By Richard Johnstone | 3 April 2012
The US city of Detroit is set to vote on a deal proposed by the state of Michigan to help it improve its finances, amid concerns it could go bust.
The state has put forward a stability pact to Detroit mayor Dave Bing, which would introduce a number of reforms to spending plans.
These include creating a financial advisory board to advise the mayor’s office on setting yearly revenue targets, and requiring the city to adopt three-year budgets in response to the financial crisis.
According to the draft agreement published by Michigan governor Rick Snyder, the mayor would have to update the board on the ‘restructuring’ every 90 days.
In return, it is thought that the state will offer legislative support for a package of measures to raise revenues for the city, including a potential $137m bond issue.
The offer follows a report by the financial review team sent in by the state to assess Detroit’s deficit. Its 90-day audit found a position of ‘severe financial stress’, and warned the city could run out of cash within weeks.
The team was sent in after an initial investigation by the Michigan Department of Treasury last year concluded that there was a ‘failure to adjust annual budgets in the face of declining revenues and/or increased expenditures’. This warned that there were annual recurring budget deficits of more than $100m.
Detroit City Council debated the financial consent agreement on Monday, with a vote expected to take place today.
Bing said that the proposed agreement was ‘of critical importance to Detroiters’. He added that the agreement would preserve the executive and legislative powers of the city, including allowing the mayor to hire his own staff.
Bing said: ‘Today’s special session of the Detroit City Council to consider a resolution to approve a financial stability agreement represents a significant milestone in addressing the city’s financial crisis, decades in the making.
‘It won’t get fixed overnight, but our partnership with the state will drive us as we remedy our financial crisis.’
If a deal is not reached this week, it is possible that the state could appoint an emergency manager to take over from Bing.