Gov. Rick Snyder of Michigan on Friday declared a fiscal state of emergency in Detroit in a move that could lead to the appointment of a financial manager who could file for the largest municipal bankruptcy ever.
Snyder's decision allows the city a 10-day grace period to formulate a plan to fix its finances before the governor reconsiders appointing an emergency manager who would likely drastically reduce services.
The Republican governor said he had identified a top candidate for the position, but he declined to name the person.
"I believe it's appropriate to declare the city of Detroit in financial emergency," Snyder said at a forum in Detroit.
Snyder said he agreed with a Feb. 19 report by a six-member team of experts that concluded Michigan's largest city is in dire financial shape and a plan put in place last April to aid Detroit was not sufficiently working.
The expert team Snyder assembled in December did not officially recommend the appointment of an emergency financial manager, leaving that decision up to the governor.
Detroit officials now have 10 days to request a hearing with the governor about his determination.
After the hearing or the expiration of the 10 days in the case of no hearing, the governor confirms or revokes his determination. A confirmation will assign management of Detroit's fiscal emergency to a Local Emergency Financial Assistance Loan Board composed of three state officials, including the treasurer, who are all Snyder appointees. That board would also appoint a manager for the city, under the current state law.
Detroit officials also will have the ability to appeal the fiscal emergency determination in state court. But that move would likely not delay the appointment of a manager, who could ultimately recommend the city file for bankruptcy. A Chapter 9 municipal bankruptcy by Detroit would be the largest ever in the United States.
Detroit has faced the steepest population decline of any American city in recent decades. Once the fifth largest U.S. city that shone as the birthplace of the U.S. automotive industry and Motown music, it now ranks 18th with about 700,000 people - after suffering a 25 percent decline in population between 2000 and 2010.
With the exodus of residents and jobs as the auto industry contracted, the city has suffered from declining tax revenue and rising crime while saddled with the infrastructure and labor costs of a bygone era.
An emergency financial manager for Detroit would have the power to develop a financial plan, revise or reject budgets, consolidate departments, enter into service contracts with other local governments, reduce or eliminate the salaries of elected officials, sell eligible city assets, lay off workers and renegotiate labor contracts. The manager cannot abrogate labor contracts or impose taxes without voter approval under the state's 1990 law.
A new Michigan law that takes effect March 28 will allow existing emergency financial managers to remain in place and will give them additional powers, including the ability to revise or terminate collective bargaining agreements.
Reuters contributed to this report.