Detroit Will Run Out of Money before End of the Year

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The city of Detroit will run out of money before the end of the year if it continues on its present course, after the Detroit city council last night was unable to complete the actions stipulated by the Michigan Treasury in order for it to get a cash infusion of $10 million yesterday and another $20 million in three weeks.

The state of Michigan announced last week that it would send the $30 million to Detroit if it made several moves that would begin the process of overhauling its finances. Detroit’s finances have been in a state of emergency for years as a dwindling population—once the nation’s fourth largest city, Detroit lost a quarter of its population in the last decade alone, leaving it with fewer than 714,000 people—and the shrinking of the local auto industry has drastically reduced tax revenues.

One of the actions stipulated by the state was to hire a law firm to provide legal advice and handle litigation connected to the financial stability agreement designed to fix city finances. But council members were upset that Mayor Dave Bing presented them with just one law firm, Miller, Canfield, Paddock & Stone, which they believe has a conflict of interest because it handles other city business. So by a voice vote, the council rejected the $300,000 contract with the firm.

The rejection “means the city will not receive the first $10 million scheduled for release today,” said Mayor Dave Bing in a statement issued right after the vote.

“It will be more difficult for the city to maintain its liquidity until the receipt of property tax revenues beginning in January. Today’s vote is one more example of how city council has stalled our efforts to bring financial stability to the city of Detroit,” the mayor said in the statement.

While the Michigan Finance Authority raised $137 million for Detroit earlier this year through a debt sale, the state tied the receipt of $30 million to Detroit’s progress on reforms.

“If the milestones are not completed, the funds will not be released from escrow,” Caleb Buhs, spokesman for the Michigan Treasury Department, said to Reuters.

“The actions Detroit must take for the treasurer to release the funds from escrow were clearly established in the Memorandum of Understanding, sent to the mayor and city council last week,” Buhs said.

According to the numbers presented by city officials to Detroit’s oversight board earlier this month, the city’s weekly cash flow will hit $4.1 million in mid-December before dropping to a negative $4.8 million at the end of the year.

But council member JoAnn Watson, near the end of the long meeting, had her own interpretation of the state mandate. She said she believes the council met the terms of the agreement by simply voting on the matter.

“That milestone agreement said ‘vote on Miller-Canfield.’ It did not say approve,” Watson said. “We have not violated that agreement.”

The council also voted on Tuesday to reject a controversial proposal that would have cut the number of water department employees by some 80 percent, from 1,978 to around 375, over five years.

The plan would have reduced the union workforce, outsourced work and increased the number of contractors. City officials said it could save about $139 million annually but union members said such severe cuts would put water quality in jeopardy for the 4.3 million people connected to the city’s water supply.

 

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