Property taxes, skipped pension payments boost Detroit's cashflow
Oct 16 (Reuters) - Detroit's revenue dropped by 9 percent in the first quarter of fiscal 2014 compared with the same period in fiscal 2013, but an influx of property taxes and skipped pension contributions boosted the city's cashflow, according to a report released on Wednesday. In his quarterly report to Michigan officials, Kevyn Orr, Detroit's state-appointed emergency manager, said the city ended the quarter on Sept. 30 with a cash balance of $128.5 million that exceeded projections by $56.7 million.
But the former corporate bankruptcy attorney who has been running the city since March said Detroit's financial condition "continues to be dire" as it works its way through U.S. Bankruptcy Court, where its eligibility to remain there will be the subject of a trial next week.
The first quarter is typically a flush time for Detroit's general fund due to summer property tax collections, the report said. Orr also made the decision to skip $44 million in forecast payments to its two public pension funds, while continuing to make payments on outstanding bonds and interest-rate swap agreements that he considers to be secured debt, as well as for retiree healthcare and for certain "important vendors."
City revenue for the quarter, including property, income and gambling taxes, totaled $220.2 million, a drop of about $22 million from fiscal 2013's first quarter. Expenses also fell by about $11 million as the city's headcount dropped to approximately 9,322 workers at the quarter's end from 10,325 in the same period last year, according to the report.
With Detroit sinking under more than $18 billion of debt and other obligations, Orr on July 18 filed the biggest Chapter 9 municipal bankruptcy in U.S. history.
Prior to the filing, Orr determined that about $11.9 billion of the debt, including pensions, retiree healthcare and some voter-approved general obligation (GO) debt, was unsecured and proposed paying it off with pennies on the dollar. Since June, Detroit has defaulted on $1.45 billion of insured pension debt and more than $600 million of GO bonds.
For fiscal 2014's second quarter, the report projects the city's cashflow will reverse course and be in the red, reducing the cash balance to $46.8 million. That projection assumes that Detroit's will not consummate its plan to obtain debtor in possession financing.
Orr announced on Friday a commitment from Barclays Plc to provide a financing of up to $350 million, subject to approval by the federal bankruptcy court. The deal would allow Detroit to end its interest-rate swap agreements at a discount and provide about $120 million to improve city services and infrastructure.