Michigan City Teeters on Bankruptcy

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Hamtramck, a community of 22,000 that is part of the Detroit metro area, is seeking permission from the State of Michigan to file for bankruptcy. The city is claiming a current budget deficit of $3 million, partially as a result of a financial dispute with Detroit, and that it will be unable to pay its 100 employees or 153 retirees beginning early next year.

According to state law, Michigan municipalities are required to get permission from the state Department of Treasury before they are allowed to file for bankruptcy protection. Under the 1990 law, only an emergency financial manager appointed by the state can take a city into bankruptcy. Since the law passed, no cities have used the process to restructure.

A dispute with neighboring Detroit is blamed for the current crisis. The city has a revenue sharing agreement with Detroit covering taxes paid by General Motors for its Poletown plant. Detroit claims that it overpaid Hamtramck’s share in the past and is withholding current payments until the matter is resolved. Hamtramck is suing Detroit, but a court resolution is expected to take months and a resolution favoring Hamtramck is not assured.

City Manager Bill Cooper said that Hamtramck will run out of cash around Jan. 31. The city operates on an annual budget of around $18 million. Nonunion employees agreed to take a 5% pay cut and are paying 15 percent of their health insurance premiums for spouses and families, to help conserve cash flow.

Cooper said that the city approached the police, firefighters and other unions about pay cuts, but concessions have been minimal. A bankruptcy filing would set aside the current contracts and bring the unions to the bargaining table. “While this step may seem radical in its approach, it is the only approach that will quickly and effectively allow us to address our shortfall,” he said in his letter to state officials.

The cities of Pontiac, Benton Harbor and Ecorse are currently under management of an emergency financial manager. Bill Nowling, a spokesman for Gov. elect Rick Snyder said that he believes that Michigan cities in financial crisis is a growing problem, and that’s expected to get only get worse. The issue right now is to get a handle on exactly how many municipalities out there are at the point where Hamtramck is,” Nowling said. “There are probably several that are sitting on the bubble.”

The Detroit News
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