Detroit teeters on brink of bankruptcy as state takeover looms
A state-appointed commission looking at ways to help Detroit avoid bankruptcy must deliver its report by Monday. A state takeover is a real possibility.
A state-appointed commission on Wednesday declared that the city is in the midst of a “severe financial emergency," as city and state officials scramble to find a way to keep the city from bankruptcy.
Facing a budget deficit of $200 million, Detroit is burning up cash reserves for basic services. The 10-member financial commission, appointed by Gov. Rick Snyder (R), has until Monday to deliver an action plan, which could include a takeover by state government. Governor Snyder will have 10 days to make a decision.
Although the city has long been under financial duress, the crisis escalated Tuesday after Moody’s Investors Service issued two separate downgrades of the city’s bond rating. Moody's noted that key parts of Detroit's rescue plan "are yet to be secured,” including reliance on debt financing to stabilize city operations and ongoing labor-concession negotiations.
“Historically speaking, the situation has not been as serious” as right now, says Eric Scorsone, an economist at Michigan State University in East Lansing. “Detroit has gone through a number of periods where it has had financial trouble and had to borrow money, but this is the most serious partially because revenue declines have been so significant.”
To avoid the takeover of a state-issued emergency financial manager, Detroit Mayor Dave Bing and the City Council are assembling their own plan that would cede some control, but not all, to the state government. The city has yet to deliver the plan to Snyder, who told the Detroit Free Press Wednesday that Mayor Bing “should not expect to give us something and have us sign it. The key is … we need to have a dialogue.”