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State Review Team Finds ‘Financial Emergency’ In Detroit

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DETROIT (WWJ) – A state review team has determined that a “financial emergency” exists in Detroit, with no solid plan in place to resolved it.

The six-member team, appointed in December to examine the city’s finances, on Tuesday sent its report to Gov. Rick Snyder, who will review the team’s findings and determine whether an emergency manager is appointed.

“This review team spent two months pouring over the city’s finances, taking careful consideration of both long and short-term issues, including recent actions by the administration and City Council,” said State Treasurer Andy Dillon, in a statement. “While we appreciate the steps the city has taken over the past number of weeks, key reform measures have not occurred quickly enough, if at all. The team collectively believes the city needs assistance in making the difficult decisions necessary to achieve the significant reforms that are so crucial to the city’s long-term viability.”

Detroit is billions of dollars in debt and has a budget deficit topping $300 million. In recent months, the city has had trouble with cash flow and has been relying on bond money from a state-held escrow account to help pay its bills.

This is the second time a state-appointed team has made such a determination. Last March, a 9-member panel presented similar findings. This led to a consent agreement between the city and state, which allowed Detroit some more time to attempt to balance the budget.

Under Public Act 72, the governor now has 30 days to review the report and make a determination on whether or not a financial emergency exists in the city.

In its report, the review team cited several conditions, including the following, in making its determination:

- The City continues to experience a significant depletion of its cash reserves. Projections estimate a cumulative cash deficit of more than $100 million by June 30, 2013, without significant spending cuts. The Review Team noted that the Mayor and Council have moved forward with some financial reforms, those changes are too often one-time savings and apply only to a small percentage of the City’s overall wage and benefit burden.

- The City’s General Fund (GF) has not experienced a positive year-end fund balance since fiscal year 2004, with cumulative GF deficits ranging from $155.4 million in FY 2005, to $332 million in FY 2009. The GF deficit was $327 million in FY 2012. City officials have primarily sought to address these deficits by issuing long-term debt.

- As of June 30, 2012, the City’s long-term liabilities, including accrued pension liabilities and other post-employment benefits, exceeded $14 billion. City officials have projected that over the next five years, expenditures needed to fund certain long-term liabilities will total nearly $1.9 billion. However, City officials have not devised a satisfactory plan to address long-term liabilities.

- The City Charter contains various restrictions and structural impediments which make it extremely difficult for City officials to restructure the City’s operations in a meaningful manner. Restrictions include extensive steps and timeframes which must be observed before any proposed changes in future retirement benefits may be implemented and provisions which make it all but impossible to reorganize and enhance the delivery of municipal services.

View a copy of the report (.pdf format) PART 1 - PART 2

In a statement, Detroit Mayor Dave Bing said he’s not surprised by the findings, adding his administration has been saying for the past four years that the city is under financial stress.

Bing said, “If the Governor decides to appoint an Emergency Financial Manager, he or she, is going to need resources — particularly in the form of cash and additional staff.”

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