A state-appointed panel of experts on Tuesday declared Detroit in financial crisis, and Michigan Governor Rick Snyder is widely expected to soon appoint an emergency financial manager to take over many of the city's functions, Reuters reported yesterday. Detroit Mayor Dave Bing and the City Council oppose a state takeover in part because they would cede much of their power to the emergency manager, and bankruptcy is the last thing they want. While that emergency manager could recommend putting the city into a chapter 9 bankruptcy, which is reserved for cities, few experts expect that to happen. "This is too critical and it is too important to the state to be left to the dynamic uncertainty of a Chapter 9 process," said James Spiotto, an attorney with Chapman and Cutler in Chicago. Not only could it be messy for Detroit, but also for other Michigan cities whose credit worthiness might be in question, experts said. Once a new state law takes effect on March 28, Detroit's emergency manager would have sweeping powers to restructure the city. Among those powers would be the ability to replace current union agreements with ones that are more affordable for the city, said Eric Scorsone, who specializes in public finance at Michigan State University.
For further expert analysis on Detroit’s financial distress and other chapter 9 topics, be sure to pick up a copy of ABI’s Municipalities in Peril: The ABI Guide to Chapter 9, Second Edition.