Evans to state: Declare fiscal emergency in Wayne Co.

Charles E. Ramirez, and Steve Pardo

Wayne County Executive Warren Evans asked the state Wednesday to declare a financial emergency and intervene to help fix the finances of Michigan's most populous county.

Evans sent a letter to State Treasurer Nick Khouri asking for the declaration to support his request to enter into a consent agreement, he said in a statement. A consent agreement is negotiated between a local government or school district and a state agency to address the local unit's financial problems. It could enable Evans to squeeze millions in concessions from unionized county workers through contract give-backs.

Evans said a consent agreement would allow the county to continue negotiations with stakeholders while giving it the ability, if necessary, to find other ways to achieve cost-savings and the county's $52 million structural deficit — a recurring shortfall that stems from an underfunded pension system and a $100 million yearly drop in property tax revenue since 2008.

"Our recovery plan provides a clear path to financial stability for the county, but we are keenly aware that our time frame to get the job done is quickly fading," he said. "Throughout this process, we are constantly evaluating where we stand and proactively seeking solutions to work ourselves out of this massive deficit.

"I am requesting this Consent Agreement because the additional authority it can provide the county may be necessary to get the job of fixing the county's finances done," Evans said in a statement.

Under state law, Evans can ask the state to conduct a financial review of the county.

Treasury Department spokesman Terry Stanton confirmed Wednesday that Khouri received the letter and will take under consideration the request for a state-led financial review.

"We appreciate the fact the county executive is looking to address the county's fiscal issues head-on and we'll react accordingly," Stanton told The News.

Wayne County Commissioner Tim Killeen, D-Detroit, said Wednesday before Evans' statement that he "would be against getting a consent agreement. I think it could lead to an emergency manager. I'd rather not go down that path."

That's what happened in Detroit, where the city reached a consent agreement with the state in April 2012, followed by the naming 11 months later of emergency manager Kevyn Orr, who led Detroit into Chapter 9 bankruptcy in July 2013.

"They're not very common for municipalities," said Terry Gibb, a public policy educator at the MSU Extension in Clinton Township. "The only city that has one that I can think of off the top of my head is Inkster."

Inkster entered into its consent agreement with the state in 2012. Other communities with them include Royal Oak Township, which has had one since last year, and River Rouge, which has operated under one for nearly six years.

A number of school districts, including Pontiac and Benton Harbor, also are operating under consent agreements.

In Wayne County's case, a consent agreement would be negotiated with the State Treasurer's Office. Michigan school districts work with the State Superintendent's Office.

Before an agreement is reached, however, the head of a local government — Evans, in this case — has to ask the Treasurer's Office to conduct a preliminary financial review.

If the state review finds probable "financial stress" — meaning the county's ability to deliver services could be in jeopardy — a team would be appointed to review the county's books.

Depending on the outcome, three things can happen.

■If the stress is minimal, no action is usually taken.

■If there are more serious problems, the local government can develop a plan to fix its finances through revenue increases, cost cuts, or a combination of both, and submit it to the treasurer's office for approval. The local government is given time to implement the plan and correct its money problems.

■In the worst cases, the state can appoint an emergency manager, Gibb said.

"It's a lengthy, complicated process," she said.

Besides its $52 million annual structural deficit, the county takes about $20 million from its general fund each year to bolster its pension system.

The county pension plan for current and future retirees is underfunded by $910.5 million, according to the most recent actuarial report done for the county. Wayne County has more than 5,000 retirees.

Evans has said if the county doesn't act, it will run out of money by August 2016. He wants the books balanced at the start of the new fiscal year, Oct. 1.

In his letter to the state treasurer, Evans wrote there are four reasons the county needs a preliminary financial review.

■The county had general-fund deficits of $88.4 million in fiscal year 2014 and $157.5 million in 2013, in violation of state law. Without action, the county's deficit would rise to $171.4 million in 2019, he wrote.

■Credit rating agencies have all lowered Wayne County's credit rating in the past year, because of its debt. In March, for instance, Fitch Ratings downgraded several types of county bonds, including $186.3 million in limited tax general obligation bonds from "B" to "BB-."

At the time, the agency said the county's ratings were on "negative watch," which "reflects the uncertainty regarding potential state intervention."

■The county owes a county worker retirement fund $49 million. Last month, a Wayne County judge ordered the county to pay that amount for taking $32 million from the Inflation Equity Fund, which provides current retirees with an annual extra payment instead of cost-of-living increases, in 2010.

The $49 million covers the original amount, plus lost earnings. Most of the money for the judgment will come from a one-time property tax this summer.

Evans this week proposed eliminating the extra monthly payment, known as the "13th check," and commissioners are expected to vote on that proposal at a 10 a.m. meeting Thursday.

■The county's pension plan is underfunded, at 44 percent for county retirees and 58 percent for airport retirees, and the county still needs new or upgraded jail facilities.

In April, Evans said the existing jail is in horrendous shape, and it costs the county about $1.3 million a month to have the half-finished $300 million new county jail sitting unused in Greektown. Construction was halted after $100 million in overruns and charges of corruption.

Joyce Ivory, president of American Federation of State, County and Municipal Employees Local 1659, said she hadn't heard about Evans' request to the state for a financial review.

"I'm shocked," she said, declining further comment.

Since January, Evans has unveiled a series of initiatives aimed at reducing the deficit, including the consolidation of three departments and a division, and a countywide spending and hiring freeze.

In April, the executive told The Detroit News Editorial Board that appointment of an emergency manager was inevitable unless the county made drastic cuts. He rolled out a "recovery plan" the same month to cut $230 million over four years.

Killeen said it is "the best financial plan I've seen since I've been in office. I think if we stick pretty closely to it, we won't need a consent agreement or an emergency manager."

This month, Evans announced a settlement in a suit filed by retirees over their health care; he said it would save about $20 million.