Aerial view of downtown Detroit on Sunday, Oct. 21, 2012. / ROMAIN BLANQUART/ Detroit Free Press
DETROIT (AP) -- Laying the groundwork for Gov. Rick Snyder to have the state take over Detroit's finance operations, the emergency review team that dug through the city's financial records this afternoon released an assessment that found the city is broke and incapable of fixing itself.
"Projections have estimated a cumulative cash deficit in excess of $100 million by June 30, 2013, absent implementation of financial countermeasures. While the mayor and City Council deserve credit for considering and, in some instances, adopting difficult financial reforms, those reforms are too heavily weighted toward one-time savings and apply only to non-union employees who represent only a small portion of the city's overall wage and benefit burden."
The report also notes that Detroit hasn't had a general fund surplus since 2004 and would have had had an accumulated deficit of nearly $937 million had it not floated bonds to pay its debts. The city's long-term debts now exceed $14 billion, with nearly $2 billion coming due in the next five years, as first reported Sunday by the Free Press.
In addition, the report finds:
• The City Charter contains numerous restrictions and structural details which make it extremely difficult for City officials to restructure the city's operations in any meaningful and timely manner.
•The city's general fund has not experienced a positive year-end fund balance since fiscal year 2004, with cumulative general fund deficits ranging from $155.4 million in fiscal year 2005, to $332 million in fiscal year 2009. The general fund deficit was $327 million in fiscal year 2012.
• City officials have primarily sought to address these deficits by issuing long-term debt.
• City officials violated requirements of Section 18 of the Uniform Budgeting and Accounting Act providing that "[a]n administrative officer of the local unit shall not incur expenditures against an appropriation account in excess of the amount appropriated by the legislative body. In other words, the city overspent is budget for years.
• City administrators failed to monitor and promptly amend an adopted budget as necessary to prevent deficit spending.
The report also chides a city bureaucracy too inflexible to implement change.
For those reasons and more, the review team concluded Detroit is in a fiscal emergency, "and no satisfactory plan exists to resolve a serious financial problem."
Now, the countdown begins on Snyder's decision as to what to do next.
Political observers and financial analysts say the governor has little option but to appoint an outside emergency manager who will do what Mayor Dave Bing and the City Council have not: restructure a city government that is far too large, costly and sclerotic for Detroit's shrinking population and tax base.
Snyder has 30 days under state law to decide whether to declare that an emergency exist and that an emergency financial manager is needed. But he has no deadline to appoint that person, though he may do so within a matter of weeks.
"The governor has recently indicated that he would take some time to review the report, but I would expect that the governor understands the situation and would move fairly quickly," said Terry Stanton, a spokesman for the state Treasury.
Detroit is drowning under $13 billion in bond debts used to patch over decades of budget troubles as well as retiree pension and health care benefits promised to city workers years before the city ran off the road.
By now, state officials had hoped to see more evidence of change. That hasn't happened, but likely will - and quickly - under an emergency manager, said Patrick McCauley, a longtime metro Detroit municipal lawyer who has represented cities, townships and counties for more than 30 years.
"His or her efforts are going to be pretty draconian in light of the financial straits the city is in," said McCauley, a partner in Gasiorek, Morgan, Greco & McCauley in Farmington Hills.
Crime, a loss of manufacturing jobs and a residency law passed by the state Legislature in the late 1990s pushed residents out of the city in droves. Added to that was the national foreclosure crisis that future decimated Detroit's real estate values, the major source of revenue for city government.
The city's accumulated deficit is $326 million, with little indication that it would be brought down significantly without state intervention.
"The question will be how long the emergency manager will wait before he or she believes the (corrective) actions taken have really taken hold," McCauley said. "If after six months the emergency manager determines there's no feasible plan to fix the city, then he or she can recommend to the governor that a bankruptcy should proceed."