Detroit rejects funds, will the city be out of cash by Christmas?
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| Detroit
听will not get a much-needed $10 million after the听听rejected on Tuesday a contract to hire a law firm that was part of a deal to keep the city on track to overhaul its finances.
The state of听听and its biggest city,听, announced a deal last week that includes several milestones the city must achieve in the next month to receive the $10 million by Tuesday and another $20 million by Dec. 14.
The setback leaves the city at risk of running out of cash by the end of December if it does not meet those goals.
In a voice vote, the听听rejected a contract for the law firm of Miller, Canfield, Paddock & Stone to provide legal advice and to handle litigation related to implementing a financial stability agreement designed to fix city finances.
The rejection "means the city will not receive the first $10 million scheduled for release today," said Mayor听听in a statement issued right after the vote.
Mayor Bing said the rejection of the contract will make it more difficult for听听to maintain positive cash flow.
"It will be more difficult for the city to maintain its liquidity until the receipt of property tax revenues beginning in January. Today's vote is one more example of how听听has stalled our efforts to bring financial stability to the city of听," the mayor said in the statement.
听has struggled with its finances for many years as the city's population has dwindled and the automotive industry that once drove economic activity in the Motor City has diminished.
The city of 700,000 has been criticized by state officials for slow progress on financial reforms. It needs the money to avoid running out of cash by the end of the year. The听听Finance Authority raised $137 million for听听earlier this year through a debt sale. While听听received some of that money,听听Treasury officials tied another $30 million to听's progress on reforms.
"If the milestones are not completed, the funds will not be released from escrow,"听, spokesman for the听听Treasury Department, told Reuters.
"The actions听听must take for the treasurer to release the funds from escrow were clearly established in the Memorandum of Understanding, sent to the mayor and听听last week," Buhs said.
听President听听blamed Bing for the setback. "Why is Mayor Bing putting the city's finances at risk by marrying himself to one law firm?" he told reporters, adding he wants to meet with the mayor this week to choose a law firm that the council can accept.
Council members raised several objections about Miller Canfield, including potential conflicts of interest in the work it performs for the city and the state and the scope of the contract. Some questioned whether the contract was legal under the city's charter because it was neither prepared nor approved by the city's chief on-staff lawyer.
Projections presented by city officials to听's oversight board earlier this month showed the city's weekly cash flow at just $4.1 million in mid-December before dropping to a negative $4.8 million at the end of the year.
's financial advisory board was created under an agreement that allowed听听to avoid the appointment of an emergency manager to run the city while giving the state some oversight and allowing the mayor to disregard collective bargaining agreements with unions.
The听听did approve on Tuesday a contract with听听to provide cash-flow analysis for 2013. This was another condition set in the deal with the state.
Pugh said the council had previously approved a contract with consulting and actuarial firm听听for pension services, which was also a condition of the deal. While the council is officially scheduled to be in recess until early next year, Pugh said it could come back in a special session at any time.
Also on Tuesday, the council rejected a nearly $48 million contract with听-based听听to run some of the city's water and sewer department.
听faced a cash crisis this summer that led to warning it could default on some bonds. The cash crunch and default were averted by the bond sale.