IE 11 is not supported. For an optimal experience visit our site on another browser.

'Financial emergency': Economic review finds Detroit unable to fix budget woes

A view of downtown Detroit is seen looking north along Woodward Avenue in Detroit, Michigan January 30, 2013.
A view of downtown Detroit is seen looking north along Woodward Avenue in Detroit, Michigan January 30, 2013.Rebecca Cook / Reuters

Motown is singing a sad, sad tune.

An economic review team painted a bleak picture of Detroit's economic outlook on Tuesday, sending a report to Michigan Gov. Rick Snyder that declared the city is in "a financial emergency" that it is unable to fix.

The six-person state team tasked to comb through Detroit's finances has unanimously concluded that the city needs outside assistance to right its economic woes and become solvent again.

"We believe there is a financial emergency in the city and that there is no plan in place to correct the situation," Michigan State Treasurer Andy Dillon said at press conference Tuesday afternoon. 

The group's findings were sent on Tuesday to Snyder, who now has 30 days to either accept or reject the conclusion. It is likely the governor will appoint an emergency financial manager to head the effort of turning Detroit's financial situation around.

The report found the Motor City faces a cumulative cash deficit of more than $100 million by June 30, 2013 if  "significant spending cuts" are not made. Detroit has $14 billion in employee retirement liabilities and unfunded pensions, and will need $1.9 billion over the next five years to pay off other long-term liabilities. The city has been running deficits every year since 2005, according to the review team.

The city's population, and with it its tax base, has plunged in recent decades.  Detroit has been hit hard by the decline of the auto industry, foreclosures and crime -- all factors that have played a part in its economic misfortunes. "While we all know there is financial strain in the city, there is also not an ability or a mechanism in place for the city to address it absent of a finding of emergency," said Dillon.

A large portion of the review was focused on Detroit's 200-page charter, which the economic team found was preventing the city from making the necessary changes. The final report also said the city's bureaucracy is too inflexible to make the meaningful changes that would be necessary to change course. 

Dillon said the state has given Detroit opportunities to get their fiscal house in order, but city official have failed to do so. "We gave the city every chance to avoid the outcome that we're recommending to the governor today," he said.  In a statement the treasurer said "key reform measures have not occurred quickly enough, if at all."

Still, members of the review team present at Tuesday's news conference were optimistic that things could be fixed in what was once one of America's top city's.  

"A lot of the ingredients for the turnaround of the city are in place," said Frederick Headen, legal advisor for the Michigan Department of Treasury and member of the review panel. "Now we just need to execute and I do believe strongly that Detroit is fixable."