Detroit Faces Emergency Manager Review for Budget Deficits

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Yet another Michigan city faces financial review and takeover by a governor-appointed emergency manager. State Treasurer Andy Dillon recommended the review for the City of Detroit, citing over-budget spending, fund deficits, recurrent accumulated deficit spending, severe cash flow shortages, reliance on inter-fund borrowing and appropriations, lack of funding for post-retirement benefits, increasing debt load. According to Michigan Radio, Detroit Mayor Dave Bing said this is "unfortunate, but not unexpected." Here is a profile of Detroit's financial woes.

Uniform Budgeting and Accounting Act violations

Under this law, Michigan cities are supposed to amend their general appropriations act as soon as they begin to deviate from it or when it becomes obvious that they are going over budget. In 2010 Detroit city officials failed to act on three different line item general fund deficits totaling $58 million.

No deficit elimination plan filed

In December 2010, the city of Detroit reported that its general fund is $155 million over budget. The airport fund is $1.4 million in the red and the local street fund is $3.5 million in deficit. Cities in deficit are supposed to file a deficit reduction plan with the Michigan Department of Treasury. As of November, 2011, the treasury department has neither received nor approved any such plan. Estimates say that Detroit's budget deficits are increasing, too. The general fund deficit alone is expected to grow by $40 million.

Mounting debt

Adding up pensions and other post-employment benefits, Detroit's long-term debt liabilities are over $10 billion.

Bonds downgraded

Fitch downgraded Detroit's long-term bond rating below the sub-minimum BBB. Most are considered "junk," "speculative" or "highly speculative." Pension bond rating dropped to BB-minus.

$100 million or more deficits

Since 2005, the City of Detroit has carried a budget deficit over $100 million. From $155 million for 2010, the debt load has gone as high as $300 million, as reported on audits. To combat the deficit, Detroit has issued more debt. Dillon explains that despite reduced deficit in the year the debt is issued, fund balances are also depleted over time as debt service payments increase. In 2010, the debt service amount was $539 million.

Poor planning affecting grants

Dillon said that because of poor fiscal management by City of Detroit officials, other federally-funded aid programs are being affected. On an audit, the WIC, CDBG, and HOME programs were all found to have been potentially mismanaged. This may affect the city's ability to receive grant money for social service programs in the future.

Marilisa Kinney Sachteleben writes about people, places, events and issues in her home state of "Pure Michigan."

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