Lincoln Park had $4.5 million dollars in its general fund three years ago.
Today, the city has a deficit of nearly $90,000, raising alarm among state officials about how fast it has spent all its money.
Gov. Rick Snyder says he agrees with the Michigan Treasury that a state of financial emergency exists.
Lincoln Park officials say the city is on track to run up at least a $1 million deficit this year. The amount will be higher if the city can't strike a deal on concessions from city workers.
Lincoln Park has seven days to ask for a hearing to contest the state's finding.
If the declaration is upheld, Lincoln Park can choose from several options under the state's new financial emergency law, including a consent agreement or an emergency manager. The other two options are to reach a cost-cutting agreement with all stakeholders with the help of a "neutral evaluator" – or Chapter 9 bankruptcy.
But any city wishing to file for bankruptcy would need the approval of the governor.
Six other cities are in a state-declared financial emergency: Detroit, Allen Park, Benton Harbor, Ecorse, Hamtramck, and Royal Oak Township.
Highland Park may be next to join the list.