DETROIT, MI – State Treasurer Andy Dillon doesn't believe Detroit's elected officials can solve the city's vast financial problems, and a state takeover is likely.

But Dillon also doesn't believe more pay and benefit cuts for the city’s 9,700 employees are part of the path to overcoming Detroit’s $327 million deficit and $14 billion long-term debt.

“Detroit employees are not overpaid,” Dillon said, noting he believes Detroit police are underpaid.

Mayor Dave Bing already implemented 10 percent pay cuts and reduced the city's workforce by more than 25 percent since taking office. He and City Council added a slew of cost savings and revenue-raising efforts in recent months in an attempt to keep control of the city.

But the moves were far from enough to bring financial stability to the city, according to a financial review team that submitted a pivotal report to the governor Tuesday, essentially recommending an emergency manager be appointed.

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"What we learned in the past year is that there are serious hurdles in front of the mayor as well as city council from just a governance structure of the city," Dillon said.



"While we all know there's financial strain on the city, there's also not an ability or a mechanism in place for the city to address it, absent a binding emergency."

Among a list of findings that led to the determination, the team found that Detroit's City Charter makes it "extremely difficult" for city officials to restructure operations.

Dillon cited $7 billion in unfunded retiree health care benefits as major liability that he said can’t be addressed without a long a process under the city's charter.

"It would be very difficult to restructure the city and have to adhere to the requirements of the charter," he said.

In addition to long-term liabilities, Dillon also named the city’s bus and lighting systems as potential targets for restructuring. He said $100 million every year comes out of the city’s general fund to subsidize those two items.

Bing, meanwhile, unsurprised by the findings, said he intends to remain focused on his own initiatives.

"My administration has been saying for the past four years that the city is under financial stress,” he said. “If the governor decides to appoint an emergency financial manager, he or she, like my administration, is going to need resources – particularly in the form of cash and additional staff.”

If Snyder agrees with the determination of the review team, Bing will have 30 days to challenge the findings and request a hearing.

The city has lost 1.1 million residents over the last 40 years, including 185,000 African Americans who left between 2000 and 2010.

Bing and City Council, though frequently butting heads in the process, implemented dozens of reforms and dramatic cuts to employee wages and city services in over the last year in an attempt to prevent a state takeover.

The changes included major outsourcing moves, health care changes, fire station closures and other desperate measures like selling scrap metal from abandoned vehicles, but the review team found them inadequate.

A takeover would give a state appointee broad powers over city government once Michigan's new emergency manager law takes effect in March.

Detroit would join Flint, Pontiac, Benton Harbor, Ecorse and Allen Park in the list of Michigan cities to placed under state takeover if an emergency manager is appointed.

Pontiac eliminated its entire police department under its emergency manager, contracting the Oakland County Sheriff's office. Flint's emergency manger unilaterally imposed changes to some employee union contracts used the additional leverage to renegotiate others.

Dillon said some of the numbers reported by the review team reveal conditions that are even worse than they appear on the surface.

“The city has been running deficits really every year since 2005,” Dillon said. “And they’ve been masking over those in a way with some long-term borrowing…

“If they weren’t doing the long-term borrowing for the last seven years, the actual accumulated deficit would grow from $327 million to $937 million.”

City Council President Pro Tem Gary Brown, who supports state involvement in the city's restructuring but opposes an emergency manager, echoed the mayor's comments that there was nothing new in the review team's report.

“It reflects the short-term and long-term financial issues we have been well aware of during the past few years,” Brown said.

Dillon said that is just the problem.

"We gave the city every chance to avoid the outcome that were recommending to the governor," he said.

Appointment of an emergency manager could have a significant effect on upcoming elections. A takeover would strip both the mayor and city council of much of their power.

Two Detroit mayoral hopefuls released statements Tuesday in response to the review team's findings.

“Michigan’s emergency financial management policy is flawed," said former state Rep. Lisa Howze, who is running for mayor. "Two years of this process have yielded no solutions. It's unfortunate the review team’s findings still do not address how the city generates revenue or how to resolve Detroit’s financial woes."

Wayne County Sheriff Benny Napoleon said the recommendations were Detroit's "worst kept secret" leading into the announcement.

“I firmly believe that the city has the capacity to work through these issues under local control," he said. "However, if an emergency manager is appointed, I think that it is important that the state partners with the elected leadership and the community to address these issues. And we, as Detroiters, will have to maintain the faith that there is life after an emergency financial manager."

Related:

-State says Detroit has no satisfactory plan for restructuring in implicit emergency manager recommendation

-Financial review team finds Detroit can't solve financial emergency on its own

- Review team 'paints a grim picture' about Detroit's finances in report

-A look at New York's 1970s turnaround paints bleak picture of what could be ahead for Detroit

-Gov. Rick Snyder looks at potential emergency managers as Detroit reports financial reforms

-National expert: 'A magician' needed to fill Gov. Rick Snyder's Detroit emergency financial manager job

-Detroit emergency manager should be a local, state representative says

-5 striking things Detroit Mayor Dave Bing said in his State of the City address

-Dave Bing's State of the City speech: Will Detroit mayor make case to stay, or prepare for handoff?

Follow Khalil AlHajal on Twitter @DetroitKhalil or on Facebook at Detroit Khalil. He can be reached at kalhajal@mlive.com or 313-643-0527.