Panel finds Detroit in dire shape; up to governor to act

DETROIT Wed Feb 20, 2013 5:06am IST

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DETROIT (Reuters) - A state-appointed team of experts unanimously concluded on Tuesday that Detroit faces a fiscal emergency, leaving Governor Rick Snyder with a controversial decision whether to appoint an emergency financial manager to force changes.

Michigan's treasurer, Andy Dillon, who was part of the six-member review team, said he did not expect the city to be forced into filing for bankruptcy, the most-feared and most radical action that could be taken to impose a new order on Detroit's troubled finances.

The review team appointed by Snyder said Detroit, which has been hemorrhaging cash amid a declining population and a decimated economy, has not made the financial decisions that will put the city on a path to recovery.

"The team collectively believes the city needs assistance in making the difficult decisions necessary to achieve the significant reforms that are so crucial to the city's long-term viability," Dillon said in a statement.

The report did not officially recommend the appointment of an outside manager, although Dillon said the review team believes one is needed. The team, however, felt the decision should be left up to Snyder, he said.

"The city continues to struggle mightily beneath the weight of chronic deficits and its long-term liabilities," Ronald Goldsberry, an independent consultant and member of the review team, said in the statement. "Add to the mix a city governance structure that resists meaningful, structural change, and you have what we have deemed a financial emergency."

The report described a chaotic administration of the city. For example, it said Police Department and city officials gave differing figures on police staffing, and the review team could not resolve the discrepancies.

"Operational dysfunction contributes to the city's serious financial problem," the report said.

Dillon said at a press conference that he did not anticipate a bankruptcy filing by Detroit, which if it were to occur would be the biggest municipal filing in U.S. history.

"I do think we can navigate around this," Dillon said.

DEFICITS AND DEBT

Detroit Mayor David Bing and the city council would stand to lose much of their power if an emergency manager is appointed.

"If the governor decides to appoint an emergency financial manager, he or she, like my administration, is going to need resources -- particularly in the form of cash and additional staff," Bing said in a statement after the report was released.

The report said Detroit continues to deplete its cash reserves and faces a cash deficit of $100 million by June 30 without significant spending cuts. The city has long-term liabilities including pensions exceeding $14 billion, it said.

Snyder, a Republican, assembled the review team in December after slow progress on restructuring Detroit's sagging finances and operations under an April 2012 consent agreement between the city and Michigan.

No other American city in recent decades has faced a decline in population as steep as Detroit's. Once the fifth largest U.S. city that shined as the birthplace of the U.S. automotive industry and Motown music, it now ranks 18th with about 700,000 people. With the exodus of residents and jobs, the city has suffered from declining tax revenue and rising crime while saddled with the infrastructure and labor costs of a bygone era. (Reporting By Steve Neavling; additional reporting by Karen Pierog; Editing by Greg McCune and Leslie Adler)

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