Slimmed-down budget for "new reality" Detroit unveiled

Thu Apr 12, 2012 3:54pm EDT

Downtown Detroit is seen along Woodward Ave in Detroit, Michigan April 2, 2012. REUTERS/Rebecca Cook

Downtown Detroit is seen along Woodward Ave in Detroit, Michigan April 2, 2012.

Credit: Reuters/Rebecca Cook

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(Reuters) - Detroit Mayor Dave Bing's administration unveiled a $1.1 billion slimmed-down general fund budget for fiscal 2013 on Thursday that calls for deep spending cuts and employee concessions.

"Today's 2012-2013 budget address reflects the new reality for the city of Detroit," said Deputy Mayor Kirk Lewis in a budget address, filling in for Bing, who is recuperating from surgery.

That new reality involves a consent agreement that city and state of Michigan officials signed last week to fix Detroit's many financial woes, which include an accumulated deficit pegged at $265 million.

Lewis said Bing's budget will be modified as it is reconciled with the consent agreement, which creates a fiscal oversight board and calls for three-year budget projections.

"Revenue targets set by the mayor's office and the newly created financial advisory board will require further accountability," Lewis said. "The city will no longer be able to spend money it does not have."

The proposed budget for the fiscal year that begins July 1 cuts the current general fund budget by $160 million through department eliminations, workforce reductions and supplier concessions, as well as changes to employee medical benefits, pensions, work rules and wages, according to Lewis.

The consent agreement, which resulted from a state financial review process that found the city was in severe fiscal stress, also provides Detroit with some cash-flow breathing room by allowing it to restructure outstanding debt to push $37 million in debt service payment into future years and to sell $100 million of new bonds to fund its fiscal 2012 and 2013 self-insurance payments.

"While this financing was necessary to address liquidity issues, the administration is fully aware that the practice of covering deficits with more debt is not an acceptable solution," Lewis said.

Bing's budget projects a $15 million income tax revenue increase and an overall revenue drop of $23 million from the current fiscal year.

A staggering population decline dramatically reduced revenue for Detroit. The city's credit rating have been cut deeply into the junk category.

The city is planning to release more budget documents in the coming days.

(Reporting by Karen Pierog; Editing by Chizu Nomiyama)

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