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Michigan’s Governor Declares Financial Emergency for Detroit

March 1, 2013

Michigan’s Governor Rick Snyder has declared a financial emergency for the City of Detroit. He has given the City's government 10 days to request a hearing to possibly avoid the governor's appointment of an emergency financial manager for the City. Snyder cited a number of issues with the City’s financial situation, from overestimating its revenues to ballooning long-term liabilities, as the reason for his decision.

According to Snyder's announcement, the City has 10 calendar days (from March 1) to request a hearing before the governor or his designee. After the hearing, or if the 10-day period expires without one, the governor will either confirm or revoke his decision to appoint an emergency financial manager.

Snyder said that an independent, six-member financial review team he appointed on Dec. 18, 2012, found that Detroit is in the middle of a financial emergency and that there isn’t a satisfactory plan to address the crisis. The review team gave its report to Snyder on Feb. 19.

"Additional action is needed to fix the financial crisis in Detroit," Snyder said. "Chronic budget troubles have taken a significant toll on everyday life for citizens in the city. Detroiters deserve to feel safe when they walk down the street, to have their street lights on, to have the bus show up to take them to work. Working together in partnership we can and will develop solutions to fix the city's finances, stop the cycle of overspending and one-time fixes and collectively get Detroit on the path being a great city once again."

Snyder described the City’s financial situation as follows in a statement. He said that in 2011 and 2012, the City budgeted $1.275 billion in revenue but ended up taking in only $1.1 billion. Between 2005 and 2011, the City borrowed more than $600 million to cover its short-term obligations. Regarding its liabilities, the City’s long-term debt (excluding pension obligations) exceeded $6.8 billion on June 30, 2012. The City’s total long-term debt is $14.99 billion, according to Snyder.

Snyder went on to say that despite attempts at reform; the City is facing a cash deficit of $100 million, and a review team found the City would have needed to increase revenue, or decrease expenditures, by $15 million per month from January to March 2013 to remain financially viable.

Detroit’s Mayor Dave Bing said in response to Snyder’s decision to request a hearing, and to the governor’s comments regarding whether Detroit’s City government has a plan to solve the City’s fiscal problem, that his administration has worked to implement a restructuring plan for the City.

Bing added that the State and the Financial Advisory Board reviewed and accepted the plan but that many factors, including the City Charter, labor agreements, litigation, scarce financial and human resources, and the City government’s structure are limiting the City government's ability to put the plan into action. He asked for “further exploration of ways to mitigate these barriers.”

“The Governor has made his decision, and it was his decision alone to make. While I respect it, I have said all along that I do not favor an Emergency Manager for the City of Detroit," Bing said. "I will look at the impact of the Governor’s decision as well as other options, to determine my next course of action."

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