Facing bankruptcy, Detroit mayor calls for wage cuts, corporate tax increase

DETROIT (Reuters) - Detroit Mayor Dave Bing warned on Wednesday the city could run out of cash by April and called for wage cuts for police and firefighters and a corporate tax increase to avoid the appointment of an emergency manager.

Bing, who said the city was in discussions to turn over transportation and lighting to private management, said Detroit residents would lose the ability to control the city's future if the government continued down the same path.

"Simply put, our city is in a financial crisis and city government is broken," Bing said in a speech.

Bing said Detroit had a potential cash shortfall of $45 million by the end of the current fiscal year next June without the changes, which would include an increase of less than 1 percent in the corporate tax rate effective January 1.

"If we are asking our unions, our contractors to sacrifice, it is basic fairness and common sense for the business community to contribute as well," Bing said.

Detroit, the once-mighty U.S. auto capital, has seen its population and fortunes suffer with the decline of the U.S.-based automakers from their peak in the 1950s.

Cost cutting is critical if Detroit is to avoid joining Pontiac, Benton Harbor and other Michigan cities under the control of a state-appointed emergency manager.

Michigan Governor Rick Snyder said in a statement after Bing's address that he wanted to avoid appointing an emergency manager for Detroit if at all possible.

"Based on the mayor's remarks tonight and the severity of the situation he described, we anticipate he will be submitting a request for a preliminary financial review in the near future," Snyder said.

Bing warned earlier this year that a state emergency takeover was possible if the city did not cut spending. The bills continue to pile up and core services suffer, making it clear more must be done, he said on Wednesday.

The mayor said he would not allow police and fire services to be gutted, but called for workers in both departments to accept 10 percent wage cuts that other city employees have.

Bing said he met with representatives for all city workers last week to discuss reductions including wage cuts, increased employee contributions to healthcare costs, reduced excess pension payouts, cuts to overtime and layoffs.

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"We simply cannot afford to provide the rich benefit packages that our employees have enjoyed for decades," he said, adding that it was not an attack on workers.

Bing wants contractors who work with the city to take 10 percent wage cuts and retirees to accept the same increased contributions to healthcare costs and pension reductions that were being sought from current employees.

Donald Austin, executive fire commissioner and a Detroit native hired by Bing in May, said he hoped firefighters would accept the cuts, though he expected some push-back.

"If we make our contributions to making this a stable city, it's going to get better, maybe not in the short term but definitely in the long term, I'm talking 3 to 4 to 5 years down the road," Austin said.

Detroit City Councilman James Tate said he expected the council to make a counter proposal and hoped Bing's address was the first of many conversations on the city's dire finances.

"I appreciate that he's not running away from the situation, but we have to see a more detailed outline," Tate said.

In March, Michigan strengthened laws that allow the state to intervene in fiscally troubled local governments and appoint an emergency manager overseer with broad powers to modify or end public sector worker union contracts.

Still, Bing said he does not want an emergency manager to be appointed for Detroit, whether him or someone else.

The Detroit Public Schools are under an emergency manager and Michigan has launched a review of the Highland Park School District's finances. Michigan also has declared a financial emergency in Flint that could lead to an emergency manager.

Detroit's shaky finances are a major concern in the municipal bond market. Its debt rating has fallen into the junk category, stung by the city's high debt levels, falling population, and dim economic prospects.

(Reporting by Ned Randolph; Writing by David Bailey; Editing by Jerry Norton)

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