Court rules Detroit can move on consent deal

By Jeff Karoub

Associated Press

DETROIT (AP) -- The Michigan Court of Appeals, in a ruling released last Friday night, cleared the way for a state review team to move forward on a possible consent agreement with the city of Detroit.

A three-judge Court of Appeals panel ordered a stay of Ingham County Circuit Judge William Collette's ruling that the state can't enter into a consent agreement with Detroit until he gave further orders.

Now, armed with the appeals court stay, the Detroit financial review team can move forward with its work and is free to strike a consent deal with the financially struggling city. Gov. Rick Snyder said he wanted the team to report to him by Monday with its recommendation of a consent agreement or an emergency manager.

Collette had ruled that the state review team must comply with the Open Meetings Act.

Also last Friday, unions representing thousands of Detroit city workers said their members had approved 10 percent pay cuts and other changes that are intended to save roughly $100 million a year.

It's a move union officials hoped would prevent the need for an emergency manager or an agreement between Detroit and the state on how to cure the city's troubled finances. Detroit faces a $200 million budget deficit and could run out of cash by the end of May.

"There's not a need for someone else to come in here and do what we've already done," said Ed McNeil, special assistant to the president of the American Federation of State, County & Municipal Employees Council 25, adding later that a proposed consent agreement with the state "needs to be ripped up."

Gov. Rick Snyder's spokeswoman, Geralyn Lasher, said the savings were not adequate to deal with the city's short- or long-term financial crises.

"From the information we're seeing, there's still a great deal of savings necessary on top of these agreements," she said.

The labor deal, announced at a news conference in Detroit, affects at least 4,500 workers and still needs the City Council's approval. It does not cover Detroit police officers and firefighters, who are in separate talks.

The $99 million in savings that the labor coalition agreed to includes wage cuts, health care savings and revenue-generating steps such as an amnesty program for unpaid parking fines, code violations and taxes. McNeil said the agreements also call for greater involvement of rank-and-file workers in departmental decisions, particularly ideas to keep costs down.

Kirk Lewis, chief of staff for Detroit Mayor Dave Bing, said in a statement that the ratified agreements "reflect how labor and management can work together in a fair and constructive way." He said they also "provide checks and balances" that hold unions and city officials accountable.

Detroit's finances took another hit last week, as its credit rating was downgraded by a second rating agency. Last Thursday, Fitch Ratings downgraded -- by two notches -- the city's unlimited tax general obligation bonds and its limited tax general obligation bonds. The agency also downgraded about $1.5 billion in pension obligation certificates of participation.

The pension obligation certificates are used to fund pension liabilities, and both kinds of general obligation bonds are generally used for capital projects, though Detroit issued some for general operating purposes, said Fitch analyst Amy Laskey.

She said the city issued about $250 million of the bonds for general operations in 2010, which "is unusual for a local government."

"It's a clear indication of financial stress," she said.

Moody's Investors Service last Tuesday downgraded more than $2.5 billion of Detroit's debt below investment grade, possibly making it more difficult for the city to borrow money. The ratings service said the downgrades on several different bonds are based on the city's "weakened financial position, as evidenced by its narrow cash position," reliance on debt financing and ongoing negotiations with unions on contract concessions.

Snyder has scheduled two meetings in Detroit this week to discuss his ideas to solve the city's fiscal crisis. He'll hold a town hall meeting Wednesday at Wayne County Community College District's downtown campus, and a one-on-one discussion with Bing on Thursday, which will be broadcast live on WXYZ-TV, Detroit's ABC affiliate. Thursday's discussion will include viewer participation through social media.

Published: Tue, Mar 27, 2012