Detroit uncovers $50M in unspent bond funds

Christine Ferretti
The Detroit News

Detroit — The Duggan administration has uncovered millions in unspent bond funds for desperately needed capital upgrades.

That revelation was unveiled as part of Mayor Mike Duggan’s proposed $1 billion balanced general fund budget for the 2016-17 fiscal year that he presented Thursday to the City Council.

The unspent bond funds that date back decades will be allocated for park and public safety improvements. The dollars were approved by voters as far back as 1987, Duggan said.

The mayor noted that it’s “hard for me to believe” throughout the city’s financial struggles that “they would have left $50 million unspent.”

Duggan says he’s proposing that $11.7 million of the bond dollars be allocated toward improvements at 40 city parks. In addition, $7.5 million would be added to the Detroit Police Department’s Real Time Crime Center, and $7 million more toward building out the police department’s 8th precinct in northwest Detroit.

“I think what happened is that people forgot that it was there,” Detroit’s Chief Financial Officer John Hill said of the bond dollars after Thursday’s presentation, adding he sees how it may have been neglected since it wasn’t part of the original budget.

Hill gave an overview of the city’s four-year financial plan, which, for the most part, remains stable and conservative.

The city’s major revenues — income, property, utility, casino revenues and state revenue sharing — account for 78 percent of Detroit’s general fund. There’s an uptick of less than 1 percent over the previous fiscal year’s estimated collections.

In addition, a decline in income and utility users’ tax is offset by an increase in property tax collection and casino revenues. Total general fund revenues are expected to increase by less than one 1 percent over the forecast period, officials note.

The plan reflects the city’s department restructuring in finance, technology, human resources, planning and housing. It also reflects a $5 million general fund contribution to the Department of Health and Wellness Promotion for fiscal year 2016-17, and $10 million for each of the three fiscal years that follow.

Hill says the biggest threat to the city is uncertainty over state revenue sharing. Detroit also doesn’t yet know the outcome of its ongoing citywide property reappraisals.

On the other hand, he added, Detroit is trending toward having 80 percent of its residents current on property taxes by the end of the year.

The city’s $62.3 million reserve fund is above its 5 percent minimum of $54 million. Under state law, 5 percent of the city's appropriations must go in the reserve fund.

Duggan also stressed to council members that his proposed budget will direct $10 million toward a massive $491 million deficit that’s looming for the city’s two pension funds. A surplus in the current fiscal year will allow the city to kick in $10 million toward the shortfall this year.

During the budget talk, frustrations over the shortfall in the city’s pension funds served as a central focus.

The mayor raised the issue publicly for the first time during his annual address Tuesday. He added that he’s confident Detroit will end up with a rational approach to head off the issue before the city must begin making payments to the pension plans in 2024.

The city’s court-approved bankruptcy exit plan set out a forecast where pension obligations were 100 percent funded. Yet, months later, he said, the actuary for the pension funds revealed it was way off base.

Duggan said it appears the city’s former emergency manager and bankruptcy consultants used outdated mortality assumptions to come up with the forecast. The mayor says that he, the city’s chief financial officer and others were not included in the analysis.

The situation has the city evaluating potential legal options. Ex-emergency manager Kevyn Orr declined this week to comment on the claims through his office staff.

Councilwoman Mary Sheffield expressed frustration over the predicament and pressed the administration on the prospect of pursuing a lawsuit, noting that the city “spent millions” on expert consultants.

“It’s an insult to the city of Detroit,” she said.

The mayor on Thursday also fielded questions about the council’s budget, which was left out of the city’s recent debt-cutting plan. The council’s budget has “changed dramatically,” resulting in many challenges, including not providing council staff with benefits, President Brenda Jones said.

The mayor also noted that a plan for firefighter and EMS pay increases are being worked on and should be brought forward in the next few months.

The city is operating under the controls of Detroit’s Financial Review Commission, which must sign off on its four-year budget plan as well as certain contracts and financial transactions.

Final figures are pending, but the city anticipates a surplus of $20 million over and above what was expected for fiscal year 2015, and to come out $30 million ahead in the current fiscal year.

“We are running the city in a financially responsible manner,” Duggan said. “That is the run-up that leads to the 2017 budget.”

If Detroit finishes the 2017 fiscal year with a balanced budget, paying its bills and meeting conditions, it could free itself from the review commission control period.

The review commission must be given the city’s proposed budget 100 days prior to the start of the next fiscal year, or March 23.

After the mayor and City Council sign off on the budget, the review commission has 30 days to approve or reject the financial plan.