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Detroit and Michigan come to terms on bailout, averting bankruptcy

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Detroit’s agreement is more stringent than those in other financially strapped cities “given the history of corruption and mismanagement that has been very well documented at this point” in Detroit, says Eric Scorsone, a professor of economics at Michigan State University in East Lansing.

However, Mr. Scorsone says the consent agreement fails to specify how to ease the city’s long-term cost burdens, such as its retirement obligations. Also problematic: The agreement does not define the criteria for success in renegotiating union contracts of public employees.

“There are a lot of pitfalls here," he adds. "The state was trying to be creative and compromise, but in a way, it made life a little more difficult potentially."

Michigan State Treasurer Andy Dillon said late Wednesday that it is likely to be five years or more until the city sees a turnaround. “The city didn’t get here overnight, so it’s going to take awhile to get it back on its feet,” he said.

In earlier drafts of the agreement, Detroit's city council had requested state funds to help ease its crushing pension obligations, as well as its $200 million budget deficit.The current agreement does not include a cash infusion, although Mr. Dillon said the governor is willing to direct money to Detroit “if he sees progress.”

“At some point we’ll want to invest in the city,” he added.

Detroit Deputy Mayor Kirk Lewis praised the vote, calling it “a pivotal moment in Detroit’s history” for beginning “the monumental task of stabilizing Detroit’s financial operations.”

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