March 27, 2012 at 5:47 pm

Detroit council approves borrowing $137M

Detroit— The City Council voted this afternoon to approve a request by city administrators to borrow $137 million in bonds to help the city through its short-term cash crunch.

The council voted 6-3 to approve the bond transaction. City officials earlier sought to tie the request to a financial stability agreement that's still being negotiated, but that language was removed prior to the vote.

Council members Gary Brown, JoAnn Watson and Brenda Jones voted no.

Council President Charles Pugh said the measure passed with "trepidation" with the goal of avoiding payless paydays and the triggering of an emergency manager.

"Our goal all along has been to not only been to avoid emergency management, but to not run out of cash," Pugh said. "The prospect of borrowing more money and raising our debt payments is not something we want to do. But we don't want any payless pay days. Our (employees) work hard every day and should be paid for their work."

In a statement his afternoon, Deputy Mayor Kirk Lewis thanked the council for its vote.

"I want to express my appreciation to Detroit City Council members who voted for the $137 million financial bond package and for acting with necessary urgency," he said. "This vote is an important step as we work towards resolving the city's financial crisis. We also want to thank the state for facilitating this critical transaction."

Council members said this morning their fiscal analyst supports the measure, which is being done to make a $19 million debt payment by April 1. Council members this morning expressed reluctance to pass the measure because of the tie to the fiscal stability agreement.

Detroit is days away from a decision on whether the state will take over the city's finances. The city could run out of cash to pay its bills as early as May, and faces as much as a $46 million shortfall by June 30.

About 30 city unions signed a tentative concessions agreement last Friday, but the City Council has not voted to approve the concessions because they say they have no formal document has been submitted. State officials have also said the agreements don't bring in enough savings. City officials said Tuesday that there is only about $8 million in savings generated if all city unions had the deals ratified.

Irvin Corley Jr., the council's fiscal analyst, said this morning he was satisfied with the bond transaction because it frees up general fund cash. The city is pledging future revenue-sharing dollars for the deal, officials said.

"The city would absolutely run out of cash by May and especially by June 30 if this transaction does not go through," Corley said. "There has to be some type of cash infusion and this is a creative way of doing it, given our cash crunch."

Earlier today, Brown said the council is "backed into a corner," saying the administration has had numerous opportunities to fix the problem, but instead has chosen to borrow its way out of the problem.

"We've had opportunities to cut the budget," Brown said. "When are we going to fix the problem that gets us to this point?" Jones agreed.

"It's like a gun from the state being held up to our heads," Jones said. "The minute you don't pass that then the money has to go back, and we're back at the same point. I know the clock is ticking. We are continuing to borrow money. When are we going to pay it back? I don't think this is something we ought to rush into."

On Monday, Gov. Rick Snyder said the city and state are "two or three additional paragraphs" away from an agreement that could be considered a consent agreement. Such an agreement would allow some of the powers under Public Act 4's emergency manager law to be exercised by the mayor or some other executive branch officials.

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