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Fitch: Detroit Consent Agreement Faces Significant Sustainability Issues

Reuters  |  Posted: 04/25/2012 10:21 am Updated: 04/26/2012 12:15 am


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April 25 (Reuters) - An agreement between Detroit and state of Michigan officials provides "a strong framework" for dealing with the city's sagging finances but its implementation is clouded by other matters, Fitch Ratings said on Wednesday.

"The (financial stability agreement) faces significant sustainability issues, including the ability of all concerned parties to work collaboratively and effectively together," the credit rating agency said in a statement.

The nine-member advisory board created under the agreement still lacks some appointments, while two key positions - the chief financial officer and program management director - have not yet been filled, according to Fitch.

It also pointed to expected resistance among Detroit unions to the deal, which was signed this month and which could impact collective bargaining.

Another issue clouding the pact is the future of Public Act 4, the 2011 Michigan law that boosted the state's power to intervene in financially troubled local governments, including Detroit. Michigan election officials will meet on Thursday to decide whether a measure to repeal the law should appear on the November ballot. If that happens, the law would be suspended ahead of the vote.

"It is unclear how or whether the absence of Act 4 would affect the enforceability of specific provisions of (Detroit's agreement)," Fitch said.

Fitch, which rates Detroit's unlimited tax general obligation debt at the junk level of B, also said the fiscal 2013 budget proposed by Mayor Dave Bing's administration earlier this month will likely face "significant modification." (Reporting by Karen Pierog; Editing by Theodore d'Afflisio and James Dalgleish)

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