Fiscal emergency declared in Detroit by Michigan governor

Gov. Rick Snyder has a candidate in mind to take over the struggling city's finances, though he did not identify that person when he made his declaration Friday.

By , Reuters

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    Gov. Rick Snyder of Michigan declared a financial emergency in Detroit on Friday, pushing the city closer to having a state-appointed emergency manager control its finances.
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Michigan Governor Rick Snyder on Friday formally declared Detroit in a fiscal emergency and said he had identified a top candidate to take over financial management of the destitute city.

The declaration virtually assures that the state of Michigan will assume control of Detroit's books, though Snyder was careful to say there is still a window of 10 days for city leaders to convince him otherwise.

"I believe it's appropriate to declare the city of Detroit in financial emergency," Snyder told a forum of community leaders at a Detroit public television station.

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Detroit has faced the steepest population decline of any major American city in recent decades. Once the fifth largest US city, which shone as the birthplace of the US automotive industry and Motown music, it now ranks 18th in size with about 700,000 people - after suffering a 25 percent decline in population between 2000 and 2010.

Snyder would not identify the top candidate to run Detroit or say whether the person was from Michigan or outside the state. Some residents have said he should name an African-American to manage a city that is 83 percent black.

Referring to the candidate, the Republican governor said, "They have vast experience working on relationships, they have strong financial knowledge, strong legal knowledge and that ability to say how do we build teams and work together," the Republican governor said of the candidate.

The emergency manager will eventually have vast powers to develop a financial plan, revise or reject budgets, consolidate departments, reduce or eliminate the salaries of elected officials, sell eligible city assets, lay off workers and renegotiate labor contracts.

With the exodus of residents and jobs as the auto industry contracted, the city has suffered from declining tax revenue and rising crime while saddled with the infrastructure and labor costs of a bygone era.

"We went from the top to the bottom over the last 50 or 60 years," Snyder said of the city.

The immediate reaction of Detroit officials and residents was skepticism about the move, which would strip the elected leadership of the city of much of their power.

City Council President Pro Tem Gary Brown said he was opposed to the move because it, "eliminates the democratically elected leadership in our city."

Detroit officials now have 10 days to request a hearing with the governor about his decision. Snyder said the hearing would be held on March 12. The nine-member city council has been preparing to argue that Detroit should not have an emergency manager and could also appeal the decision in state court.

After the hearing, Snyder will either confirm or revoke the declaration of emergency. If he confirms the emergency, as expected, management of Detroit's fiscal affairs would revert to a board composed of three state officials who will be Snyder appointees. The board would formally appoint an emergency manager, although in practice Snyder will make the final decision.

A court appeal of Snyder's decision would not delay the appointment of a manager, who could ultimately recommend Detroit file for bankruptcy in the largest such municipal filing in US history.

Snyder based his emergency declaration on a report of experts that described a city sinking under more than $14 billion of debt and on track to end its current fiscal year $100 million in the red. Snyder said that Detroit's creditors should be brought to the table to renegotiate debt terms by possibly delaying or relieving payments.

"This should be part of the strategy that needs to take place," he said.

A Michigan law that takes effect March 28 will allow existing emergency financial managers to remain in place and give them additional powers, including the ability to revise or terminate collective bargaining agreements.

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