Detroit council urged to take action to avoid deficit

Tue Dec 4, 2012 3:45pm EST

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Dec 4 (Reuters) - Detroit Mayor Dave Bing's administration urged the city council on Tuesday to take actions that are needed to win the release of money from the state of Michigan so the city can avoid running out of cash this month and ending the current fiscal year with a bigger deficit.

Kriss Andrews, Detroit's program management director, said the city will still face a deficit in its current fiscal year even if the city receives $30 million in bond proceeds from the state by year end.

He said that with a nearly $47 million deficit projected for fiscal 2013, which ends on June 30, the council has to move on a series of conditions laid out by the state in November.

"You can't bridge a $46 (million), $47 million cash deficiency with $30 million. It doesn't work," he said, adding that Detroit will have to take actions to prove to state officials that it is in compliance with agreements aimed at improving the city's finances and try to win the release of more bond proceeds.

"We have to recognize we're in a place where we have no choice but to change," Andrews said.

The city of 700,000 has been hard hit by a steep population drop, years of severe budget deficits and escalating employee costs - factors that led state officials to begin an intervention process about a year ago.

Detroit officials were hoping to get the $30 million, raised through bond sales earlier this year that generated $137 million in proceeds, to avoid running out of cash later this month. Bing has said he will turn to unpaid leaves for workers and other cuts as an alternative.

Michigan officials are withholding the money until the city council acts on a series of so-called milestones, including the hiring of law firm Miller Canfield to work on issues related to the city's financial stability agreement with the state. The nine-member council rejected the contract last month, citing potential conflicts of interest by the firm and concerns over the legality of the contract.

Another series of milestones, including the retention of a restructuring team and execution of contracts for an audit of dependents for medical benefits and payroll outsourcing, face a Dec. 14 deadline.

The council may consider some of these issues at a meeting next week.

On Wednesday, the council will be back in session to take up an amendment aimed at fixing an approximately $29 million pension payment that was not budgeted for fiscal 2012.

Cheryl Johnson, Detroit's finance director, said the action is required so the city can complete its fiscal 2012 comprehensive annual financial report by year end, making the city eligible to obtain state revenue-sharing payments.

Michigan in the past has withheld the payments from Detroit when it was tardy in completing its CAFRs.

Separately, the city will have the money make a $29.3 million payment due Dec. 15 on outstanding pension debt, according to Johnson.

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