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Michigan governor clears way for state takeover of Detroit

Michigan Governor Rick Snyder talks about the future of the city of Detroit during a news conference in Detroit, Michigan February 21, 2013.
Michigan Governor Rick Snyder talks about the future of the city of Detroit during a news conference in Detroit, Michigan February 21, 2013.

By Steve Neavling

DETROIT (Reuters) - Michigan Governor Rick Snyder cleared the way for a state takeover of Detroit, declaring that the birthplace of the U.S. automotive industry faces a fiscal emergency and that he has identified a top candidate to assume its management.

Friday's declaration by the Republican governor virtually assures that the state of Michigan will assume control of Detroit's books, and eventually decide whether the city should file the largest municipal bankruptcy in U.S. history.

Detroit has faced the steepest population decline of any major American city in recent decades. Once the fifth largest U.S. city and springboard for music icons such as Michael Jackson and Diana Ross, it now ranks 18th in size with about 700,000 people.

"Its time to say we should stop going downhill," Snyder told a forum of residents hand-picked by his office, at a Detroit public television station. "There have been many good people who have had many plans, many attempts to turn this around. They haven't worked," he said.

A report commissioned by Snyder has described what it called "operational dysfunction" in the city government, crushing debt of $14 billion and a current fiscal year budget deficit of $100 million.

Detroit Mayor Dave Bing did not attend the announcement, nor did city council members appear to be in the audience. Earlier on Friday, a majority of the council said they wanted to challenge Snyder's decision but did not decide how to proceed.

While Snyder made his announcement on Wayne State University's campus, a few dozen protesters gathered about two miles away at city hall, clutching signs that read "Snyder, Go Home!" and "This is a takeover!"

The fate of Detroit is being watched closely across the country as many cities and towns are still struggling to recover from the housing bust and the deep recession that followed.

TOP CANDIDATE

Snyder would not identify the top candidate to run Detroit or say whether the person was from Michigan. Some residents and restructuring experts have said he should name an African-American to manage the city, which is 83 percent black.

Referring to the candidate, the Republican governor said, "They have vast experience working on relationships, they have strong financial knowledge, strong legal knowledge and that ability to say how do we build teams and work together," the Republican governor said of the candidate.

Snyder had acknowledged last week that many qualified people did not want the controversial job.

The emergency manager will eventually have strong powers to develop a financial plan, revise or reject city budgets, consolidate departments, reduce or eliminate the salaries of elected officials, sell eligible assets, lay off workers and renegotiate labor contracts.

Reaction in the city ranged from anger to despair and resignation.

Mayor Bing, a former professional basketball player and steel executive, said he did not favor an emergency manager but would try to work with the state of Michigan.

"If, in fact, the appointment of an Emergency Financial Manager both stabilizes the City fiscally and supports our restructuring initiatives which improve the quality of life for our citizens, then I think there is a way for us to work together," he said in a statement.

Bing has complained that part of Detroit's financial crisis stems from cuts in state funds for the city.

Karen Lewis, 49, a manager at a fast food store, reflected the resentment some residents feel at the takeover of the predominantly black and Democratic city by a predominantly white and Republican state government.

"It don't take a genius to know what this is all about," said Lewis, who is black. "They want our money and our land. No one cares about us. And we're the ones who stuck around. Not the white folks."

But Bernard Ragin, 41, said he was tired of living in a city that has seen a collapse of basic services.

"I don't care who fixes Detroit, as long as the street lights work and the police show up on time," he said.

Detroit officials now have 10 days to request a hearing with the governor about his decision. Snyder said the hearing would be held on March 12. The nine-member city council has been preparing to argue that Detroit should not have an emergency manager and could also appeal the decision in state court.

After the hearing, Snyder will either confirm or revoke the declaration of emergency. If he confirms the emergency, as expected, management of Detroit's fiscal affairs would revert to a board composed of three state officials who will be Snyder appointees. The board would formally appoint an emergency manager, although in practice Snyder will make the final decision.

Michigan Democratic Party Chairman Lon Johnson sharply criticized Snyder's decision, calling it a "hostile take-over."

"This overthrow of the democratic process is a deeply disappointing moment in our state's history," Johnson said.

Al Garrett, president of Detroit's biggest union representing municipal employees, said efforts are underway to challenge the decision in court. But he said the case would have to be filed in federal court rather than state court because the Michigan Supreme Court has a Republican majority.

A court challenge of Snyder's decision would not delay the appointment of a manager, a state government official said.

Snyder said that Detroit's creditors should be brought to the table to renegotiate debt terms by possibly delaying or relieving payments.

"This should be part of the strategy that needs to take place," he said.

(Reporting By Steve Neavling Additional reporting by Karen Pierog in Chicago; Editing by Greg McCune, Kenneth Barry and Tim Dobbyn)

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