March 13 (Bloomberg) -- Detroit’s finances would be placed under a nine-member advisory board in a proposal by Michigan Governor Rick Snyder to avoid a state takeover and erase a deficit approaching $270 million.
Mayor Dave Bing rejected the plan, issuing a statement today saying it trampled on “the electoral rights of the citizens of Detroit guaranteed by the democratic process.” Bing’s opposition may torpedo Snyder’s plans to resolve the city’s financial crisis without the appointment of an emergency manager with even broader powers to rein in costs.
The so-called consent plan for the state’s biggest city would give Bing some of the authority of an emergency manager, according to a draft proposal released today by the state treasurer’s office. The mayor would still lack sole ability to undo union contracts.
The deal would include $137 million in cash for the city to avert payless paydays in May, said state Treasurer Andy Dillon. He said the money would come from restructuring some of the city’s debt and borrowing from private sources, with the state’s backing.
Snyder, a Republican who has said he wants to avoid a state takeover of the largely Democratic city, privately pitched the plan to the City Council today. The proposal was also presented to a 10-member state review board that is to recommend action to Snyder by March 27 to fix the city’s finances.
Under the consent agreement, the review team would hold off declaring a financial emergency and the advisory board would assume control of Detroit’s finances, including the power to appoint the city’s chief operating and chief financial officers.
All collective-bargaining agreements would need to be approved by the advisory board. The City Council and mayor would appoint six of the board’s nine members.
The review team met and adjourned today to give its members more time to consider the proposal. The team must approve any financial recovery plan for the city of 714,000, the home of General Motors Co., the world’s largest carmaker.
Snyder’s proposal calls for reducing the number of city employees and vendors, outsourcing some functions and departments, modifying corporate taxes and improving Detroit’s ability to collect local taxes, including possible amnesties.
If the plan isn’t followed, or is challenged in court by city employees or unions, Snyder could appoint an emergency manager with sweeping authority to cut costs, including nullifying existing union contracts.
Responding to Bing’s rejection today, Ken Silfven, a spokesman for Snyder, said the governor didn’t want to be sidetracked by criticism of his plan.
“The city’s future is too important,” Silfven said in an e-mail. “We can do this if we pull together, but time is not a luxury that we have. There’s too much at stake for this great city and our state. Failure is not an option.”
The proposal was also criticized by some council members as an illegal power grab by Snyder. The council referred it for review to its research and analysis staff.
“This does nothing for the city except take away its rights,” said Councilwoman JoAnn Watson.
Detroit will run up a $270.2 million deficit by the end of June unless steps are taken to cut spending, the council said in a Feb. 8 report. State Treasurer Dillon has said it could run out of cash by May.
In his statement, Bing, a 68-year-old Democrat, called Snyder’s plan “disingenuous,” saying it dismisses his “unprecedented effort and concessions made by the city’s labor unions to avoid an economic catastrophe.”
Bing in February negotiated wage and benefit concessions with unions that represent most of Detroit’s 11,000 municipal workers. He also began firing 1,000 of them as part of a plan to save $360 million through the end of the next fiscal year in June 2013.
The agreements cut pay 10 percent for all employees except police and firefighters. None have been ratified by union members.
The council report expressed doubts that the union concessions are enough to avoid continuing deficits.
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