$491M pension shortfall looms, Duggan says

Christine Ferretti
The Detroit News

Detroit — Mayor Mike Duggan offered a mix of good and bad in his third State of the City address Tuesday night.

He led off with a $491 million deficit that’s looming in the city’s pension funds. The massive legacy costs as of June 30, 2014, mean that if the city takes no action to reduce the deficit, the general fund will have to contribute $83 million more a year to the two funds, starting in 2024.

But the news wasn’t all troubling. There were key accomplishments of his administration, he said, including reductions in violent crime and homicides, improved public safety response, and upgrading of bus service and streetlighting. Other goals, he said, include continuing blight removal and demolition efforts, adding jobs, cutting car insurance rates and quality schools, for which he reiterated the urgency of restoring an elected school board.

Saying “we are not going to panic” over the pension fund deficit, he added his administration is bringing in an expert to analyze estimates carved out during the bankruptcy process and that $20 million over two years from the city’s budget surplus will be directed toward bringing the deficit down.

“We are going to get on it now,” Duggan told a crowd of about 2,000 inside Second Ebenezer Church on the city’s east side. “We are not asking anybody for a bailout. We are going to have to address this problem. We are going to do it honestly.”

Duggan shared the news of the pension deficit months after Detroit’s Financial Review Commission last fall noted actuarial projections that suggested the city’s required contribution to its two pension funds in 2024 could jump by more than $80 million. The state-mandated review commission was installed to oversee the city’s finances after bankruptcy.

Detroit’s “grand bargain” funding plan relieves the city of much of the contributions to the General Retirement System and Police and Fire Retirement System through 2023. But in 2024, the city would have to start funding a substantial portion of the pension obligations from its general fund.

The amount projected in fiscal year 2024 had been contemplated at $113.9 million. But late last year, the actuarial firm for the city’s retirement systems issued a report suggesting the city’s general fund contribution would increase to about $196 million. The $83 million jump was based in part on mortality data contemplated in the bankruptcy plan projections. It was also assumed the plan would be effective June 30, 2014. It ultimately was put in place on Dec. 10, 2014.

The city is looking into it, but Duggan said ex-Emergency Manager Kevyn Orr and bankruptcy consultants may have “used the wrong assumptions.”

The mayor also said he’s directed the city’s Law Department to evaluate any claims against the city’s former bankruptcy consultants, who were paid $177 million dollars. “I don’t know whether it’s actionable or not, but we’re going to pursue it,” he said.

Council President Pro Tem George Cushingberry Jr. said after the speech that the deficit was a ways off and there are ways to prevent the shortfall. “Part of the problem is that it’s not easy to predict what the pension boards going to earn in any given year. ... We are improving,” Cushingberry said, noting corruption cases involving past pension officials. “It may be possible to set aside current surplus funds, along with future surplus, to deal with the potential deficit.”

On public safety, Police Chief James Craig has put together a new fugitive apprehension unit to go after the more than 1,000 people with outstanding warrants for gun crimes, including carjackings and armed robbery, Duggan said. They will be using technology equipped with photos and license plate information of suspects.

“We are tired of the gun violence. We are not putting up with it anymore,” he said.

Duggan said the city finished last fiscal year with a balanced budget for the first time since 2002. Four months from the end of the 2016 fiscal year, Detroit will finish with a balanced budget for the second straight year, he said. This week, the administration is slated to send another balanced budget to the council.

The mayor said there also are plans to continue with Detroit’s massive demolition effort with a goal of 20,000 houses by the end of 2017. The state learned last week it is set to receive at least $75 million and could receive up to $323.5 million more in federal aid for blighted building demolitions in Detroit and other cities.

Detroit resident Sylvia Taylor was pleased to hear Duggan urge state legislators to fix Detroit Public Schools. “That’s the most important thing I needed to hear, that we need to work on fixing school,” she said.