CHICAGO -- State officials in Michigan are voicing concerns that bankcruptcy could be in Detroit's future unless it takes some steps to reverse its current financial situation.
"In my opinion, Detroit has a long-term structural problem, which if it is not ultimately addressed would lead to bankruptcy," the state treasurer, Doug Roberts, said yesterday.
However, he added that he did not believe Detroit was immediately headed toward bankruptcy and thinks the city would make the neccessary "fundamental structural changes" in its finances.
The treasurer and five others state officials, including Gov. John Engler, will soon be asked to approve a $111 million deficit bond issue plan for the city.
That plan was a key element of the $2.12 billion fiscal 1993 budget, which goes into effect July 1, proposed by Mayor Colemen Young and largely approved by the city council, which completed action on the budget yesterday. To help eliminate a $248 million deficit over the 1992 and 1993 fiscal years, that budget also includes cost-saving measures.
Earlier this year, a special committee of business, labor, finance, law, and education officials, appointed by Mayor Young, recommended a number of structural changes for the city. They included service cuts, fee increases, job eliminations and consolidations, debt refinancings, the privatization of some city services, and the sale of assets such as Detroit's public lighting department. While the mayor's budget contains many of the recommendations, some like the sale of city assets are still under consideration.
Mr. Roberts said his office would be reviewing the city's deficit financing plan, looking for it to contain reasonable and probable assumptions. He said he did not consider the size of the bond issue to be "outrageous."
He also pointed out that he did not believe Detroit was on the verge of a financial crisis that would require state intervention. Still, Mr. Roberts said he and some state legislators, including Senate Majority Leader Richard Posthumus, R-alto, had met during the last two months to discuss possible actions the state could take if Detroit's problems worsen.
Under a law passed in 1988, the state can conduct an audit of a troubled city's finances as a first step toward determining whether or not a receiver should be appointed.
Mr. Roberts said he did not believe it was prudent to pursue that action in regard to Detroit.
Guy Gordon, a spokesman for Mr. Posthumus, said the talk of a Detroit bankruptcy and concerns about Mayor Young's ability to run the city were nothing new in the Legislature. He added that there is growing sentiment among the same state lawmakers that Michigan has put too much of its financial resources into its largest city at the expense of other areas in the state.
He added that if Detroit does not take care of its financial problems, the state ultimately may have to step in.
"Either [Detroit] has to take care of it or Lansing [the state capital] has to take care of it."
Bob Berg, Mayor Young's spokesman, said the city was not going bankrupt. He said that negative comments on the mayor's leadership ability were political in nature and that the mayor has not yet decidede whether he will run for another term in November 1993.
J. Chester Johnson, president of Government Finance Associates Inc., Detroit's financial adviser, said the city was a "very long way" from bankruptcy.
"The problems are serious, but there's a long distance between the problems the city now faces and the application of bankruptcy," he said.
Bella Marshall, Detroit's finance director, said the city was dealing with its structural problems in the fiscal 1993 budget, which includes an employee pay freeze and rollback, changes in hospitalization insurance for city workers, and other cost cutting measures.
Rating agency officials said yesterday they were still reviewing Detroit's fiscal 1993 budget.
Last year, Moody's Investors Service warned the city's Baa general obligation rating could face a downgrade unless there is an "achievable and credible" plant to restore budgetary balance in fiscal 1993.
Standard & Poor's Corp. rates the GO debt BBB with a negative outlook.
Storm clouds are also gathering over Detroit on another issue -- control of the Detroit Water and Sewerage Department. A bill passed by the state Senate last week would replace the existing city-controlled department with a regional authority with broader representation from the 116 cities, townships, and villages from the three counties that use the system.
The department's current seven-member governing board is appointed by Mayor Young and has four city representatives and three county representatives.
George Leef, a legislative aid to State Sen. David Honigman, R-West Bloomfield, the bill's chief sponsor, said the bill would make the system "more democratic" by forming a regional authority.
The bill, which Mayor Young opposes, would replace the city's seven-member board with a regional assembly that would appoint two boards to oversee water and sewerage services in the region. Under the bill, the regional authority would assume responsibility for any debt issued by Detroit for the system.
Detroit has $540 million of outstanding water and sewer revenue debt, which includes a $280 million revenue bond issue the city sold last week.
The bill's future in the Legislature is uncertain.
