September 4, 2014 at 6:50 pm

City budget depends on revenues and future 'adjustments,' Detroit CFO testifies

Kaitlyn Buss / The Detroit News)

Detroit — The city’s chief financial officer gave a tepid endorsement of Detroit’s debt-cutting plan as the bankruptcy trial moved into a new phase on Thursday.

CFO John Hill, the city’s first witness testifying in support of the plan, said the plan to invest $1.7 billion updating antiquated financial controls and dump about $7 billion in debt relies on revenue that might not materialize.

“What assurances can you give us that if the plan is confirmed, you will adhere to the budget?” city bankruptcy lawyer Geoffrey Stewart asked.

“We will do everything we can to adhere to that with a couple caveats,” Hill said. “If revenues don’t come in, we will have to make adjustments.”

Hill’s testimony echoed concerns from U.S. Bankruptcy Judge Steven Rhodes’ expert witness who was hired to assess the plan. In her report, Martha Kopacz said the plan is feasible, but stressed Detroit needs more municipal workers and commitment from its leadership to carry out the massive restructuring.

Kopacz noted there is no “cash in the bank” to fund the reinvestment efforts. The funds, she said, will come from Mayor Mike Duggan and departmental leaders delivering services as “economically and efficiently” as the plan forecasts.

Hill’s testimony was designed to show the judge he is making progress fixing dysfunctional operations — progress that would continue if Rhodes approves the debt-cutting plan.

Hill bluntly described his approach to working for a city with $18 billion in debt.

“We will not spend money before we have it,” Hill said.

Under cross examination Thursday afternoon, a lawyer for holdout creditor Syncora Guarantee Inc. grilled the CFO on the bankruptcy plan that the bond insurer has labeled as “a failure on all fronts.”

Douglas G. Smith ticked off for Hill multiple ways that Detroit could increase its revenue and pummeled him with questions about the city’s efforts to improve tax collection rates and other initiatives it could pursue to maximize funds.

Smith noted Detroit could impose certain fees without state approval and privatize its municipal parking or water departments, to name a few.

He also touted the city’s financial support from foundations, the state and a “long list of grants under discussion” that he claimed would result in more money.

Smith also faulted the city for not including all measures to increase revenues or decrease its costs in the plan.

Syncora is attempting to poke holes in the city’s plan, arguing among other things that it failed to explore options to monetize Detroit’s world-class art collection and raise money for creditors.

Under direct examination earlier Thursday, Hill painted a grim picture of Detroit’s human resources and financial divisions before he arrived last year.

He testified that the assessing office was in shambles and labeled the prior grant management system “abysmal.”

Before he arrived, the city failed to compile monthly financial statements and financial controls were “very, very poor,” Hill testified.

“What’s the risk to the city of poor financial controls?” Stewart asked.

“The biggest risk is not knowing whether all of the transactions have been recorded,” Hill said. “And not knowing on a fast pace whether revenues are coming in or whether expenses were going out.”

Hill testified that he’s willing to stay on board as the city’s CFO. He said he would be “very upset” to leave with multiple projects pending.

cferretti@detroitnews.com