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Detroit and Michigan come to terms on bailout, averting bankruptcy

After weeks of protest, Detroit's city council agrees to a deal that directs budgetary matters to an outside advisory board, but avoids the sweeping state takeover that many residents opposed.

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Detroit Deputy Mayor Kirk Lewis is interviewed in his office in Detroit, March 27.

Carlos Osorio/AP

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Nearly bankrupt Detroit has taken the first step down what is likely to be a long road to solvency, agreeing to strict state oversight but averting a full-blown takeover of its finances. But Michigan has promised no bailout money, and Detroit will be subjected to more stringent review than is customary for floundering cities, as it grapples with how to meet $12 billion in pension and benefit obligations and how to close a $200 million budget deficit.

In a vote late Wednesday, the Detroit city council approved, 5 to 4, a consent agreement with the state that permits tough, outside fiscal oversight from an advisory board. If the council had failed to act, Michigan Gov. Rick Snyder (R) could have appointed an emergency manager, which would have stripped both the mayor and the city council of control of all financial matters.

Compared with similar agreements between state authorities and cities that faced bankruptcy, such as Philadelphia, New York City, and Washington, the deal worked out between Michigan and Detroit gives greater authority to the state should city officials fail to execute changes or fail to meet budgetary deadlines. For example, should Detroit violate certain parts of the agreement, powers of both its executive and legislative branches could shift to the newly appointed chief financial officer and chief operating officer, and the state could withhold state aid or appoint an emergency manager.

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