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Detroit to go bankrupt in less than a month

Published time: November 21, 2012 20:54
Edited time: November 22, 2012 00:54
Transport worker carries a "Detroit Needs Jobs" sign as he joins a demonstration in Detroit, Michigan January 8, 2012.  (Reuters / Rebecca Cook)

Transport worker carries a "Detroit Needs Jobs" sign as he joins a demonstration in Detroit, Michigan January 8, 2012. (Reuters / Rebecca Cook)

The city of Detroit, facing a serious cash crisis, is set to go bankrupt by the end of this year and would put city workers on furlough unless it strikes a deal with the city council that would bring in $30 million before Dec. 14.

Detroit has been in financial turmoil for years, losing a quarter of its population in the past decade and facing a shrinking auto industry that has reduced tax revenues. The Detroit City Council gave the mayor the option to hire a financial advisor and in return receive $30 million by the end of the year.

But the Council on Tuesday voted 8-1 to delay the decision on the deal, which would pay the Miller Canfield Law Firm $300,000 to advise Mayor Dave Bing. The deal would have released $10 million in bond money on Tuesday and another $20 million in December.

The Council decided not to authorize the contract due to suspicions that Miller Canfield has conflicts of interests, since the firm handles other city business. The Council was also concerned that the firm’s contract may not be legal, since it was not prepared or approved of by the city’s chief on-staff lawyer. Council members were also upset that Bing only presented them with one law firm, denying them options to choose from.

"The Council’s rejection of the Miller Canfield contract means the city will not receive the first $10 million scheduled for release today,” Bing said in a statement. “As a result, 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."

Some blame the mayor for the denied funds, claiming that his limited options gave the Council no choice but to reject the proposal.

“Why is Mayor Bing putting gthe city’s finances at risk by marrying himself to one law firm?” City Council President Charles Pugh told reporters.

If a deal cannot be struck within the upcoming weeks, then those who will suffer most are Detroit’s government employees. Bing plans to put city workers on furlough on Jan. 1 to save cash if fails to receive the much-needed money from the law contract. With a $30 million cash shortfall, the city would temporarily lay off thousands of workers to avoid bankruptcy. The only city workers who would be able to keep working are police officers, firefighters, EMS workers, or employees of departments that raise revenue for the city.

The City Council also rejected a proposed contract to overhaul the Detroit Water and Sewerage Department, proposing to cut 81 percent of its workforce in an attempt to save cash.

“If we don’t stop this, there will be nothing left of the city of Detroit,” Michael Mulholland, secretary treasurer of the American Federation of State, Council and Municipal Employees Local 207, told the Detroit Free Press. With a city that has already lost much of its population due to declining jobs, cutting the workforce with furloughs and layoffs is only worsening the crisis.

At the current rate, Detroit is set to hit a weekly cash flow of $4.1 million in mid-December and drop to negative $4.8 million at the end of the year.

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