Jan 3 (Reuters) - Detroit’s cumulative budget deficit increased to $326.6 million in fiscal 2012 from $196.6 million in fiscal 2011, according to a city audit released on Thursday.
The comprehensive annual financial report painted a bleak picture of Detroit’s finances that included a drop in revenue, a bigger debt load and falling credit ratings.
“The deficits raise significant liquidity risks regarding the city’s ability to meet its financial obligations as they come due without raising revenues, cutting costs of services provided, and effectuating financial restructuring,” said KPMG LLP, the city’s auditor, in the report.
The burgeoning deficit comes as Detroit inches closer to getting a state-appointed emergency financial manager who would control its finances and who could decide to take the city to federal bankruptcy court unless Michigan officials block the move.
Detroit was able to skirt the appointment of a manager last year by signing onto a consent agreement that gave the state some oversight of its finances. But slow progress on reforms led state officials to launch a review in December that could culminate with the city getting a manager to speed up the restructuring process.
A review team has met three times, according to Terry Stanton, a spokesman for Michigan’s Treasury Department.
“There is no time frame for the report to be complete, other than the governor having asked for an expedited review,” he said on Thursday.
For fiscal 2012, which ended on June 30, Detroit’s revenue totaled $2.3 billion, while its expenses totaled $2.6 billion, according to city officials. A revenue decrease of $170.5 million from the previous fiscal year included an $18.9 million drop in property taxes and a $66 million drop in state revenue sharing. Detroit, a city of 700,000, has been hit by a steep population drop.
Meanwhile, the city’s long-term debt obligations jumped to $9.4 billion in fiscal 2012 from $8.7 billion in fiscal 2011 due to the issuance of water and sewerage department bonds and an increase in the city’s retiree health care liability, according to the report.
Concerns that Detroit may run out of cash and potentially default on some debt led credit rating agencies to drop the city’s ratings deeper into the junk category during the previous fiscal year.