Detroit Headed For Negative Bank Balance Within Weeks

DETROIT, MI &#8211 Under Michigan law, an emergency manager has the authority to lay off or cut the pay of employees, outsource services, merge and reorganize departments, overturn ordinances, alter the budget, cancel vendor contracts, sell city assets and abandon labor agreements.

Unfortunately, the person tasked with navigating a distressed city around fiscal ruin does not come with a big bag of bailout money.

As questions about the possibility of payless paydays and service cuts swirl from Detroit’s City Hall to its neighborhoods, it’s unclear whether the appointment of an emergency manager would do much to halt a financial collapse.

What Detroit desperately needs is an influx of cash.

“We need $105 million just to get through the rest of this fiscal year and be able to pay our bills and make payroll,” said City Council President Pro Tem Gary Brown. The fiscal year ends June 30.

But just days before Mayor Dave Bing presents his third, and likely most important, State of the City address of his term, his appointees are optimistic.

“The mayor is confident we’ll be able to meet the city’s cash-flow needs in the short term, and he continues to work on a long-term solution,” said Kirk Lewis, Bing’s chief of staff.

No one knows whether Gov. Rick Snyder will appoint someone to take over Detroit’s finances, but the city’s lack of money makes for a precarious situation as officials continue to prioritize which vendors are essential to keep the city running.

A quick fix to saving millions could come in the form of massive employee layoffs.

Detroit needs about $60 million to operate each month, and the city is rapidly burning through its general fund.

By Monday, Detroit is projected to have just $42.2 million in the bank. Further forecasts show that by April 12, the city will have only $2.5 million; it will hit a $9.5-million negative balance by May 12; and end the fiscal year on June 30 with a $46.8-million deficit.

“It’s all a mess as far as I can see. I am very depressed about the whole thing,” said Edward Rago, who served as budget director under Mayors Coleman Young and Dennis Archer. “They had cash projections back in November that they were going to run out of cash. … I hate to use the word hopeless, but we are there.”

In December, Snyder named a 10-person financial review team to determine whether the appointment of an emergency manager is necessary in Detroit. The team is expected by March 28 to make a recommendation.

The governor then has 10 days to decide whether the local government is not in a condition of severe financial stress; is under severe financial stress and a consent agreement containing a plan to resolve the financial stress is appropriate; or a financial emergency exists and a manager must be appointed.

An emergency manager would be expected to implement long-term structural changes to help secure financial stability. The law gives a manager 45 days to develop a written financial and operating plan.

Four Michigan cities — Pontiac, Ecorse, Flint and Benton Harbor — already have state-appointed managers.

The city’s financial situation has been a priority for months, said Terry Stanton, spokesman for state Treasurer Andy Dillon. “When the preliminary review started last December, Treasurer Dillon noted that given the mayor’s description of the city’s financial condition, and the prospect that the city could run out of cash in a matter of months, it was imperative that the review process run parallel to the city’s continuing efforts to develop its own financial plan.”

Bing presented a financial-rescue plan in January that he said could shave $102 million off the budget in the short term, and save the city $360 million during the next 18 months.

Much of the savings hinged on wage and benefit concessions from Detroit’s 48 labor unions. Although tentative agreements were reached with a majority of the bargaining units, the new contracts have not been ratified. Furthermore, the agreements don’t reach far enough in savings, Brown said.

“The $102 million is the projected savings in our deficit-elimination plan, but we won’t know the outcome until the tentative agreements have been ratified,” Lewis said.

Tim Wittebort, an attorney with Howard & Howard in Royal Oak and an expert on municipal finances, said he believes the city and state will enter into a consent agreement, which would allow officials to privatize services and impose union contracts once they expire. Snyder, he said, won’t allow the city to file for bankruptcy because it would cause the state’s bond rating to drop.

“The mayor and City Council need to understand that with or without the appointment of an emergency manager, they are going to have to make some hard decisions very soon,” said Wittebort, who served on Pontiac’s financial review team.

“You can’t print money — someone or something is going to have to go without.”

From The Detroit Free Press.

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