new debt that raised $137 million for the city. While Michigan has released some of that money to Detroit, $30 million was tied to specific conditions for the release of $10 million this week and $20 million on December 14.

The council rejected the Miller Canfield contract, but has approved two other requirements set by the state - deals with Ernst & Young for a cash-flow analysis and with consulting and actuarial firm Milliman to work on the city's pensions.

City County President Charles Pugh said on Tuesday a different law firm might be acceptable to council members.

A city official said it would take another law firm hundreds of hours to catch up with the work done already by Miller Canfield.

Bing, who defended his right to choose a law firm, said he was open minded about tweaking his requests to the city council, but noted that "the state is holding the cards at this point."

Detroit has been hit by a sharp fall in population and tax revenue, which helped trigger Michigan's intervention to get its largest city back on good financial footing.

(Reporting By Bernie Woodall. Additional reporting by Karen Pierog; Editing by Sandra Maler and Andre Grenon)