2015.docx
Sent on behalf of Wayne Workman:
Governor Snyder,
This memo and associated summary will serve as background for the Local Government briefing scheduled on January 6,
2016 at 3:00. Similar information is provided for the schools as well.
Wayne L. Workman
Deputy State Treasurer
Michigan Department of Treasury
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STATE OF MICHIGAN
RICK Sav ORR DEPARTMENT OF TREASURY NICK A. KHOURI
GOVERNOR STATE TREASURER
DATE: December 17, 2015
TO: Rick Snyder, Governor
FROM: Wayne Workman, Deputy State Treasurer
SUBJECT: Status of Financially Distressed Local Governments
Financial Review
Commission
Receivership Transition
Advisory Board
Consent Agreement
Neutral Evaluation
EMERGENCY MANAGER
Lincoln Park
Emergency Manager: Brad Coulter
Appointed: July 7, 2014
Exit: December 22, 2015
Recent Developments
- In FY15 the anticipated unassigned general fund balance was $186,901. In FY14 the
unassigned general fund balance was a negative $1.0M.
- The police and fire pension millage failed 53% to 47%. The millage would have raised an
additional $3M annually.
- MERS recently notified the city that its pension ARC is increasing from last year's amount
of $2.2M to a current amount due of $3.9M. EM Coulter believes the city can only pay
$3.16M. Treasury and the city are working with MERS to reach a resolution regarding
annual contributions to the pension plan.
wow michigan govtreasury
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The City Council hired a law firm to prepare a complaint against the pension funds’
actuary. The city believes that the actuary did not properly advise the city regarding long-
term financial sustainability of the pension system. The May 2015 actuarial analysis
showed pension funding at 23% for Police and Fire and 20% for MERS. The city paid the
required ARC each year, yet the funding levels were reduced to critical levels.
A collective bargaining agreement with the Technical and Professional Office Workers
Association of Michigan was approved by the Treasurer and became effective on
November 1, 2015. The city eliminated retiree healthcare and reduced employee paid time
off.
Significant Actions/Issues
On August 10, 2015, the Lincoln Park Retiree Association filed suit against the state,
Treasury, and the City of Lincoln Park regarding the reduction of city retiree healthcare.
FINANCIAL REVIEW COMMISSION (FRC)
Detroit
FRC Created: November 12, 2014
FRC Members: Nick Khouri, Bill Martin, Brenda Jones, Darrell Burks, John Roberts, Lorron
James, Mike Duggan, Stacy Fox, Tony Saunders
Recent Developments
The city expects to record a larger than expected surplus for FY15. For FY16, the city
currently projects a $35M budget surplus.
The FRC filed its second statutorily required biannual report on Detroit on November 24,
2015. The report detailed the FRC’s activities to date and significant developments in the
city’s finances.
The city’s three police officers’ unions have ratified amendments to their existing labor
contracts to implement additional pay increases and other work rule changes. The
additional cost is projected to be $41M over 4 years (FY16 - FY19) and will be paid for
with savings from lower Exit Financing debt service, reallocating budgeted police capital
expenses to old bond proceeds, and the elimination of vacant police assistant positions no
longer deemed needed.
The city’s EM Orders are subject to revision or rescission by the City Council beginning
on December 10, 2015. The city has informed the FRC that the City Council has decided
not to modify these EM Orders at this time.
On December 3, 2015, the DWSD and the GLWA achieved bondholder consent to transfer
DWSD debt to GLWA.
Moody’s issued a report on December 7, 2015 indicating Detroit's economic and fiscal
health are stronger a year after bankruptcy. Moody’s noted the city’s ongoing recovery is
necessary to meet the challenge in funding its pension obligations from the General Fund
starting in F¥24. Moody's current rating on Detroit is “B2”.
Significant Action/Issues
The city has started developing its FY17 - FY20 financial plan. This will be the first budget
since the EM’s departure that Mayor and City Council will develop,
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RECEIVERSHIP TRANSITION ADVISORY BOARD (RTAB)
Allen Park
RTAB Appointed: September 26, 2014
RTAB Members: Suzanne Schafer, Fredrick Frank, Karen Barann, Mark Wollenweber, Scott
Lites
Recent Developments
- In FYI5 the anticipated unassigned general find balance was $5.8M. In FY14 the
unassigned general fund balance was $2.6M.
- Incumbent Mayor William Matakas defeated challenger Councilman Dennis Hays 62% to
38%.
- The road repair millage passed 52% to 48%. The millage will raise $1.4M in the first year.
- The city closed the bond tender refinancing related to the prior movie studio transaction on
November 19, 2015. S&P rated the bonds “BBB.”
Significant Actions/Issues
- On September 22, 2015, the Michigan Court of Claims granted the state’s motion to
dismiss the lawsuit brought by retirees of the City of Allen Park who challenged changes
made to their healthcare by the former EM. The retirees may appeal this decision.
Benton Harbor
RTAB Appointed: March 10, 2014
RTAB Members: Larry Steckelberg, Bret Witkowski, Marvin Raglon, Sharon Hunt
Recent Developments
- In FY15 the anticipated unassigned general fund balance was $3.1M. In FY14 the
unassigned general fund balance was $2.2M.
- Mayoral challenger Marcus Muhammad defeated incumbent Mayor James Hightower 60%
to 40%,
+ Treasury has begun planning to reduce the RTAB’s role.
Significant Actions/Issues
- The former Public Safety Director brought a lawsuit against the city and the former EM
for wrongful termination.
- On August 3, 2015, the City Commission requested financial assistance from the
Department of Treasury for legal fees and settlement costs associated with decisions made
during the tenure of the EM.
Ecorse
RTAB Appointed; May 1, 2013
RTAB Members: Edward Koryzno, Robert Bovitz, Joan Brophy
Recent Developments
- In FY15 the anticipated unassigned general fund balance was $2.7M. In FY14 the
unassigned general fund balance was $2.1M.
- Incumbent Mayor Lamar Tidwell defeated challenger John Miller Jr. 59% to 41%.
- On November 25, 2015, the City Administrator submitted a revised 5-year financial plan.
Treasury is in the process of reviewing.
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Significant Actions/Issues
Flint
MERS pension contributions are anticipated to increase from $1.8M in FY15 to $2.4M in
FY16 due to accelerated funding for closed plans.
RTAB Appointed: April 29, 2015
RTAB Members: Frederick Headen, David McGhee, Beverly Walker-Griffea, Robert McMahan
Recent Developments
Mayoral challenger Karen Weaver defeated incumbent Mayor Dayne Walling 56% to 44%.
The Regional Flint Mass Transportation Authority millage passed 72% to 28%.
The City Attomey has resigned effective December 31, 2015. A new City Attomey, when
appointed, will need to be confirmed by the RTAB.
On November 13, 2015, a complaint was filed in the U.S. District Court against State
officials, City of Flint officials, and the former EM for the decision to utilize the Flint River
as a water source for residents.
On November 16, 2015, a Notice of Intent to Sue was filed in the U.S. District Court against
state and City of Flint officials for violating the federal Safe Drinking Water Act
requirements.
Mayor Weaver declared State of Emergency on December 14, 2015.
On August 7, 2015, a Genesee County Circuit Court lawsuit, Shears vs. Flint, invalidated
a previous 35% increase in water and sewer rates, reverting back to 2011 rates. This
injunction also requires the city to repay $15.7M from the General Fund to the Water Fund,
prevents the city from collecting certain past due water bills, and from disconnecting water
service for nonpayment. The city’s appellate efforts to date have not been successful, The
city has requested financial assistance related to the litigation regarding water issues.
Kincaid vs. City of Flint litigation was held that the EM had ne statutory authority to later
ratify water and sewer rate increases from May of 2012. The city filed an appeal to the
Michigan Supreme Court, but the Court did not address the appeal because the city missed
the filing deadline by one day. The case has been remanded back to Genesee County Circuit
Court to resolve outstanding matters.
As a result of current review, the State Tax Commission notified the city it must maintain
adequate assessment records. The city will be issuing an RFP for the reassessment of
properties.
Significant Actions/Issues
On September 11, 2015, Genesee County Circuit Court dismissed the Coalition for Clean
Water vs. the City of Flint case to force the city to purchase water from the City of Detroit.
The KWA pipeline is expected to be completed in June 2016. The pipeline is 80%
complete, the two pump houses are 90% complete and the intake is completed.
If the city loses a lawsuit over retiree healthcare, the EM’s two-year budget does not assume
an additional $5M to $6M projected annual expense.
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Hamtramck
RTAB Appointed: December 18, 2014
RTAB Members: Deborah Roberts, Mark Stema, Karen Young, Albert Bogdan, Peter McInerney
Recent Developments
- In FY15 the anticipated unassigned general fund balance was $3.3M. In FY14 the
unassigned general fund balance was $2.6M.
- The city has developed a long-term capital improvements plan.
ignificant Acti issues
- A suit was filed in federal court by Hamtramck retirees over changes to healthcare benefits
made in October 2014. The potential exposure to the city is currently unknown.
- The annual pension liability is anticipated to increase from $3.5M in FY15 to $4.3M by
FY19. This increase is a result of closing certain pension plans and the MERS policy of
accelerating the required contribution for closed plans. The increases were included in the
EM’s two-year budget.
Pontiac
RTAB Appointed: August 19, 2013
RTAB Members: Edward Koryzno, Keith Sawdon, Robert Burgess, (one appointment pending)
Recent Developments
- In FY15 the anticipated unassigned general fund balance was $9.9M. In FY15 the
unassigned general fund balance was $4.3M.
- The city’s former pension advisor Roy Dixon was sentenced to federal prison for bribery
involving Pontiac pension board members.
- The Oakland County Circuit Court dismissed the lawsuit filed by the city against Ottawa
Towers LLC/ Phoenix Center. Treasury is working with the city to move forward to resolve
the litigation and assist with the sale to a private operator, which could free up $2M in
demolition funds.
- Treasury is working with the city on a plan to significantly reduce the role of the RTAB by
spring of 2016.
Significant Acti
- A proposed mediation settlement between the city and the Pontiac Retired Employees
Association, if approved, could fund pension and OPEB benefits for the GERS and the
Police and Fire VEBA members, and resolve the lawsuit filed by the Association.
CONSENT AGREEMENT
Inkster
Date Executed: February 20, 2012
Consent Agreement Consultant: Mark Stuhldreher
Recent Developments
+ In FY15 the audited unassigned general fund balance was $1,38M. In FY14 the general
fund balance was a negative $837,194.
- Byron Nolen was elected Mayor by defeating Walter Stargill Jr. 87% to 13%.
- The Parks and Recreation millage passed 72% to 28%. It will raise $400K annually.
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- The Senior Services millage passed 73% to 27%. It will raise $200K annually.
- The Inkster Public Schools non-homestead millage passed 64% to 34%. It will raise $750K
the first year.
- On October 5, 2015, City Council approved an agreement with Wayne County regarding
repayment of the $4.9M sewer charges owed to the county through a millage levy and other
resources,
River Rouge
Date Executed: December 15, 2009
Consent Agreement Consultant: N/A (PA 72)
Date Released: December 7, 2015
Recent Developments
- The city ended FY 15 with an operating surplus of $1.77M.
- Standard and Poor's ratings services assigned an investment grade “A” rating for a recent
$5M refunding bond issue that the city undertook.
Royal Oak Township
Effective Date: April 21, 2014
Consent Agreement Consultant: Robert Burgess
Recent Developments
- In FY15 the anticipated unassigned general fund balance was $267,405. In FY14 the
unassigned general fund balance was $154,092. The fiscal year ends December 31, 2015.
- The Township Board voted to extend the Consent Agreement Consultant’s contract
through March 31, 2016. A replacement will need to be identified.
- The township is exploring options for police services with neighboring jurisdictions,
however the proposed costs are greater than what the township's police millage generates,
The Michigan State Police have and continue to provide police services to the township.
ayne Cou
Effective Date: August 21, 2015
Consent Agreement Consultant: Warren Evans
Recent Developments
- On November 15, 2015, the county submitted a revised cash flow forecast. The cash flow,
excluding the Trust and Agency cash, projects a September 2016 balance of $179M, which
is $36M less than the October 2015 projection.
~ The quarterly financial report submitted by the county on October 15, 2015 projects an
operating surplus of $107M.
- The county indicated it has reached/imposed agreements with all collective bargaining
units with the exception of the Circuit Court. The Circuit Court contracts do not expire
until September 2016 and includes 77 members.
- Two lawsuits are currently pending a motion to dismiss: 1) AFSCME 3317 (sergeants and
lieutenants) is a state case; and 2) AFSCME 25 (hearing and vision techs) is a federal
case. Neither case prevents the county from carrying out its requirements under the
Consent Agreement.
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- Qn May 29, 2015, the Wayne County Circuit Court rendered a decision in favor of the
Retirement System resulting in a $49M judgement levy. The county paid $10M of the
judgment from availabie funds and placed $39M on the tax roll. As of November 9, 2015,
the county has collected $29M of the amount levied.
Significant Actions/Issue:
- The annual structural General Fund deficit is approximately $53.4M prior to any of the
proposed remedial actions. Those remedial actions include $36.2M in changes to retiree
healthcare, $5.2M in changes to active employee healthcare, and $12M in a combination
of revenue increases and potential expenditure reductions.
- The county submitted documentation regarding the long-term solution for its jail. Reviews
and discussion are ongoing with the county.
NEUTRAL EVALUATION
Highland Park
Financial Review Team Appointed: December 2, 2013
Financial Emergency Declared: January 30, 2014
PA 436 Option Selected: Neutral Evaluation
Recent Developments
- Mayoral challenger (and former Mayor) Hubert Yopp defeated incumbent Mayor DeAndre
Windom 63% to 37%.
- The Highland Park Schools non-homestead millage passed 54% to 46%, It will raise
$1.5M the first year.
- Avclass action lawsuit dated November 6, 2015 has been filed against the city claiming
Headlee Amendment violations for alleged overcharging for water and sewer services.
- The City Administrator reported that annual retiree OPEB costs were reduced from $1.5M
to $250K, effective October 1, 2015.
- Hearings are being held in U.S. Federal Court regarding the judgement in favor of DWSD
over the city’s unpaid water bill.
- The city’s water system is experiencing low water pressure. City officials are working
with Wade Trim, Treasury, DEQ, and GLWA/DWSD to develop a plan to implement
immediate repairs which are anticipated to increase water pressure. Treasury expects
funding the project through continued grants and loans.
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Cline, Richard (Treasury)