Moody's commends Detroit's fiscal 2020 budget
Detroit — The city fiscal 2020 budget, approved by City Council this week, continues Detroit's financial recovery, Moody’s Investors Service said in a report released this week.
The rating agency says Detroit's $2.1 billion fiscal budget ending June 30, 2020, uses reasonable revenue assumptions, which is critical because the city's main revenue sources — income taxes and casino wagering taxes — are sensitive to economic trends.
“The credit-positive budget reflects sound financial practices, including conservative revenue assumptions and long-range projections, a significant capital investment and continues to set aside funds for a scheduled pension cost spike in fiscal 2024,” the rating agency wrote in its report.
As Detroit exited bankruptcy in 2014, the city was relieved of much of its financial pension payment obligations through 2023. In 2024, the city will begin funding a large pension contribution from its general fund for the General Retirement System and the Police and Fire Retirement System.
To prepare for that increase in pension costs, the city’s fiscal 2020 spending plan will increase the city’s irrevocable pension trust by $45 million — from $123 million to $168 million. Contributions will be made for three years until the trust reaches $335 million, plus investment income, according to Moody’s report.
This is the fourth consecutive balanced budget for Detroit in recent years. It’s also the first budget since the Financial Review Commission was inactive following emergency management and bankruptcy.
The budget was finalized after more than 40 hearings over a four-week period.
“It’s significant that the first budget that was done while the Financial Review was in dormancy was, within a few days of adoption, was recognized by an outside entity as being a positive for the city,” Acting Chief Financial Officer Dave Massaron said. “The City Council along with the administration took a number of long-range steps in this budget.”
In addition to addressing the pension cliff in 2024, the budget also doubles the rainy day fund, Massaron said.
“In the event there is an economic contraction in the future, the city is in a better position to absorb that without requiring as significant of an immediate change,” he said. “So the city will have time to appropriately plan for the reduction of revenue an economic contraction could result in.”
The 2020 budget targets reserves toward planned capital improvements, blight remediation and risk management.
"The city's ability to make greater capital investments from its annual operating budget, including through use of some funds on hand, reflects the strength of its financial operations," Moody's wrote in its report.
Among planned improvements are investments in information technology equipment and regular vehicle replacement.
"Although we don't have an immediate need for replacement of that equipment, we know that there is going to be a need in the future," Massaron said.
"Everywhere this is a long-term obligation the administration and City Council is trying to plan ahead to meet that obligation so that it can meet that it can maintain its current level of services and continue to improve on the services that it provides."