Detroit Council Argues Against Naming State Fiscal Overseer

Detroit doesn’t need an emergency manager to put its finances in order because it’s doing so on its own, City Council leaders said in an attempt to head off a state takeover.

Irvin Corley, a council fiscal analyst, said in a hearing in Lansing today that while Detroit is in crisis, “We feel there is a satisfactory plan to address the city’s emergency.” That strategy is inadequate and too slow to solve growing deficits, countered Fred Headen, a state treasury legal adviser.

Michigan Governor Rick Snyder declared a crisis March 1 after a fiscal review, paving the way to appoint an emergency financial manager. The Detroit Free Press reported that Kevyn Orr, a Washington lawyer for the Jones Day firm, is Snyder’s leading choice for the job.

Mary MacDowell, a chief deputy state treasurer presiding over the city’s appeal hearing, can recommend to Snyder, a 54- year-old Republican, that he reconsider his emergency declaration or continue with the plan to install a manager.

During the hour-long hearing, council representatives argued that an April agreement to fix municipal finances hasn’t had time to pay off. They said a second state review begun in December exaggerated the city’s long-term liabilities by lumping general-obligation debt with water-department revenue bonds supported by a reliable stream of money.

“Our position is stay the course, continue the current consent agreement,” said David Whitaker, an attorney for the council.

Helping Hand

City Council president Charles Pugh, who attended the hearing, said afterward that the council presented a “compelling” case. He said rather than an emergency manager, the city needs help from the state collecting unpaid taxes and getting rid of abandoned homes.

A handout from the city today says it has reduced its workforce to 11,396 in 2012 from 20,799 in 2003, a 45 percent cut. As of Jan. 31, the actual head count was 9,696, according to the document. Cuts this year saved $50 million, it said.

Mayor David Bing didn’t join the city council in contesting the state review.

That Feb. 19 report concluded that the city had no adequate plan to close deficits that reached almost $327 million in 2012 and to meet long-term obligations of more than $14 billion.

If Snyder sticks with his call for an overseer with broad powers to run Michigan’s largest city -- including dismissing workers and abrogating union contracts -- the council can take its case to the courts.

No Enthusiasm

Detroit, home of General Motors Co. (GM), would become the sixth Michigan city under a state-appointed manager. Detroit’s school system is already run by an overseer.

The city’s April consent agreement with the state aimed to cut costs while making changes to enhance safety, improve bus service and restore lighting to darkened neighborhoods.

Headen, who was a member of the review team, testified today that the city showed a lack of enthusiasm for the April agreement, and a second deal is not an option.

“We took issue with the city officials to abide by its terms,” he said.

Troubled Cities

Like the Motor City, communities from California to Rhode Island have coped with deficits, climbing pension and debt costs and falling property values while revenue continues to show the effects of the recession that ended in June 2009.

Opponents of Michigan’s emergency-manager law say appointees usurp elected officials. Critics also fault the law as protecting bondholders at the expense of citizens and workers.

Supporters say it restores stability without the costs and collateral damage of bankruptcy protection. Treasurer Andy Dillon said an emergency manager is preferable to bankruptcy because the state and city retain more control over the outcome.

A three-member panel called the emergency loan board -- all appointees of the governor -- would select an emergency manager. Under a law that takes effect March 28, the council could remove the overseer after 18 months, with a two-thirds vote.

To contact the reporter on this story: Chris Christoff in Lansing, Michigan, at cchristoff@bloomberg.net.

To contact the editor responsible for this story: Steve Merelman at smerelman@bloomberg.net.

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