Howes: Wayne Co. financial crisis deepens, cuts to come
Time is running out on Wayne County.
"As a practical matter, cash flow has been below zero for some time, as part of the general fund," County Executive Warren Evans said Thursday. "We know that is not going to be sustainable."
Not really news, that. The news is that Evans and the new financial team he's assembling to lead the county are emulating the cold-eyed realism of Detroit Mayor Mike Duggan and the city's former Emergency Manager, Kevyn Orr — not Evans' hapless predecessor, Bob Ficano.
Recent history is on Evans' side. The implied threats of Detroit's epic Chapter 9 bankruptcy, and the powerful emergency manager who oversaw it, represent the leverage he can wield in ongoing discussions with what he calls "stakeholders" — unions and employees, the county prosecutor and sheriff, to name four.
"They're smart enough to know there is no" county-owned Detroit Institute of Arts to use as collateral, he said, "and there will be no bailout of Wayne County."
"The bottom line is we have a big structural deficit and we can't put a Band-Aid on it. Financial Armageddon for us is August 2016. I don't see a way past August '16 that we're going to financially survive if we don't fix some problems."
With the help of Ernst & Young, the new exec, on the job barely five weeks, now knows the structural deficit is running at $50 million. He knows the county's pension fund is only 44 percent funded, down from 95 percent in 2004, thanks to Ficano's early retirement incentives, increased payouts and poor investment returns.
To reach a funding level of 70 percent, a barely acceptable level by today's standards, the county would need to pump $40 million a year (half of it from the general fund) into the retirement plan over the next decade.
The county's retiree health-care liability currently stands at $1.3 billion; its assets on hand are $10 million. The county's miserable credit ratings make it nearly impossible to issue bonds to offset the liability in ways that neighboring Oakland has done and Macomb is contemplating.
The accumulated deficit balance is projected to be $161 million in the current fiscal year and $230 million next year, according to "Project Myers," Ernst & Young's study of Wayne finances. Barring transfers to offset the losses, the accumulated deficit is projected to reach $486 million by fiscal year 2019 — nearly equivalent to the current general fund budget of $495 million.
It's good that a rebounding Michigan economy is pushing county home values higher and foreclosure rates lower. But declining tax foreclosures mean there will be less the treasurer can provide from the Delinquent Tax Revolving Fund to hide the cash drain from the county's general fund.
In denial Evans isn't. In a decidedly blue county strongly tied to organized labor, he's a Democrat who is more Duggan than Ficano. Unlike his predecessor, he's wise to the fact that acting on financial reality is more likely to pay political dividends for him and his county's image than ignoring it.
Business leaders and ranking individuals in Lansing give Evans and his chief restructuring officer, Tony Saunders, high marks for their candor and business-like approach to defining the county's financial hole and assessing paths out.
"Warren has been a strong leader and not afraid to meet the situation head-on," said a Lansing source familiar with discussions over nearly a dozen meetings and conference calls between county and state officials. "I'm really impressed with their efforts and acumen."
This will not be easy. As much as Detroit's bankruptcy shows how powerful the process can be, neither Evans nor the state is eager to see an emergency manager at the Guardian Building or a Chapter 9 filing.
Public Act 436, the state's emergency manager law, is more difficult to apply to counties with more than one constitutionally elected office with claims on public funds, say Evans and state officials who have studied the situation.
"The read I get from the governor is he has no particular desire to come in and manage Wayne County affairs," Evans said. "I don't want an emergency manager. I don't want bankruptcy. If we can fix it short of that, that's what we want to do."
It'll take leadership and courage — and not just from Evans and his team. A financial restructuring is likely to disproportionately affect employees, reconfigure future pension obligations and impact the services the county provides and how it provides them.
Recession, mismanagement, cronyism and the corruption of the Ficano years delivered a financial crisis on the state's most populous county. The path out begins with heeding the mistakes Detroit made — and those it didn't.
Daniel Howes' column runs Tuesdays, Thursdays and Fridays and can be found at http://detroitnews.com/staff/27151.