The state of Michigan and its biggest city, Detroit, announced on Thursday a deal on several milestones the cash-strapped city must achieve in the next month to win $30 million.
The city, which has been criticized by state officials for slow progress on financial reforms, needs the money that was generated by a bond sale to avoid running out of cash by the end of the year.
The deal between Michigan Treasurer Andy Dillon and Mayor Dave Bing's administration requires city council approval of contracts with legal and other advisers and the completion of a review of the city's cashiering by Tuesday. Meeting those milestones would result in the release of $10 million to the city.
Another $20 million would be released on December 14 if Detroit executes a series of contracts concerning audits, outsourcing and restructuring, among other matters.
Projections presented by city officials to Detroit's oversight board on Monday 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.
Cities, counties and states across the United States are slowly seeing a revenue uptick after years of dwindling funds in the wake of the country's deep recession. Detroit's financial troubles are particularly severe due to a steep fall in population, high unemployment and a drop in state funding.
Detroit's financial advisory board was created under a consent agreement that allowed Detroit 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 Michigan Finance Authority sold $129 million of bonds for Detroit in August, completing a debt sale aimed at raising $137 million for the city. While Detroit received some of that money, Michigan Treasury officials tied the release of another $30 million this year to Detroit's progress on reforms.
"The milestone agreement reached between the state and my administration enables all of the key stakeholders to be on the same page as it relates to the progress of the city's restructuring plan," Bing said in a statement on Thursday.
Dillon said the deal gives Detroit a "transparent roadmap" toward accessing the bond proceeds.
"The funds from the bond proceeds were never intended to fund the status quo in Detroit, but rather aid with its government reforms," he said. "While some progress has been made in the city since the signing of the Financial Stability Agreement in June, it is moving slower than what all parties would have anticipated. There is still much work to be done."
Detroit faced a cash crisis this summer that led to warnings it could default on some bonds, as well as to subsequent downgrades that pounded the city's credit ratings deeper into the junk category.
The cash crunch and default were subsequently averted by the bond sale. Detroit's ratings remain under review for a potential downgrade by Moody's Investors Service. That review concerns in part the repeal last week by Michigan voters of the state's 2011 emergency manager law, which was used to craft portions of Detroit's consent agreement.
The city council is scheduled to meet in closed session later on Thursday on whether the law's repeal affects the consent agreement.
(Reporting by Karen Pierog in Chicago; editing by Matthew Lewis)