April 14 (Bloomberg) -- Michigan Governor Rick Snyder declared a financial emergency in the Detroit suburb of Lincoln Park, a step that may lead to state control.
Snyder, a 55-year-old Republican, concurred with a state review team that found the city’s deficit of $89,803 is likely to increase by at least $1 million by June 30, even with contract concessions from its police unions.
The governor’s decision means the community of 37,000, adjacent to bankrupt Detroit, could be taken over by an emergency manager with sweeping powers to cut costs, reorganize operations and even change union contracts. Four other Michigan cities are under control of emergency managers -- Detroit, Allen Park, Flint and Hamtramck.
Lincoln Park officials had asked for the state review. Almost half of the city’s general revenue went toward debt and retirement costs in 2012, according to the preliminary study in November. The city diverted $2.5 million to pensions from a water and sewer account.
In December, Standard & Poor’s cut the city’s debt rating seven steps, to two levels below investment grade.
The city has until April 21 to request a state hearing. If the financial emergency is upheld, the city could choose one of four options: a state-appointed emergency manager, a consent agreement with the state to relieve its deficit, mediation with creditors or Chapter 9 bankruptcy.
City officials had said they would seek a consent agreement.
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