History suggests Detroit bid to avoid state takeover is futile

Reuters News
Posted: Mar 10, 2013 3:45 PM
History suggests Detroit bid to avoid state takeover is futile

By Karen Pierog

(Reuters) - The Detroit City Council will argue its case on Tuesday against a state takeover of the city, but history shows a successful challenge would be unprecedented.

So far, none of the five Michigan cities declared in financial emergency has been able to change the state government's position through a hearing, Terry Stanton, a spokesman for the Michigan Treasury Department said.

Leaders of the city of Detroit have been unable to agree on a united position for the hearing. Detroit Mayor Dave Bing declined to join the appeal and last week acknowledged that an emergency manager will eventually be appointed by the State of Michigan to run the city's finances.

But the council forged ahead anyway, a possibility under a 1990 state law that provides for a hearing before Republican Governor Rick Synder can go ahead and appoint an outside manager.

If Snyder reaffirms a financial emergency for Detroit in the wake of the hearing scheduled for about an hour, the appointment of an emergency manager could come quickly.

The City Council could then take their case to a state court. Stanton said only two Michigan cities, Highland Park and Flint, went to court during a similar process and both eventually ended up with state-appointed managers anyway.

Bettie Buss, a senior research associate at the public-policy group Citizens Research Council of Michigan, agrees it would be an uphill battle.

"Essentially, (the court has) to find it was an abuse of power and that has simply not happened," she said.

Some residents of Michigan largest city already are protesting the looming takeover of Detroit's finances because they feel an unelected manager would take away their voting rights.

Snyder has said he has identified a top candidate for the job, but he declined to give a name.

The state law currently in effect restricts the hearing to whether or not the state government had reasonable evidence to back up its conclusions that Detroit faces a financial emergency.

The birthplace of the U.S. automotive industry and Motown music has suffered under a steep population decline that has left the city with declining tax revenue, rising crime and a costly and out-dated government structure, A report commissioned by Snyder has said that the city of 700,000 has "operational dysfunction" in its government, a crushing debt of $14 billion and a current fiscal year deficit of $100 million.

None of the major players from Michigan or Detroit, such as Snyder or Detroit's mayor or city council members, will participate in the hearing, underscoring what could be the futility of the process.

Detroit will be represented by the heads of its research and fiscal analysis divisions and the city's corporation counsel department. Representing the state will be, Frederick Headen, a legal advisor for the Michigan Treasury Department, according to State Treasury Department's Stanton.

An emergency financial manager in Detroit will have authority over the cash-strapped city's fiscal affairs, including control over contracts, asset sales, layoffs and consolidations. That manager could also recommend the city file for bankruptcy. That move, if allowed by the state, would mark the biggest Chapter 9 municipal bankruptcy ever in the United States.

(Reporting by Karen Pierog; Editing by Tiziana Barghini, Greg McCune and Sofina Mirza-Reid)