Bing Sees Progress on Detroit’s Debt

“The picture is not all doom and gloom,” Mr. Bing said in his annual State of the City address. “Every day there is more hope and possibilities. Like many Detroiters, I, too, am a fighter. We can’t, and won’t, give up on our city.”

For years, Detroit has wrestled with financial problems, partly the result of a shrinking tax base caused by a shrinking population. But city officials say they have made a series of spending cuts in recent months — including furloughs and layoffs — aimed at avoiding an immediate cash shortfall. Less than 9,700 city workers remain on the job, more than a thousand fewer than were on the city’s payroll last June, saving about $50 million annually, the city says. And Mr. Bing’s administration says it has reduced spending to $1.1 billion in the 2013 fiscal year from $1.4 billion in 2009.

Whether that will be enough to satisfy state officials, who are awaiting a review of the city’s finances this month, is uncertain. Among the troubles for Detroit — once the nation’s fourth-largest city, now 18th — is its long-term debt, estimated in 2011 at more than $12 billion by state officials.

If the review of Detroit finds the city’s circumstances dire, state officials could soon appoint an emergency financial manager who would have relatively broad powers to remake the city’s budget. “The options — they aren’t pretty,” Mr. Bing, who has yet to say whether he will seek re-election this year, said in his address. “But the consequences are even less attractive.”

Detroit leaders have long said they would prefer to solve their city’s problems on their own, and the prospect of an outside manager is freighted with political tensions between state leaders, dominated by Republicans, and those in the city, most of whom are Democrats. Still, Gov. Rick Snyder has been considering a pool of possible candidates for the emergency manager job should that become necessary, his office said this week.

Around the country, states have used a variety of approaches — from appointed receivers to oversight boards — to step in when cities are running into severe financial trouble. A financial control board helped New York City regain its footing in the 1970s. Still, the role and authority of such bodies range widely, as do opinions about whether they ultimately work. And Detroit had already been overseen by a financial advisory board that includes state officials, under an agreement reached with the state last year as the city tried then to avoid an outside manager.

Under Michigan law, an outside manager could eventually help lead a financially troubled city into bankruptcy proceedings, an outcome that few in Detroit or Lansing, the capital, see as wise or likely but that some have come to talk about as a real consideration.

If Detroit were eventually to pursue a bankruptcy filing, it would be the most populous American city to do so, and it would amount to the nation’s largest municipal bankruptcy in terms of its size of debt. Bankruptcy filings, known as Chapter 9 for such entities, are rare, complicated, slow and expensive, experts say. States like Michigan have a say in whether a municipality can pursue bankruptcy in the first place, and they have plenty of reasons to avoid such an outcome.

Since the 1930s, 643 government entities — and mostly small taxing authorities rather than major cities — have filed for Chapter 9 bankruptcy, and James E. Spiotto, a municipal bankruptcy expert at Chapman Cutler, a law firm in Chicago, cautioned that such a move by Michigan’s largest city would create all sorts of troubles, in terms of uncertainty, stigma and economic development.

“Chapter 9 is not a solution, it’s a process,” Mr. Spiotto said. “And it’s one that is going to have ripple effects for surrounding communities and the rest of the state. It was always intended to be the last, last resort.”

Article source: http://www.nytimes.com/2013/02/14/us/bing-sees-progress-on-detroits-debt.html?partner=rss&emc=rss