The main issue that Michigan Governor Rick Snyder will ultimately have to confront soon is whether to put Detroit through a political managed bankruptcy or a conventional chapter 9 court process, according to a Bloomberg commentary on Friday. Snyder was expected to act after a state audit last month found that the city's long-term debt was $12 billion, $2 billion more than previously reported. The audit pegged the city’s annual debt-service costs alone at $597 million, while its three biggest sources of revenue generate only $538 million. The value of the city’s net assets, which in 2010 were worth $265 million, has collapsed and they now have a negative value, the report said. More urgently, Detroit will run out of operating cash before the fiscal year ends in June. Snyder had allowed Detroit to borrow $137 million through a municipal-bond sale on the state credit card last summer. Before the funds could be released from escrow, however, the city was supposed to meet prescribed restructuring goals under a consent agreement. The city failed due to squabbling between its city council and Mayor Dave Bing. The council even blocked Bing's effort to hire a private law firm to help overhaul contracts with unions and vendors, even though the city has little in-house expertise to handle something this technical and complex.
