Michigan Town's Bankruptcy Bid a Harbinger, Governor-Elect Says

Michigan Governor-elect Rick Snyder said a Detroit suburb’s effort to enter bankruptcy is an “early indicator” of the depth of financial trouble faced by hundreds of communities in the state.

There are “wealthy communities that are not in that different a position” from Hamtramck, said Snyder, a Republican who is a former computer-company executive.

“They simply haven’t had the day of reckoning arrive yet that is liable to happen in the next two or three years, with the way property tax revenues are going,” Snyder said yesterday in an interview at the Republican Governors Association meeting in San Diego.

Hamtramck, a former Polish-American enclave that adjoins Detroit, sought the approval of Michigan treasury officials last week to file for Chapter 9 bankruptcy, the Detroit Free Press reported. The city warned that a tax dispute with Detroit means that it faces a deficit of at least $3 million and will run out of money by Jan. 31, the newspaper said. Chapter 9 bankruptcy would let the city extend debt maturities, reduce principal or interest or to refinance, according to the Administrative Office of U.S. Courts.

Democratic Governor Jennifer Granholm said Nov. 17 that bankruptcy is a poor option for the city and proposed state loans or a bond authorization to keep it afloat. Hamtramck officials plan to seek a meeting with Michigan’s treasurer to press the idea, the Bond Buyer reported yesterday.

Stressed-Out Cities

Hamtramck’s situation speaks to the broader issue of municipalities under stress from foreclosures, investment losses and unfunded pension liabilities. In Michigan, where the September unemployment rate was 13 percent, the city of Detroit and the state-controlled Detroit Public Schools have each considered bankruptcy.

At the same time, the state faces a projected budget deficit of $1.4 billion, according to an analysis by the Michigan Senate Fiscal Agency. In 2008, there were 68 communities with deteriorating financial conditions, the state’s Treasury Department said.

The list is much longer now because of financial damage from the recession, said Snyder, 52, former chairman and presidents of Gateway Inc. He said he wants to develop an early- warning system to deal with municipal finance crises before they spin out of control.

“The most challenging period is probably about 2013 to ’15,” Snyder said. “Literally, there could be hundreds of jurisdictions.”

To contact the reporter on this story: Tim Jones in San Diego at tjones58@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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