Detroit has $63M surplus, deficit free two years in a row

Christine Ferretti
The Detroit News

Detroit — The city of Detroit ended the 2016 fiscal year with a $63 million surplus, marking its second consecutive balanced budget out of bankruptcy, an achievement officials hope will earn it better standing in the bond markets and a path out of financial oversight.

The city must have three consecutive years of deficit-free budgets to exit oversight by the Financial Review Commission under terms of Detroit’s exit from municipal bankruptcy protection in 2014.

The city’s Comprehensive Annual Financial Report, publicly released Wednesday, also shows that for the first time in more than a decade, the city didn’t have any costs scrutinized for its federal grant use. The city filed the annual review of its finances with the state Treasury Department on Tuesday.

Detroit Chief Financial Officer John Hill said the fiscal surplus for 2016 was about $22 million higher than the city projected, which he attributes to improved financial controls, stronger-than-anticipated revenues and lower costs due to unfilled vacancies.

“We are operating in a very fiscally responsible way that we believe will have a lot of positive implications on the future,” Hill told The News.

The city must have three consecutive years of deficit-free budgets to exit oversight by the Financial Review Commission under terms of Detroit’s exit from municipal bankruptcy protection in 2014.

“This audit confirms that the administration is making good on its promise to manage Detroit’s finances responsibly,” Mayor Mike Duggan said in a released statement. “With deficit-free budgets two years in a row, we have put the city on the path to exit Financial Review Commission oversight.”

The city is projecting a $51 million surplus in the 2017 fiscal year, which closes on June 30, Hill said.

The city expects confirmation with the 2017 audit of its finances, which Hill said is slated to be conducted in March. The city’s review commission could then vote, in about nine months, on suspending its direct financial oversight, he said.

If the city does emerge from oversight, it would no longer need approval on budgeting or contracts, as it has since exiting bankruptcy.

The newly released financial report also notes $143 million in accumulated unassigned fund balances, including this year’s surplus.

Of that fund balance, Detroit has allocated $50 million from fiscal 2016 to help set up the Retiree Protection Fund to help it deal with pension obligations that will come due in 2024.

Additionally, the city has set aside $50 million in the 2018 fiscal budget for blight remediation and capital improvements, leaving a $43 million unassigned fund balance that would carry over to the next fiscal year, officials noted.

None of the funding can be allocated without approvals from Duggan, the City Council or the review commission. The city uses the funds for one-time costs like blight fighting, quality of life improvements and capital costs, Hill said.

Hill said he’s also hopeful the continued positive cash flow will lead to an improved position among credit rating agencies. That could help the city pay less for its debt and begin to fund capital improvements through borrowing within the next year, he said.

In addition to its general fund gains, the city posted another year of improvement in its grants management.

The single audit report covering more than $157 million in federal grant spending for the 2016 fiscal year has zero questioned costs — or dollars that could potentially be clawed back by the federal government, officials said. All major federal programs also received clean audit opinions for the first time in years, Hill noted.

The city’s handling of federal grants previously had been under scrutiny for years and underwent an overhaul while Detroit was under state control. The latest findings, Hill said, gives reassurance that funding won’t be spend other than the way it was intended.

“That’s extremely important,” he said. “Not just to the federal government, it’s important to anyone who is giving the city funding.”