Michigan Forbids City of Hamtramck to Seek Bankruptcy

A few days ago I noted Hamtramck, Michigan Seeks Bankruptcy.

That Hamtramck is clearly bankrupt, unable to bay bills, saddled with unions salaries, pension promises that cannot be met, as well as other problems it desperately needs to get rid of without burdening taxpayers even more, is of no concern to the current governor of the state.

Please consider this updated report Michigan Forbids City To Seek Municipal Bankruptcy.

A spokesman for the Michigan state treasury said Thursday that municipal bankruptcy isn’t an option for Hamtramck, the small city near Detroit that earlier this month asked the state for permission to file for the process.

No Michigan local government has ever filed for municipal bankruptcy, Stanton said, a rarely used tool that allows cities and other local governments to deal with creditors and extract concessions from its unions.

Instead, Michigan has offered Hamtramck, a city of 23,000 residents, three options.

One is a low-interest loan from the state for a maximum of $3 million, to be paid back over 20 years.

The second is a tax-anticipation note, or TAN, which would allow Hamtramck to borrow up to half of whatever it collects in property-tax assessments in a given year; it would have to be repaid in 12 months.

The third is a fiscal stabilization bond, which would let the city borrow up to 3% of its assessed value.

Bill Cooper, the city’s manager, said that Hamtramck is currently evaluating the options the state gave it, but he is “not very optimistic these options will work for us” because “we don’t need to take on any more debt.”

“We have a survival deadline here,” Cooper said, noting that, if things continue on the current course, Hamtramck could run out of money by Jan. 31 and be unable to make payroll or pay bills.

Cooper said the state’s options essentially require Hamtramck to borrow more money, and much hinges on the city’s ability to win its lawsuit against Detroit.

“It pushes the problem down the road,” he said.

Meanwhile, getting the city’s unions to negotiate has been a problem, as Hamtramck officials have already tried to work with them three times. Municipal bankruptcy could be a way to force concessions, Cooper said.

“It should allow us in essence to restructure,” said Cooper, who added the city wouldn’t want to be in bankruptcy a long time. “If major corporations can do it, why can’t we give it a shot?”

Uncommonly Good Sense

I commend city manager, Bill Cooper, for a masterful display of common sense. Moreover, I point out the well-deserved election shellacking of Democrats as noted by the Lansing State Journal

.

The national mood of voter unrest that swept through many states Tuesday played a large part in the shellacking Democratic candidates took in Michigan, when Republicans swept the governor, secretary of state, attorney general and state education board seats while winning control of the state House and a majority on the Michigan Supreme Court.

Advice for Hamtramck City Manager, Bill Cooper

My advice consists of one word “default”. Who can stop you? The answer is no one. Let the incoming governor know that is how you intend to proceed.

Send the public unions a message that you will not be intimidated by the state. Explain to the taxpayers you are doing this for them. Let the city residents know if you take the Treasurer’s options you would have to hike taxes and burden them with debt for decades to come.

That is all it will take to win their overwhelming support.

I am confident the new governor will be more sympathetic to your cause than the current clowns running the state. The good news is you only have a couple months to wait.

Finally, tell the current treasurer “No Deal”, bargaining is over and you will deal with the new administration.

That’s all it takes. Stand to your guns Bill Cooper. You have the upper hand as well as the high moral ground.

For the record, I have no financial interest related to my advice. My wife is from Livonia and I know first hand the problems of the state and of Detroit. I send the Citizens of Hamtramck best wishes.

Mike “Mish” Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management. His top-rated global economics blog Mish’s Global Economic Trend Analysis offers insightful commentary every day of the week. He is also a contributing “professor” on Minyanville, a community site focused on economic and financial education. Every Thursday he does a podcast on HoweStreet and on an ad hoc basis he contributes to many other websites, including UnionWatch.