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Michigan official wants progress in Detroit before funds released

Lawyer Kevyn Orr (C) addresses the media, as Detroit Mayor Dave Bing (L) and Michigan Governor Rick Snyder listen, after Snyder announced Or
Lawyer Kevyn Orr (C) addresses the media, as Detroit Mayor Dave Bing (L) and Michigan Governor Rick Snyder listen, after Snyder announced Or

By Dawson Bell

LANSING, Michigan (Reuters) - The newly appointed emergency manager for the City of Detroit has an impressive resume, sweeping powers and at least a temporary reservoir of good will as he seeks a financial turnaround of Michigan's biggest and nearly bankrupt city.

But a powerful state legislative leader told Reuters that before any funds come from Lansing, bankruptcy lawyer Kevyn Orr is going to have to show progress with realistic financial estimates and measures to help the city's finances.

Republican Governor Rick Snyder, who selected the 54-year-old Democrat to serve as Detroit's manager, has spoken in general about the likelihood a turnaround plan will require new financial resources. But Snyder has carefully avoided making any specific pledges or proposals.

State House Speaker Jase Bolger, also a Republican, said he wants to see results before committing major new resources to Detroit. "We're not the slightest bit interested in providing more money for business as usual," he said.

Snyder and other Republican leaders in the state capital have spoken repeatedly about the need for Detroit to overhaul its financial practices. Orr has said he intends to seek improved city services such as street lighting, law enforcement and firefighting, but has not said whether the improvements will cost the city more money.

Orr's March 14 appointment was a watershed moment for Detroit, a city in a long economic decline. Once the fifth largest American city at 1.8 million people, it now ranks 18th with just over 700,000.

In addition to the population decline - the city's population stood at 713,777 after the 2010 census, a 100-year low - Detroit suffers from high unemployment, high crime rates, a flood of home foreclosures and a cut in state funding.

The state might provide one-time assistance to help Orr launch his reform efforts, Bolger said. Orr's appointment could provide an opening for the state to help him launch an effort to right-size city government and provide services, but additional support would depend on the scope of Orr's plans.

"Right now, the question is premature because we don't have a proposal," Bolger said.

The reluctance of state officials to step in with additional help comes after years of city over-spending. Detroit's accumulated annual operating deficits approach $1 billion, and its long term liabilities top $14 billion.

Although State of Michigan finances are on sounder footing today than they were five years ago, there are no obvious sources of state revenue to fill Detroit's needs.

Former State House Fiscal Agency Director Mitch Bean said this week that Michigan's financial condition remains tenuous, and a looming sequester of federal government funding adds to uncertainty about the state's fiscal outlook.

"It's very difficult for me to see (the governor and Legislature) coming up with a bunch of money," Bean said. "There's just not a lot of surplus money out there."

Detroit has found itself on the verge of losing special status that helps boost its revenues because of its population loss. An elevated income tax and a city utility tax both are contingent on the city maintaining its population above a threshold level. But the legislature was forced to reduce the minimum last year as the population dropped below the then-mandated threshold of 750,000 people. The new floor was set at 600,000.

The governor's office noted Detroit is already the recipient of multiple special state programs and tax provisions that generate an extra $164 million in revenues annually.

The state also is picking up the tab for a significant portion of the costs stemming from city turnaround efforts. The state is covering 50 percent of consulting contracts totaling nearly $5 million, and is covering all of Orr's $275,000 salary, Treasury Department spokesman Terry Stanton said.

Speaker Bolger said he sees reasons to be hopeful for progress, even if no significant state funding becomes available.

"I don't think there will be a direct (state) appropriation" to facilitate a Detroit turnaround, he said. "But if there's a partnership, that's good for everybody."

(Reporting by Dawson Bell; Editing by Greg McCune, David Greinsing and Leslie Gevirtz)

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