Report: Detroit bankruptcy looms without drastic change

Leonard N. Fleming / The Detroit NewsApril 6, 2010

http://www.detroitnews.com/article/20100406/METRO01/4060342/1409/Report--Detroit-bankruptcy-looms-without-drastic-change

Large General Fund Deficit• Detroit -- Mayor Dave Bing and the City Council must

reduce the size of government and slash the city's budget deficit to stave off bankruptcy or state receivership, according to a report released Monday.

• Without draconian cuts and changes aimed at downsizing government, the city could end up with a "possible" general fund deficit between $446 million and $466 million to its $1.6 billion budget.

• "Detroit city government must be restructured," according to the report from the Citizens Research Council of Michigan, a nonprofit that has studied Detroit finances for decades. "The new structure must reflect both the reduced tax base and the limited ability of state government to provide shared revenues."

The Fiscal Condition of the City of Detroit• The report, titled "The Fiscal Condition of the City of Detroit,"

was prepared at the request of Business Leaders for Michigan, a statewide coalition.

• The 60-plus page report outlines much of what officials know: The city's dramatic population loss, high unemployment and other ills have had adverse effects on the city. And now government must respond in a dramatic way to downsize and make sound budget choices, the report argues.

• Report author Bettie Buss, a senior research associate for the council, said her charge was to look at the underlying economy of the city and relate it to the budget challenges.

• "It is certainly true that the new administration has huge financial and operational challenges ahead," Buss said.

• "What this study does is confirm what the mayor has been saying all along."

Monetization of AssetsThe city budgeted $275 million as revenue from the

monetization of assets. Although there is precedent for the sale of future revenue streams in other cities and states (Chicago leased the Chicago Skyway Toll Road and parking meters, and tried but failed to lease Midway Airport), it is highly unlikely that Detroit can sell future revenues from the parking and lighting departments.

Discussions on the Detroit-Windsor Tunnel have occurred, but, even if an agreement were to be reached, the sale would not generate the amount included in the budget.

These three revenue items were included to balance the $280 million estimated prior years deficit, which had to be budgeted as an appropriation in the current year.

There was no realistic plan in the budget to address that accumulated deficit.

Planned Revenues

• Big portion involves monetization of assets.

• Solves problems for one year.