Municipal finance
9:42 pm
Wed November 17, 2010

Hamtramck asks state to file for bankruptcy

The city of Hamtramck says it will run out of money at the end of January, and officials have taken the unprecedented step of asking the state for permission to file for bankruptcy.


Bill Cooper is the city manager of Hamtramck. And he says he’s been a little surprised at the uproar his letter to the state has caused.


"That one little word got a lot of attention," Cooper said, sitting in his city hall office as the phone rang with a call from a reporter.


The word: Bankruptcy.


"It got the state’s attention, it definitely got the attention of the unions. And it also has gotten the attention of news media all across the country," he said.


That’s because it’s a rare thing for a government to declare bankruptcy. In fact, it’s never happened in Michigan.


"Bankruptcy is not a good option," Governor Granholm said earlier in the day.


Part of the reason state officials hope to avoid it is because it could open the floodgates to other cities, townships, and school districts in financial trouble.


Treasury officials suggest Hamtramck could borrow money to avoid bankruptcy. That's something Detroit - another city in financial trouble - has done.


But the governor acknowledges the tough spot cities are in. She says cuts to state aid, coupled with falling property values, are crippling city budgets across Michigan.


"So you’ve got a perfect storm hitting many of these communities," she said. "And this is an issue that’s going to be very difficult over the next few years as property taxes continue to decline and these communities are going to need some additional support if they’re going to provide the services citizens expect."


The state Department of Treasury scores municipalities based on their financial health. The most current list shows 68 that are in shaky or poor shape. And that’s based on 2008 information. Property values – on which tax revenues are based – have only slid downhill since then.


But falling property values are only partly to blame for Hamtramck’s problems. Its biggest headache is a dispute over tax revenues from a General Motors plant.


"Detroit’s refusal to honor the agreement has put us in a $3 million hole which there’s no way for us to get out of," said Cooper.


Detroit and Hamtramck are duking it out in court. Meanwhile, Cooper says he’ll run out of money to pay police officers, fire fighters, and everyone else who depends on a city paycheck January 31st.


Jon Bondra, a police union representative with FOP 109, says jumping to bankruptcy is a drastic move that could and should be avoided.


"It would void our contracts and he would be able to lay off many police officers," said Bondra, "which would put the citizens at risk of robberies and other dangerous crimes."


Whatever happens, it's Michigan's next governor, Rick Snyder, who will likely deal with it. But some long-time residents say they're not worried.


Historian Greg Kowalski says Hamtramck’s financial problems date back to the 1930s. Back then, it asked a big employer for help.


"Even at that point the city was approaching Dodge Main to get advance tax payments so they could meet their payrolls, and this continued on through the years," said Kowalski.


There was another crisis and state bailout in the 1970s, then more financial trouble when the Dodge Main plant closed.


The city was under state oversight from about 2001 through 2007.


And Hamtramck may find itself with an emergency financial manager again. State officials say that’s the only way a city can declare bankruptcy under municipal finance law.


Kowalski says if that’s what happens, long-time residents like him won’t be rattled.


"It doesn’t terrify us, and it doesn’t mean 'I’m moving out of town,'" said Kowalski. "We’ll get through this like we get through everything else. It’s a troubling thing, but we’ll survive."


Contact Sarah Hulett at sarahhu@umich.edu