What happens when a city government tries to tax, spend, and borrow its way to prosperity? Hint: it goes broke:
A state-appointed review team has determined Detroit is in a financial emergency, paving the way for Republican Gov. Rick Snyder to appoint an emergency manager who would need to come up with a new plan to get the city out of its fiscal crisis.The team released its findings Tuesday, saying in a report to Snyder that “no satisfactory plan exists to resolve a serious financial problem.”
The review team pointed to the city’s ongoing cash crisis, which have threatened to leave the city without money to pay its workers or other bills. It noted that the city’s deficit could have reached more than $900 million in fiscal year 2012 if the city had not borrowed enormous amounts of money; that Detroit has long-term liabilities, including underfunded pensions, of more than $14 billion; and that the city’s bureaucratic structure makes it difficult to solve the financial problems.
“The cash condition has been a strain on the city,” said state Treasurer Andy Dillon, a member of the review team. “The city has been running deficits since 2005 … (and) masking over those with long-term borrowing.”
Under Michigan law, Snyder has 30 days to decide for himself whether there’s a financial emergency. Mayor Dave Bing would have 10 days to request a hearing. Snyder could then revoke his decision or appoint an emergency manager.
Sure, Governor Snyder has exactly one month to appoint an emergency manager to handle the city’s finances. But declaring bankruptcy might be Detroit’s only option at this point:
However, others said that even with an emergency manager, municipal bankruptcy may be the city’s only way out of the financial mess.
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