In recent days, it has been reported that the City of Detroit may be next in line for a Chapter 9. The city’s top options are for Michigan Governor Rick R. Snyder to appoint a financial manager, file bankruptcy, or submit to neutral evaluation or mediation. Last week, a review team assembled by state Treasurer Andy Dillon said that all signs point to a Motor City financial emergency. As reported by The Huffington Post on Thursday:
With 700,000 residents, Detroit could become the largest city in American history ever to enter Chapter 9 municipal bankruptcy. But Snyder has stated that he’s reluctant to go down that path.
While the governor has several options under Michigan law for dealing with the city’s financial emergency, a major tug-of-war has revolved around Michigan’s emergency manager law, Public Act 4. The so-called PA4 replaced its predecessor Public Law 72 in 2011 under Snyder’s watch. PA4 was repealed by voters in November 2012. More recently, however, “Republican lawmakers . . . passed a new emergency manager law, known as Public Act 436, which goes into effect March 28 . . . . Much like PA4, the new law vests emergency managers with considerable powers over the municipalities they are appointed to run.”
PA436, however, provides for a neutral evaluation or mediation option. Although mediation has not been a top consideration thus far, it is available to leaders as an alternative to the appointment of a financial manager or Chapter 9. Governor Snyder has said he supports giving interested parties, including the local government, bondholders, unions, and pension funds, and the city’s creditors an opportunity to compromise.
The review team noted the severity of the city’s financial crisis:
Detroit’s unfunded pension liabilities and long-term debt total almost $15 billion, and without new budget cuts or an infusion of cash, the city’s short-term debt for the fiscal year ending in June will top $100 million. As soon as this summer, Detroit may not be able to pay city workers, staff fire engine rigs or mow the grass at the city’s under-maintained parks.
These projections apparently only underscore the city’s fiscal situation, as “auditing errors, operational dysfunction and systemic challenges [also] hamper reform.” Additionally, protestors, including mostly African-American activists, have “opposed state intervention . . . call[ing] the [emergency manager] law undemocratic . . . . [joining] hands [in the governor's office building] pray[ing] for local control. “
“Mayor Dave Bing . . . has insisted his administration is capable of solving the city’s financial problems without a state takeover.” The city’s other politicians and citizens, however, have voiced differing opinions regarding the financial manager and bankruptcy options. See
Letters: An emergency manager or bankruptcy for Detroit?, The Detroit Free Press, http://www.freep.com/article/20130301/OPINION04/303010036/Letters-An-emergency-manager-or-bankruptcy-for-Detroit-?odyssey=mod_sectionstories, Mar. 1, 2013.
Quotations from Ashley Woods, Detroit Financial Emergency: Is Mediation An Option For Michigan Gov. Rick Snyder?, The Huffington Post, http://www.huffingtonpost.com/2013/02/28/detroit-financial-emergency-neutral-evaluation_n_2741938.html, Feb. 28, 2013.