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For the first time since 2000, no city or school district in Michigan is under such control, a sign the state has put the auto industry’s downturn and other financial woes in the rearview mirror, the Wall Street Journal reported. Gov. Rick Snyder, who appointed 22 emergency managers — more than all his predecessors combined — credits his use of emergency managers with controlling costs and resolving issues like unfunded liabilities of cities. Last week, he released the Highland Park School District from receivership, the most-recent case in which the state has handed control back to elected officials. Michigan has been more aggressive in its use of emergency managers compared with other states. The state law authorizing the governor to appoint emergency managers has existed since 1988 but became controversial after Snyder expanded their authority in 2011. After voters overturned the law in 2012, the governor signed another version that couldn’t be challenged by referendum. At the time, the state was still reeling from the 2007 financial crisis and the downturn of the auto industry, including the bankruptcy of Detroit-based General Motors in 2009. Most states allow for some fiscal oversight of municipalities, but Michigan grants managers the most authority, experts say.

The city has regained local control over its finances after a panel voted yesterday to release Detroit from state oversight, the Detroit News reported. The unanimous decision by the state’s financial review commission comes more than three years after the city emerged from the largest municipal bankruptcy in U.S. history. Moving forward, the commission will no longer have to sign off on contracts and budget changes in Detroit, state officials say. Detroit met a major threshold required to exit oversight from the commission when it posted three consecutive budget surpluses, said Ron Leix, spokesman for the Michigan Department of Treasury.

Six years after Gov. Rick Snyder's administration first intervened in Detroit's finances, Michigan's largest city is poised to shed the state oversight that lawmakers put in place in 2014 at the end of its historic bankruptcy, Crain's Detroit Business. The Detroit Financial Review Commission has scheduled a vote for 1 p.m. on Monday to consider releasing the city from its direct power to approve or disapprove budgets and large contracts, said Ron Leix, spokesman for Michigan Department of Treasury. Detroit's ability to get out from under continued state financial control was triggered by three consecutive years of operating budget surpluses. The city ended fiscal 2017 last June with a $53.8 million budget surplus, a decrease from a nearly $63 million surplus in the 2016 fiscal year.

The city of Detroit on Wednesday used $54.4 million in surplus funds to pay off bonds issued when the city exited bankruptcy in 2014 to settle debts with bond insurers on pension-related debt, Crain's Detroit Business reported. Detroit's move to pay off the remaining principal and interest owed on $88 million in 12-year Financial Recovery Bonds will save the city $11.7 million in interest over eight years, said John Hill, chief financial officer for Detroit. The city issued the bonds at the end of 2014 to partly satisfy debts owed to Syncora Guarantee Inc. and Financial Guaranty Insurance Co., two insurance companies that insured $1.4 billion in pension bonds that were wiped out in Detroit's historic Chapter 9 bankruptcy reorganization. In January, the city paid down $15 million in principal on the bonds with the proceeds of sale of the Premier Underground Garage to businessman Dan Gilbert's Bedrock LLC, said John Naglick, chief deputy CFO and city finance director.

The city of Detroit’s restructuring plan was supposed to tie its creditors’ fate to an economic revival of the municipality. The arrangement hasn’t worked out as planned since Detroit’s 2014 exit from chapter 9 bankruptcy, according to court papers, according to a WSJ Pro Bankruptcy analysis. An affiliate of New York bond insurer Financial Guaranty Insurance Corp. says that the city failed to hold up its end of a development deal for the Joe Louis Arena site in downtown Detroit. FGIC sued the city in bankruptcy court on Monday, seeking a court order extending by two years a deadline to submit a redevelopment proposal. The complaint accused city officials of refusing to grant the requested extension while offering only another 180 days for FGIC to get its paperwork in order. FGIC says that it is entitled to the full extension under the terms of Detroit’s restructuring plan.

Detroit will tap up to $55 million in surplus cash to retire some of the debt the city issued in 2014 as part of its exit from bankruptcy, under a plan approved yesterday by the city council, Reuters reported. With debt service on outstanding bonds expected to substantially increase in 2025 with the commencement of principal payments on various bonds, the city is taking steps to lower costs by allocating some of the $169 million unassigned budget surplus it has accumulated for debt repurchases. John Naglick, Detroit’s finance director, told the city council that pending final approval by a state oversight board, the money will be used to obtain financial recovery series B bonds, which carry a 4 percent coupon, at a discount, or series C bonds, which have a 5 percent coupon. The city ended what was then the biggest-ever U.S. municipal bankruptcy in December 2014 after shedding about $7 billion of its $18 billion of debt and obligations.

Detroit expects to emerge soon from three years of state supervision of its post-bankruptcy finances after the city ended its last fiscal year with a budget surplus, a city official said yesterday, Reuters reported. The city ended what was then the biggest-ever U.S. municipal bankruptcy in December 2014 after shedding about $7 billion of its $18 billion of debt and obligations. One element of the city’s federal court-approved bankruptcy exit plan was the creation of a state oversight board. John Hill, Detroit’s chief financial officer, said a comprehensive annual financial report for fiscal 2017 released on Wednesday “shows improvements across the board in the city’s financial health.” The annual audit’s findings that the city ended the fiscal year on June 30 with a $53.8 million operating surplus in its $1.3 billion general fund budget mark a third balanced budget in a row. That milestone allows a financial review commission created by the state of Michigan to end its monthly oversight of Detroit’s budget and contracts, according to Hill.

State and local governments pledge their full faith and credit to repay general obligation bonds, but politicians in Chicago and Connecticut realize their word is depreciating in value. Thus, they’re pitching a debt arbitrage to reduce their borrowing costs, according to a Wall Street Journal editorial. As part of Illinois’s bailout of Chicago, Democrats in Springfield this summer allowed the city to issue bonds securitized with $700 million or so in annual sales tax revenue, according to the editorial. Chicago plans to start floating the sales-tax bonds next month to refinance existing debt, and the bonds will be cheaper to finance than Chicago’s junk-rated GO bonds, which carry a 3.5 percent premium over top-rated municipal securities. Connecticut lawmakers recently authorized bonds backed by state income taxes as a substitute for GOs. The budget noted that “the new type of borrowing authorized in the bill may be viewed more favorably in bond markets because it is linked directly to a large and relatively stable revenue source,” according to the editorial. Puerto Rico likewise established a special public corporation in 2006 to issue sales-tax “Cofina” bonds, which were billed as more secure than debt paid from the commonwealth’s operating fund. For a time that appeared true, as politicians raised the sales tax (which was later converted into a VAT) to repay creditors. But last year, Puerto Rico’s governor issued a debt moratorium, which led Congress to impose a fiscal control board and create a quasi-chapter 9 bankruptcy process. Cofina and GO bondholders are now vying for the same small pool of money, and both will be lucky to get half of what Detroit bondholders recovered in its chapter 9.

The city of Detroit expects to get the keys back to its financial house this spring for the first time since it exited bankruptcy in 2014, the <em>Detroit News</em> reported. With two balanced budgets and an audit of a third expected in May, city officials anticipate they will be released early next year from the strict financial controls required under chapter 9 restructuring. The shift is especially important as voters cast ballots Tuesday for the Detroit leaders who will chart the city’s direction. Both Mayor Mike Duggan and challenger Coleman Young II have offered plans on how they would guide the city financially. Gov. Rick Snyder (R) said that he’s optimistic about the city’s ability to manage finances on its own. “They’ve been hitting those milestones, and I hope they continue to hit them — that’s a good thing for all of us,” Snyder said. There is evidence that the oversight is no longer warranted: Detroit’s credit has been upgraded among rating agencies, its employment rate is up and property values are climbing.