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TIMELINE - A brief history of Detroit's fiscal problems
July 19, 2013 / 12:45 AM / 4 years ago

TIMELINE - A brief history of Detroit's fiscal problems

July 18 (Reuters) - Detroit’s financial decline that led on Thursday to the biggest U.S. municipal bankruptcy filing in the country’s history can be traced back to the waning days of long-time Mayor Coleman Young’s administration (1974-1993), when the city was already deep in debt and struggling with a budget deficit.

Both Young and the Michigan state treasurer raised concerns over potential bankruptcy. Moody’s Investors Service cut the city’s debt rating into junk in July 1992.

- Mayor Dennis Archer’s administration (1994-2001) brought a mini-renaissance, as new developments, including casinos and baseball and football stadiums, bolstered the city’s budget. Credit ratings rose to solid investment-grade levels.

- Budget deficits and late financial audits popped up during Mayor Kwame Kilpatrick’s term (2002-2008), prompting city officials to fret about a potential takeover by the state of Michigan. Credits ratings on some of the city’s bonds fell again into the junk category.

- In September 2008, Kilpatrick left office after pleading guilty to obstruction of justice charges, and City Council President Kenneth Cockrel became interim mayor.

- Dave Bing won the May 5, 2009, election for mayor. The prospectus for a March 2010 Detroit bond sale aimed at reducing the city’s $326 million cumulative deficit laid out bankruptcy risks for potential investors. All of the city’s credit ratings were in the junk category.

- The U.S. Census reported in March 2011 that Detroit’s population fell in 2010 to 713,777 - a 100-year low and a 25 percent decline from 2000. The drop threatened key tax revenue sources that were tied to a population of at least 750,000.

- Michigan Governor Rick Snyder in June 2011 signed legislation allowing Detroit to continue collecting income and utility taxes. Bing warned in November 2011 that Detroit faced a projected cash shortfall of about $150 million by the end of March 2012.

- On Dec. 2, 2011, Michigan launched a preliminary review of Detroit’s finances, citing the looming cash crunch. That initial review found the city had a mounting debt problem with long-term liabilities estimated to top $12 billion versus an annual budget of about $3.1 billion. The state used a new law that made it easier to intervene in fiscally troubled local governments and that gave emergency managers appointed to run those governments greater powers.

- Michigan Treasurer Andy Dillon announced on Dec. 21, 2011, the state would undertake a formal review of Detroit’s finances.

- Moody’s downgraded Detroit’s credit ratings deeper into junk on March 20, 2012, triggering the termination of interest rate swap agreements that could cost the city an estimated $350 million. Meanwhile, work by the review team was delayed by state court rulings over possible open meetings law violations.

- In March 2012, about half of Detroit’s unions accepted pay cuts and other concessions to save the city $68 million annually. The Michigan Court of Appeals allowed the review team to continue working on a potential consent agreement with the city. An interim bond issue to raise $80 million for Detroit’s near-empty coffers was sold.

- On March 26, 2012, the review team concluded Detroit was in a severe financial crisis, but it did not recommend an emergency manager. The team reported that the city’s more recent financial woes were due to overspending, a reliance on debt and the inability of elected officials to fix the problem.

- A consent agreement giving Michigan more oversight and allowing Detroit to avoid a state takeover was approved by the review team and in a 5-4 vote by the Detroit City Council on April 4, 2012.

- In June 2012, Detroit’s top lawyer asked a state court to void the consent agreement on the basis that the state owed the city money. The lawsuit postponed plans for a bond sale to replace the March interim borrowing and raise a total of $137 million for Detroit. Bing, meanwhile, warned the city could soon run out of cash, putting a debt service payment on $1.5 billion of pension debt in peril. As a result, Detroit’s credit ratings were cut further into junk.

- A Michigan judge dismissed the consent agreement lawsuit on June 13, 2012.

- An oversight board created under the consent agreement held its first meeting on June 15, 2012.

- In July, Bing imposed 10 percent pay cuts on workers.

- On Aug. 2, 2012, a repeal of Michigan’s 2011 emergency manager law was placed on the Nov. 6 ballot. The move suspended the law, forcing the state to rely on a weaker 1990 law to deal with Detroit.

- A $129.5 million bond issue for Detroit was priced on Aug. 16 through the Michigan Finance Authority. The bonds earned investment-grade ratings due to the state’s plan to send Detroit’s revenue sharing money directly to the bond trustee for debt payments.

- Michigan voters on Nov. 6 repealed the state’s emergency manager law.

- On Nov. 15, Bing and Michigan officials agreed on goals and deadlines the city must meet to secure the release of $30 million of the bond proceeds.

- Five days later, the city council rejected a key goal -- a contract with law firm Miller Canfield -- that was tied to the release of $10 million of the proceeds. The move left the city at risk of running out of cash by the end of 2012.

- The city council changed course and approved the Miller Canfield contract on Dec. 11, gaining $10 million of bond proceeds from the state. At the same time, state officials, concerned about the slow pace of reforms, launched a new preliminary review of Detroit’s finances.

- Just days later, the review team concluded Detroit had a serious financial problem, triggering a deeper probe that could lead to the appointment of an emergency financial manager.

- The governor on Dec. 27 signed a new emergency manager law to take the place of the law repealed by voters in November. The new law, which takes effect on March 28, gives fiscally struggling cities and school district options for dealing with their problems.

- An audit released on Jan. 3 showed Detroit’s cumulative deficit jumped to $326.6 million at the end of fiscal 2012 on June 30, from $196.6 million in fiscal 2011.

- Bing announced on Jan. 25 that the approval of more goals by the city council would allow Michigan to send $20 million of the bond proceeds to the city.

- On Feb. 19 the review team concluded that Detroit faced a fiscal emergency. The report said the city was plagued by “operational dysfunction” and that it continues to deplete cash reserves and faces a cash deficit of $100 million by June 30 without significant spending cuts.

- On March 1, Snyder cleared the way for a state takeover of Detroit’s finances by accepting the team’s fiscal emergency determination. He also said he had a top candidate for the job of emergency financial manager.

- The city council appealed Snyder’s decision at a March 12 hearing.

- On March 14, Snyder re-confirmed the financial emergency and appointed bankruptcy and restructuring lawyer Kevyn Orr as Detroit’s emergency financial manager.

- On May 13, Orr calls Detroit “clearly insolvent” in his first official report on the state of the city’s finances. He said the city faced a $162 million cash shortfall because of pension deals that outstrip its ability to pay and a $60 million operating deficit.

- On June 14, Orr declared the city would stop making payments on some of its $18.5 billion debt load, effectively placing the city in default. He promised to meet with creditors over the ensuing 30 days. Credit ratings agencies responded with downgrades to Detroit’s credit rating.

- On July 5, Detroit filed suit against bond insurer Syncora Guarantee, claiming the company blocked an agreement the city had hoped to conclude with major creditors involving revenue from the city’s three casinos.

- On July 18, Detroit filed the largest municipal bankruptcy in U.S. history.

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