By Bob Carr and John D. Stoll
DETROIT, April 4 (Reuters) – Detroit avoided a takeover by
the state of Michigan on Wednesday after both a review team and
the city council approved a consent agreement that will put the
city’s struggling finances under stricter control.
The deal, which was passed by the city council in a 5-to-4
vote, “ensures that the future of Detroit is determined by
Detroiters and its elected officials,” Detroit’s Deputy Mayor
Kirk Lewis said after the late vote.
Earlier in the day a review team appointed by Michigan
Governor Rick Snyder also approved the deal to avoid the
appointment of an emergency manager to run the city’s finances.
The decision came after a state appeals court lifted a temporary
restraining order that had stopped the team from meeting.
Detroit has suffered a staggering population decline in
recent years, causing its revenue base to shrink. Companies that
once paid hefty taxes, including General Motors Co, have
reduced their presence in a city long synonymous with the auto
industry.
“We all want Detroit to succeed. This agreement paves the
way for a good-faith partnership that will restore the fiscal
integrity taxpayers expect and ensure the delivery of services
that families deserve,” Snyder said.
“The magnitude of the city’s financial challenges means that
many difficult decisions lie ahead. We must build on this spirit
of cooperation and be willing to act in the city’s long-term
interests,” Snyder said.
Under the deal, Michigan will install a chief financial
officer, a nine-member advisory board and a project manager to
assist the mayor and ensure the tenets of the agreement are
fulfilled.
The consent agreement “puts us on track to restructure our
City financially and reestablish an infrastructure to make sure
Detroit never faces these financial conditions again,” Lewis
said. Mayor David Bing was unavailable for comment as he was
recently readmitted to the hospital for the second time in a
month.
The deal will give the city some state oversight, while
requiring more rigorous short-term revenue estimates as well as
a three-year budget projection. The state could eventually
appoint an emergency manager to essentially run Detroit if
covenants in the agreement are broken.
“It’s not going to be easy. We’re going to have to do more,
to do more cutting, some public-private partnerships. We’re
going to still have to make adjustments. This is just the
start,” said Charles Pugh, president of the city council.
The city, which was expected to run out of cash in May,
would get some relief through the restructuring of some
outstanding debt and the issuance of new debt.
Under the deal it is planned that some outstanding bonds
will be restructured to push $37 million in April 1 and May 1
debt-service payments into future years, and issue $100 million
of new bonds to fund its fiscal 2012 and fiscal 2013
self-insurance payments.
Detroit’s bond ratings are in the junk category.
Detroit would also have to rework its collective bargaining
agreements with unions, some of which have filed a challenge in
U.S. District Court claiming the consent agreement would
unfairly impair labor deals ratified by their members last
month.
“Now we will work on coming up with a restructuring plan
with the state. We have to make sure that our 10,000 employees
don’t miss a payment,” said Saunteel Jenkins, a member of city
council.
