Correspondence between

Please reschedule today's phone call with Ed to perhaps Friday morning. Sent from my iPhone xxxEND_PAGE:treasury01_b06_0561_0924_106 THOUGHTS FROM THE EFM AFTER 6 MONTHS ON THE JOB There are many significant issues facing the city going forward. Let me reflect on some of the more obvious ones. LAND USE AND PROPERTY TAXES 1. Property taxes will continue to decline over the next three to four years with the projected decline in 2014 estimated to be 17%. 2. Much of the redevelopment is being done by the non-profit sector and will not be subject to property taxes. 3. The neighborhoods continue to decline with another 1,700 parcels turned over to the Land Bank and now exempt from taxes. (Note: we were able to demo 600 homes this fiscal year but added another 1,700 to the potential list of demos.) The City would need $50 to $60 million dollars for demo alone. 4. With a few exceptions, Wards 3 and five could effectively be renamed “Land Bank City”. 5. Approximately 36% of the city’s housing stock is either vacant, or in poor to substandard condition. 6. In addition to the residential properties there are a significant number of commercial properties that need to be demoed. 7. The proposed elimination of the personal property tax will also have a negative impact on the cities revenue. Other than public safety, only 80% of the lost revenue will be recovered. 8. Banks are now doing what they accused their customers of doing. They are walking away from foreclosed properties that they own and dumping them on the City and eventually the land bank. 9. It costs the City and the Land Bank approximately $1.2 million per year to mow all the vacant property twice. 10. By the time the Land Bank receives the properties (3 years), they are basically stripped of all electrical, plumbing, etc and are not salvageable . The people of the City passed a 6 mil property tax increase exclusively for public safety. However, by the end of the six years it will be offset by the continued decline in property values. 1 _ IN SUMMARY, PROPERTY MANAGEMENT WILL HAVE TO BE A TOP PRIORITY FOR THE CITY OVER THE NEXT SEVERAL YEARS, INCOME TAX 1. Income taxes which we initially projected to increase slightly, will now, with the announced closing of Delphi East probably decline. 2. The City is considering the possibility of raising the income tax. But this process requires legislative action and a vote of the people. This could be the straw that breaks the Camel’s back. FEES 1. The City has implemented fees for street lighting and garbage pick up. (The Garbage fee replaced a 3 mil property tax for that purpose. Ifa property was xxxEND_PAGE:treasury01_b06_0561_0924_107 1. The city continues to operate its own 911 center that is funded by a surcharge on phone service. As more and more people rely on methods other than land lines, the revenue continues to decline. The center is currently being subsides by more than $500,000 from the general fund annually. COURTS 1. The 68" District court continues to be a significant cost factor to the city and is extremely busy. IN SUMMARY, PUBLIC SAFTETY CONSUMES 71% OF THE GENERAL FUND REVENUE PLUS THE TWO MILLAGE, ONE FOR 2MILS (POLICE ONLY) AND ONE FOR 6 MILS (POLICE AND FIRE ONLY). IT IS PROJECTED THAT STAFFING LEVELS WILL DECREASE BY 15 IN FISCAL 15, UNLESS THERE IS ADDITIONAL REVENUE CREATED. THIS PROJECTION IS BASED ON THE PREMISE THAT THE CITY WILL CONTINUE TO RECEIVE $3 MILLION ANNUALY IN GRANT ASSISTANCE FROM VARIOUS SOURCES. BARING THAT, THE NUMBER OF EMPLOYEE REDUCTIONS WILL BE LARGER. THE 911 SYSTEM SHOULD BE MERGED WITH THE COUNTY AND THE 67™ DISTRICT COURT SHOULD BE MERGED WITH THE 68™, THE POTENTIAL FOR COMBINED SERVICES IN POLICE AND FIRE SHOULD BE CONSIDERED. INFRASTRUCTURE STREETS 1, Inarecent assessment 26% of the City’s streets received the lowest grades while only 10% received the highest. Regardless of the condition, the City will, by policy, use all of its Local Street Funds to maintain the current status as much as is possible. That means all funds will be used for sealing cracks, fixing potholes, etc. No replacement of existing roads will be done. 2, Our Major Street Fund dollars will be used mostly to meet our required match for MDOT projects projected to be $575,000 in 2014. IN SUMMARY, UNLESS ADDITIONAL REVENUE BECOMES AVAILABLE, OUR ROADS WILL AT BEST BE STABALIZED, BUT PROBABLY CONTINUE TO DETERIORATE WATER AND SEWER 1. The charges for water and waste have increased by over 100% in the last 18 months, to the point that the average charge for a City of Flint resident is about double that of a Genesee county resident. 2. Currently there are over 8,000 accounts 60 days or more past due with at total dollar value of just under $3 million. xxxEND_PAGE:treasury01_b06_0561_0924_108 . The condition of our water and sewer infrastructure is, to say the least, not very good. Our treatment plants, both water and sewer are in good shape because of the continued mandates from DEQ for upgrades. However, this has also created significant bond debt to go with it, and, has resulted in limited capability of providing improvements to the in-city water delivery network and sanitary network . There is a constant backlog of unrepaired water main leaks, defective meters, turn ons/turnoffs, with insufficient staff to deal with them . Both funds are in deficit and have little money to address infrastructure. . Significant bond debt as well as legacy costs make partnering or selling of the system difficult . The City is finalizing a decision on its water supply for the next 30 years. Although it appears that KWA will be significantly less costly over the life of the contract, costs will continue to go up regardless of which option we take. A significant concern is that because a significant portion of the cost associated with KWA is fixed, with the continued exodus from the city, fewer and fewer customers will pay increased rates to cover bond costs. A draft of s study on the sewer system indicated it will take an estimated $20 to $30 million to repair the system. . There is currently over $2 million of past due water bills attached to the affidavit process. The relatively small deposit required $100.00 for a renter to get an affidavit results in many renters simply walking away and forfeiting their deposit, because the water bill is significantly more than the deposit. In addition on many occasions a new tenant moves in without filing an affidavit and the water continues to be billed to the former tenant, resulting in large amounts of bad debts. With an affidavit, the landlord is not responsible for the cost of water. In addition, there are individuals/companies that will illegally turn a persons water back on or in some cases actually bypass the meter. One of the largest causes of unbilled water is theft, along with fires and leakage. Again, there is a lack of staff to monitor and enforce. The City is increasing the water deposit amount to $350. . The current water charge policy basically does not reward someone for conserving water. The fixed charge is a significant part of the cost. Maybe, the City should look at the potential for a consumption only charge. IN SUMMARY, WATER RATES WILL CONTINUE TO GO UP FOR RESIDENTS OF THE CITY, BUT HOPEFULLY AT A MUCH LOWER RATE THAN IN THE PAST. IT WILL BE VERY DIFFICULT TO GENEREATE REVENUE FOR INFRASTRUCTURE UNTIL RATES BECOME MORE COMPETITIVE WITH THE COUNTY. PARKS AND SENIOR CENTERS AND GOLF COURSES . The City currently has over 60 parks as well as dozens of boulevards, triangles, etc to maintain. The parks are supported by a property tax levy that now produces less than $400,000 per year. In addition forestry is included in the parks budget. Basically with the exception of a few parks that have been adopted, they are not xxxEND_PAGE:treasury01_b06_0561_0924_109 well maintained. In addition, several of the parks are not much more than a small piece of land that is underutilized. 2. The City can not operate Senior Centers effectively or economically. Centers will have to be outsourced, operated by Senior Center Boards, or closed. The only funds available will be funds obtained from the county wide millage for that purpose. 3. The City currently owns four golf courses. Three have been leased to a provider, who operated two of them in summer 2012. Though the lease has not been without concerns, the coursed will continue to be leased again this year. This group does intend to open the third course, possibly this season. The fourth course has been leased to a different group and is not operating and in bad condition. The City should probably look to sell the golf courses. IN SUMMARY, ADDITIONAL REVENUE WILL HAVE TO BE FOUND, OR SEVERAL PARKS WILL HAVE TO BE ADOPTED OR CLOSED, SENIOR CENTERS MUST BE SELF SUFFICIENT OR CLOSE AND THE GOLF COURSES SHOULD BE SOLD. STAFF 1. The City is currently functioning with a shared Assessor, part time Treasurer, contracted Risk Management and IT Directors. The Finance Director, Infrastructure Director, City Administrator, as well as others, are independent contractors. All departments are probably understaffed, but Human Resources, which is where everything starts, including labor relations, is probably the most apparent. LEGACY COSTS 1. Although tremendous strides have been made in reducing the unfunded liability, retiree health care costs still have an unfunded balance of approximately $350 million. 2. Even though the City’s pension fund has consistently under performed most municipal plans, it had remained under the direction of a local pension board. In fiscal 2013, the plan was moved from FERS to MERS, which saved the City significant dollars in administration and fees. However, the pension fund is currently funded at less than 50%, with an unfunded liability of approximately $450 million. IN SUMMARY, LEGACY COSTS WILL BE A SIGNIFICANT ISSUE GOING FORWARD. AS GENERAL FUNDS DECREASE, AND FEWER EMPLOYEE'S CONTRIBUTE TO THE FUND. THE CITY COULD FACE CHOICES OF FUNDING LEGACY COSTS OR PROVIDING SERVICES. LAWSUITS xxxEND_PAGE:treasury01_b06_0561_0924_110 1. The City still has several pending lawsuits that could have a significant negative financial impact on the City such as health care and water charges. The Health care lawsuit could cost the city upwards of $3 million. The water charge lawsuit, filed by the President of the City Council, would either put the water department effectively out of business, or if covered with General Funds, cause the City to no longer be viably and probably forced to file for bankruptcy. IN SUMMARY, A NEGATIVE OUTCOME IN ANY OF THE LAW SUITS WOULD HAVE A DEVISTATING IMPACT ON THE CITY. GOVERANCE MAYOR 1. He is trying. Although the mayor talks a good show and writes well, he has blinders on as it relates to the true financial condition of the City as referenced by his recent State of the City address. He has done a decent job with economic development, a role to which we assigned him. Financially, I think he believes if he says it often enough, it will happen. COUNCIL ls All I can think of saying about the council is “Are we really going to turn the City back over to them?” In my view, they are basically dysfunctional, and not capable of acting responsibly or timely. Their meetings tend to be unprofessional and confrontational with each other. xxxEND_PAGE:treasury01_b06_0561_0924_111 assessed at less than $50,000 the cost to the owner went up. If more than $50,000 the cost went down. I am not sure either fee, because of vacant properties will, at the current assessment, generate enough income to cover the costs. Based on statistics from the Land Bank and the Master Planning process, there could be as many as 14,000 unlicensed rentals in the City. If licensed and inspected, it could generate and additional $1 million in revenue. However, it has to be determined if the revenue would cover the costs of the program. There also appears to be hundreds maybe thousands of unlicensed business in the City. This also represents unrealized revenue as well as a disservice to those to do apply and pay for an annual license. Again, revenue versus expenses would need to be evaluated. In addition the City is now billing for such things as fire runs, police response to accidents, etc. None of these charges are well received by the public, and have had significant administrative issues. IN SUMMARY AS IT RELATES TO REVENUE, THERE ARE FEW ADDITIONAL PLACES THE CITY CAN LOOK FOR INCREASED REVENUE, WITH THE INCOME TAX BEING THE MOST LIKELY. WHETHER OR NOT FEES FOR THINGS LIKE RENTAL INSPECTIONS AND BUSINESS LICESNSE WOULD EXCEED THE COST OF COLLECTION NEEDS TO BE ADDRESSED. PUBLIC SAFETY POLICE I. FIRE By almost any measurement the police department is understaffed. We currently have a total of 140 employees in our police department including both sworn and civilian. Even with the passage of the 6 mil increase in property taxes exclusively for “public safety” and the commitment by ordinance of 55.5% of general fund revenues to police and fire, the number of officers will decline beginning in Fiscal 15. The department has been reorganized and significant improvements in response time, etc have been made. The State’s help in providing funding to reopen the lockup and the addition of several state troopers to the city have helped significantly. Currently, eleven of the officers are paid for by a Mott grant that expires June 30, 2013 and will not be renewed.. . The city currently has 93 total employees, staffing five stations. The EMT service has been discontinued. Thirty nine of the current employees are paid for by a SAFER grant that expires in the spring of 2014. The city is currently setting aside some of the funds from the new millage to cover that loss. It is possible that the city by Fiscal 15 will be reduced to a maximum of three stations, possible two. 911 CENTER xxxEND_PAGE:treasury01_b06_0561_0924_112 . Index | . _GoTo Dashboard 3500 (Rev 01-11} STATE OF MICHIGAN RICK SNYDER DEPARTMENT OF TREASURY ANDY DILLON GOVERNOR STATE TREASURER DATE: February 8, 2013 TO: Governor Rick Snyder FROM: Andy Dillon, State Treasurer SUBJECT: Status of Financia!ly Distressed Local Governments JANUARY DECEMBER Cities | Schools | Total Cities | Schools | Total EM/EFM 5 3 8 5 3 8 Consent Agreement 3 0 3 3 0 3 | Watch List | 7 2 9 6 2 8 Per your request, this memorandum summarizes the status of selected financially distressed units of local government. The following units of local government now are subject to Public Act 72 of 1990, the Local Government Fiscal Responsibility Act. GENERAL ISSUES Cities Close to an Exit by EFM: « Ecorse — While most of the financial issues are resolved, the City Council without the State’s involvement, has the authority, through practice and a loosely worded city charter, to meddle in the day-to-day operations of the City, including supervising staff and setting their pay. Ef- forts to obtain an Inter Local Agreement have been frustrated by the unwillingness of a ma- jority of Council to see the need for the oversight contemplated by the ILA. While we continue to work on a compromise, worst case is that we will impose a transition advisory board (TAB) under PA 436 in late March. e Pontiac — As explained below, Mr. Schimmel has a short list of projects to complete before he leaves this summer. Imposition of a TAB will be recommended. Retiree Health Care — In most of the EFM cities, and certainly in those cities that are struggling but not yet in receivership, the cost of promised retiree health care is a major concern. In Pontiac and Flint where changes in retiree health care were imposed under PA 4, lawsuits are pending leaving the effects of those changes uncertain. In Pontiac, the annual liability is about $6.0 million, which is also the amount of the City’s current annual operating deficit. Allen Park’s annual liability is approxi- www michigan govfreasury xxxEND_PAGE:treasury01_b06_0561_0924_113 Y Index GoTo Dashboard | Governor Snyder February 8, 2013 Page 2 of 20 mately $2.5 million and Flint’s is nearly $20 million, half of which is in the general fund. While Flint and Pontiac have each taken steps to reduce the annual expense of the health coverage the retirees enjoy, those changes are being challenged. In most of our EFM cities, this issue is a difficult obstruc- tion to fiscal balance. Pontiac, our most extreme case, currently has 52 current employees in the health care system compared to approximately 1200 retirees receiving health care. Treasury is work- ing to develop a standard process to use when addressing retiree health care spending. Law Enforcement — Based on the recent meeting with the Michigan State Police, it has become clear that increased coordination between Treasury and MSP is necessary. This is especially true in cities such as Flint and Detroit, where the City is both under some level of Treasury supervision and also has increased MSP presence. Treasury will initiate these discussions. EMERGENCY MANAGER - Cities City of Allen Park gill ® Update: Joyce Parker was appointed Emergency Financial Manager by the Emergency Loan Board on October 25, 2012, with duties beginning October 29. She also serves, part- time, as the Emergency Financial Manager for the City of Ecorse. « For fiscal year ending June 30, 2012, the City had an operating surplus of $2,973,862, or 18% of general fund revenues of $16,202,731. However, when transfers out of the general fund are taken into account, the financial picture is much worse. The City transferred $4.7 million (net of transfers in) from the general fund, including a $2.4 million transfer associated with studio debt and a $2.5 million transfer to cover retirement health care. Based on these numbers, the City’s unrestricted accumulated general fund deficit is $1,090,225 or 6.7% of revenues, « In the audit for fiscal year ending June 30, 2012, the City’s audit firm expressed doubts of the City’s ability to continue as a going concern. e The EFM has submitted an application for an emergency loan. The Department is re- viewing the application to assure the City’s request is consistent with their financial needs, but Treasury is not inclined to approve the loan until other options have been ex- plored. e A two year operating millage was on the November 6 ballot, which was for four mills and was defeated. Treasury is exploring the potential to restructure the studio debt. The EFM has listed the movie studio property for sale and is preparing a detailed Deficit Elimination Plan. The City’s financial distress is exacerbated by the minimum staffing requirements contained in the public safety collective bargaining agreements and the cost of retiree health care. xxxEND_PAGE:treasury01_b06_0561_0924_114 Index | Go To Dashboard | Governor Snyder February 8, 2013 Page 3 of 20 « The Road Out: With our recent entrance into Allen Park, several general strategies are in play. As noted above, the budget is in deficit primarily because of the movie studio debt and the retiree health care obligations. However, labor contracts have minimum manning provisions that need to be resolved, and there are several areas of ongoing expense that can be reduced. Among other things, the EFM’s draft deficit elimination plan also in- cludes personnel reductions (including police and fire), wage reductions, pension plan changes, active and retiree health care changes, reduction in sick days and holiday pay- outs, and revenue enhancements for rubbish and lights. Ms. Parker believes that it may be possible to balance these financial issues short of bankruptcy. However, that option is also being explored. City of Benton Harbor a e Joe Harris was appointed Emergency Financial Manager on August 8, 2012. He was first appointed Emergency Financial Manager on April 1, 2010. The Emergency Loan Board terminated Mr. Harris’ contract effective January 31, 2013 and appointed Mr. Tony R. Saun- ders I as the new EFM effective February 1, 2013. Prior to taking this appointment, Mr. Saunders worked on the staff of City Council Members in Detroit and, for the last year, has been assisting the City of Highland Park on behalf of the Department of Treasury. * For the fiscal year ending June 30, 2012, Benton Harbor had an operating shortfall of $1,125,798, exceeding general fund revenues of $6,555,653 by 17%. The unrestricted accu- mulated general fund deficit is $2,285,483 or 34% of general fund revenues. The unrestrict- ed deficit increased slightly over 2011 by approximately $56,000. © The previous Emergency Financial Manager submitted an application for an emergency loan in the amount of $3,900,000. Along with the application, the previous EFM included an updated deficit elimination plan, FY 2013 budget, a cash flow statement, and an ac- counts payable listing. Based on these reports, the City will experience a cash shortage in the general fund by April 2013 and has outstanding payables, as of December 31, 2012, of $2.6 million. The Department has asked the incoming EFM to review the financial data to determine if the amount of the loan request is appropriate. 2 Update: All City issues on the November 6 ballot were defeated including a charter amend- ment to restructure Council’s reporting relationships with staff. A 10 mill operating levy that expired in 2011 was defeated, as was a proposed 2.0694 mill Headlee override. Absence of these revenues would mean the $1.4 million reduction in annual revenues which began in Ju- ly, 2012, will continue for the cash strapped City. In response to this shortfall the EFM ap- proved, with City commission support, a 10 mill special assessment Public Safety millage which was levied with the winter taxes. It is expected that another effort will be made in the coming months to obtain approval of the 10 mill operating levy that would replace the special assessment. « The Road Out: Mr. Saunders will review all City operational expenses in an effort to ration- alize annual expenses and eliminate deficit spending. The large amount of accounts payable xxxEND_PAGE:treasury01_b06_0561_0924_115 Governor Snyder February 8, 2013 Page 4 of 20 is a near-term focus. The water plant is a major liability, particularly since users in Benton and St. Joseph Townships have withdrawn from the system due to ongoing political and fi- nancial management concerns. The City charter needs to be updated, the performance of City Council needs to be improved, and ongoing liabilities for retiree health care are also an issue. Treasury had anticipated that withdrawal from the City would be a near-term possibil- ity if charter issues could be overcome. However, these recent revenue issues and the demise of the water system customer base, make a near-term exit more challenging. The new EM understands our desire to make our exit as soon as possible. City of Ecorse wl Joyce Parker was appointed Emergency Financial Manager on August 8, 2012 by the Emer- gency Loan Board. She was first appointed Emergency Financial Manager on October 30, 2009. She continues to serve Ecorse on a part-time basis while she also serves as Emergency Financial Manager for the City of Allen Park. City Council is cool toward an interlocal agreement proposed by Treasury that would create an advisory board under the Urban Cooperation Act, PA 7 of 1967 (Ex. Session) and create a seamless transition process away from an EFM, allowing Ms. Parker to end her service there. A majority of Council believe such an advisory board is unnecessary. Treasury staff is redrafting the ILA to address some of the suggestions made by Council. After AG review, the revised agreement will be reviewed with the Council. For the fiscal year ending June 30, 2012 the City had a general fund balance of $2,419,220 or 18.8% of general fund revenues of $12,904,604 and experienced an operating surplus for the first time in several years. The Emergency Financial Manager’s assignment is essentially complete and she is work- ing part-time. The Road Out: The work of the EFM is essentially done. The remaining concern is with the City Council and the City charter language which allows substantial day-to-day in- volvement of the City Council. Discussions continue on an interlocal agreement to estab- lish a Transition Advisory Board, as explained above. If this voluntary approach is not successful, a TAB can be imposed with the advent of PA 436 in late March. City ofFlint ai Edward Kurtz was appointed Emergency Financial Manager on August 8, 2012 by the Emergency Loan Board. He succeeded Mike Brown who was appointed Emergency Man- ager on November 29, 2011. The Emergency Financial Manager is anticipated to be in Flint for more than one year. Mr. Kurtz is taking a minimal salary as EFM, while Mike Brown now works as City Administrator, appointed by Mr. Kurtz. It is assumed that Mike Brown will be reappointed as EM in late March, and that Mr. Kurtz will be retained until June to consult with the City on the FY 2014 budget. i j xxxEND_PAGE:treasury01_b06_0561_0924_116 index ji Go To Dashboard | Governor Snyder February 8, 2013 Page 5 of 20 © For fiscal year ending June 30, 2012, the City incurred a general fund operating shortfall of $10,169,828 exceeding general fund revenues of $51,497,686 by 20%. This resulted in an unrestricted accumulated general fund deficit of $19,184,850, which is 37% of general fund revenues, « Update: The City of Flint has been participating with Genesee County on the feasibility of the City’s use of a planned water pipe line from Lake Erie that would serve a large portion of Genesee County as an alternative to water supplied by DWSD. An engineer- ing firm selected by Treasury to conduct an independent evaluation of Flint’s choices for water supply presented their findings on December 18". This is a critical long-term de- cision for Flint and the region. The economics show that but for the excess cost of DWSD water during the three year period of the Karegnondi Water Authority (K WA) pipeline construction, the City will be benefitted by lower water costs in the long term by using the KWA water and treating the water in Flint at their own, existing, water treat- ment plant. A recent proposal shows that with cooperative efforts with the County, those excess costs can be minimized. « The Budget for the current fiscal year encompasses both revenue increases and expenditure reductions in an effort to achieve a balanced budget. For example, the budget includes as- sessments for waste collection, for the operation, maintenance, and improvement of street lights, and a 25 percent increase in water and sewer rates. Voters overwhelmingly approved a 6 mill public safety millage in November that will substantially improve the FY 14 budget. On the expenditure reduction side, the budget reduces the City’s workforce by 150 positions (20 percent), and includes employee concessions and a restructuring of employee health care benefits. Retiree health care has been eliminated for future employees, Litigation is pending in federal court to preclude changes to retiree health care. The Emergency Financial Manag- er estimates that retiree health care costs will increase by $3.5 million during the current fis- cal year if he is prevented from implementing the planned changes. ¢ The City has recently submitted a five year deficit elimination plan that anticipates submittal of an emergency loan application of $12 million to address the accumulated deficit. The re- mainder of the unrestricted accumulated general fund deficit will be eliminated through $7.1 million in reductions. The City has not yet identified specific cuts but will do so as it works through the development of its fiscal year 2014 budget. The Department is assisting the City with the identification of possible reductions. ¢ The City’s plan to contract for the first time with a private contractor to provide solid waste removal and recycling services was delayed because of an Unfair Labor Practice (ULP) filed by AFSCME. The union presented an alternate plan, which the EFM evaluated and deemed economically unsatisfactory. The City is required to meet with the union to discuss the im- pacts of the proposed change. The anticipated savings from this initiative is $1 million and the contractor is willing to hire former Flint employees who previously performed this ser- vice. xxxEND_PAGE:treasury01_b06_0561_0924_117 Index j Go To Dashboard i Governor Snyder February 8, 2013 Page 6 of 20 e The Road Out: This is the first year of the EFM’s balanced budget and they are currently on track with the budget. Major remaining issues are resolving public safety staffing and effec- tiveness; establishing new and cooperative approaches to water and sewer services; funding and maintaining infrastructure; defining and sustaining blight eradication strategies; funding OPEB liabilities. City of Pontiac a e Lou Schimmel was appointed Emergency Financial Manager by the Emergency Loan Board on August 8, 2012. He was first appointed Emergency Manager on October 6, 2011. The Emergency Financial Manager is anticipated to complete his work by mid-2013, but a viable oversight mechanism, such as a Transition Advisory Board (TAB) under PA 436 of 2012, will be necessary for this to happen. e For fiscal year ending June 30, 2012, the City had an operating shortfall of $1,249,049 ex- ceeding general fund revenues of $38,709,018 by 3%. This resulted in an unrestricted accu- mulated general fund deficit of $4,748,117 or 12% of general fund revenues. For fiscal year 2013, the City’s financial position will benefit from the transfer of the Pontiac Wastewater Treatment Plant. From the assets received, $8.4 million was used to pay off a loan to the general fund from the water/sewer fund; $6 million was used for retiree healthcare bringing the 2013 budget into balance; $3.4 million will be applied to the accumulated deficit from fiscal year 2012. ¢ The EFM reports that FY2014 would be balanced except for the $6.0 million required for health care costs associated with retired non-public safety employees, and those who are stil! active employees. Retired public safety employees (there are no active Pontiac public safety employees) are covered by an existing VEBA. e The Emergency Financial Manager continues to minimize the number of unused vacant properties in the City that are city-owned. The demolition of the Phoenix Center and sale of land project remains on hold after Oakland County Circuit Court Judge Michael War- ren issued an injunction barring the City from demolishing the Phoenix Center. Settle- ment negotiations are proceeding. © The announced partnership with Oakland County for a restructuring of the ownership of the Pontiac Wastewater Treatment Plant is essentially complete. The capitalization of assets cre- ated by the transfer generated approximately $55 million, which was used to reduce bond debt related to Fiscal Stabilization bonds, Water Supply system, Sewage Disposal system, and Building Authority. The transaction has dramatically improved the City’s cash position while also eliminating most of the City’s outstanding debt, and preserving a reasonable fund for infrastructure maintenance within the City. It is also projected that Pontiac users of the system will enjoy significant reductions in their costs for sewer services in future years. xxxEND_PAGE:treasury01_b06_0561_0924_118 Index _ | _ Go To Dashboard | Governor Snyder February 8, 2013 Page 7 of 20 Update: The EFM continues to reduce general fund expenses. He has successfully negotiat- ed cost reductions with the City's waste pickup contractor; secured agreement from, the Chief Judge to control the City's subsidy to the 50th District Court by having the Court process its own employee payroll and pay court employees out of its own account instead of the City’s genera] fund account; and he contracted out all remaining DPW services in- cluding the snow plowing of major streets with the Oakland County Road Commission. The Road Out: Mr. Schimmel expects to leave this summer and strongly supports the use of a transition advisory board. His list of tasks remaining are: Phoenix Center Demoli- tion; sale of DPW building to Consumers Energy; auction of surplus stuff; provide for the redevelopment of the Hayes Jones Community Center; sale of various properties, includ- ing golf course; and substantially reduce the $6.0 miflion annual deficit related to retiree health care. EMERGENCY MANAGER - SCHOOLS Detroit Public Schools will Roy Roberts was appointed Emergency Manager on May 16, 2011 and Emergency Finan- cial Manager on August 8, 2012. For fiscal year ending June 30, 2012, the District incurred a general fund operating shortfall of $41,865,408 exceeding general fund revenues of $892,452,098 by 4%. This resulted in an unrestricted accumulated general fund deficit of $83,465,550, which is 9% of general fund revenues. The deficit was significantly reduced by issuance of long-term debt. A second $6 million State aid note transaction closed on February 1* to assist in covering the costs associated with the transfer of DPS schools to the Education Achievelment Authority (EAA). The note will mature on July 22, 2013. Treasury staff has begun meeting with the EAA to gain not only a better understanding of the EAA’s financial & cash situation but how those risks may impact DPS’s financial sit- uation. This effort will focus initially on the impact of possible additional school trans- fers to the EAA (with the loss of enroliment to DPS), the transition of Title I funds, & the “lease — management” MOU between the EAA & DPS. (Concerning the latter item, the $10 million EAA obligation may not be paid when due this August. While this may not have an accounting impact it would impact DPS’s cash flow.) Highland Park Schools gil Update: Don Weatherspoon was appointed Emergency Financial Manager on October 29, 2012. xxxEND_PAGE:treasury01_b06_0561_0924_119 Index { GoTo Dashboard | Governor Snyder February 8, 2013 Page 8 of 20 ¢ The District has not filed its financial audit for its fiscal year ending June 30, 2012 which was due November 15". The audit is taking longer than expected due to the lack of suffi- cient record keeping and staff continuity. We have been advised the audit should be com- plete in the next two weeks ® On August 16, the Emergency Loan Board approved an emergency loan for the School District in the amount of $4.41 million in order for the School District to repay its August 2011 State aid note and meet other short-term expenses. To date, the District has drawn $3.98 million of the loan proceeds. ¢ On January 18" the Emergency Loan Board approved a 2™ emergency loan for the School District in the amount of $3.0 million. The issuance of a second emergency loan was antici- pated as the first loan was used primarily to repay the District’s outstanding State Aid Note in order to avoid a default. The proceeds of the second emergency loan will be used to pay criti- cal vendors and it is expected the EFM would obtain vendor discounts in exchange for quick payment. ¢ It is anticipated the role of the Emergency Financial Manager will be greatly reduced in the next 12-18 months as prior liabilities are settled and processes are put in place to manage cur- rent operations including oversight of the charter school system. Muskegon Heights Public Schools ¢ Don Weatherspoon was appointed Emergency Financial Manager on August 8, 2012. * The District has not filed its financial audit report for fiscal year ending June 30, 2012 which was due November 15". The audit is taking longer than expected due to the lack of suffi- cient record keeping and staff continuity. We have been advised the audit should be com- plete in the next two weeks. ¢ On August 16, the Emergency Loan Board approved an emergency loan for the School District in the amount of $7.6 million in order for the School District to repay its August 2011 State aid note and meet other short-term expenses. To date, the District has drawn all of the loan proceeds. © On January 18" the Emergency Loan Board approved a 2™ emergency loan for the School District in the amount of $3.5 million. The issuance of a second emergency loan was antici- pated as the first loan was used primarily to repay the District’s outstanding State Aid Note in order to avoid a default. The proceeds of the second emergency loan will be used to pay crit- ical vendors and it is expected the EFM would obtain vendor discounts in exchange for quick payment. xxxEND_PAGE:treasury01_b06_0561_0924_120 Index wn dnd, | Go To Dashboard Governor Snyder February 8, 2013 Page 9 of 20 * {t is anticipated the role of the Emergency Financial Manager will be greatly reduced in the next 12-18 months as prior liabilities are settled and processes are put in place to manage cur- rent operations including oversight of the charter school system. CONSENT AGREEMENT - CITIES CityofDetroit wl ¢ For fiscal year ending June 30, 2012, the City had an operating surplus of $105,842,769. However, when transfers out of the general fund are taken into account, the City’s financial position is much worse. The City transferred $236,542,790 with the largest transfer going to the transportation fund for $87.2 million, $61.2 million to the debt service fund, and $80.9 million for interest payments on the pension obligation certificates. This resulted in an unre- stricted accumulated deficit of $327,956,700 or 30% of general fund revenues of $1,100,342,313, © Update: The cash position of the City has continued to deteriorate through the first half of the 2013 fiscal year. After the City’s projection of its cash position at the June 30, 2013 year end deteriorated over $60 million over the course of three months (roughly September — Novem- ber), a renewed emphasis was placed on cash preservation (discussed further below). Absent any further actions, current City projections indicate a negative cash position of roughly $110 million at the June 30 year end. In the past, the City has temporarily “managed” negative cash by postponing property tax distributions to debt service funds and other taxing jurisdic- tions. ¢ Update: The plan developed by the City and its advisors, with input from Treasury, includes measures that are estimated to net approximately $117 million in improvements by June 30. This includes roughly $33 million of changes that result in permanent savings, $63 million of short term cash opportunities (including many items that simply defer payments), and release of $20 million in escrow proceeds currently controlled by Treasury. Included among the “permanent savings” are employee furloughs, headcount reductions, suspension of pension accrual (non-union employees), health care premium sharing increased to 30% (non-union employees), vendor cuts, and increase of fees. If implemented on a timely basis, these coun- termeasures should allow the City to maintain a positive cash position through the end of the year. © Update: The City is in substantial compliance with the terms of the Milestone Agreement negotiated to control the terms of withdrawal of escrowed funds. This gives the City ac- cess to an additional $20 million for which the draw request was received today. The Treasurer has indicated the desire to maintin a $50 million reserve, which means that fur- ther draws are unlikely. e Update: The operational and restructuring firms have all had contracts approved by City Council and have begun work. On February 1, a first draft of the 5 year plan for the City was presented to the Review Team. The plan would eliminate the deficit within 5 years xxxEND_PAGE:treasury01_b06_0561_0924_121 Index: : Go To Dashboard Governor Snyder February 8, 2013 Page 10 of 20 by significantly lowering employee costs. Changes include a reduction of an additional 500 FTEs, freezing all pension vesting for one year, moving all employees to a defined contribution plan after that, and capping health care expenditures at $125 million a year (compared to a current spend of roughly $190 million). Other potential savings being considered include additional headcount reductions/furloughs, asset sales, debt restructur- ing, and revenues. e Update: The Financial Review Team appointed under PA 72 continues its work. The re- port is due to the Governor on February 16 and there are no plans to ask for an extension as of this date. e Update: After City Council once again failed to approve the State lease for Belle Isle, Mayor Bing announced the closure of 50 parks and reductions to recreation operations to make up for the foregone cost savings the lease would have provided. City of Inkster ai e The City of Inkster operates under a Consent Agreement which was implemented effec- tive February 28, 2012. e For fiscal year ending June 30, 2012, the City had a general fund operating shortfall of $3,171,524 or 19% of general fund revenues of $15,859,971. The FY12 shortfall increased the City’s general fund unrestricted accumulated deficit to $3,604,783 or 22% of general fund revenues. * For FY13, the City reduced staffing by 20% and made other expenditure reductions, Current budget forecasts suggest a year end deficit of $1.7 million, consistent with the DEP. The City’s deficit elimination plan anticipates the FY14 budget will be balanced. Staff from OFR regularly visit with Inkster and finds them holding their own. City of River Rouge a e The City of River Rouge operates under a consent agreement which was implemented ef- fective December 15, 2009. * For fiscal year ending June 30, 2012, the City had a general fund operating surplus of $1,302,690 or 11% of general fund revenues of $11,989,601. The surplus has reduced the unrestricted accumulated general fund deficit to $1,039,067 or 8.6% of general fund revenues of $11,989,601. The 2012 accumulated deficit is approximately half of the previous year’s deficit so progress is evident. However, the 2012 operating surplus is a result of the re- ceipt of approximately $1.9 million in legal settlements. Had the legal settlements not occurred, the 2012 accumulated deficit would be an estimated $2,900,000. OFR staff visits with River Rouge and feels comfortable that their ongoing efforts to reduce costs, such as the recent implementation of a public safety officer model for combined police xxxEND_PAGE:treasury01_b06_0561_0924_122 Index | Go To Dashboard | Governor Snyder February 8, 2013 Page 11 of 20 and fire services will help the City achieve its FY14 budget objective of balanced reve- nues and expenditures. LOCAL UNITS OF INTEREST City of Hamtramck a e For fiscal year ending June 30, 2012, the City had a general fund operating shortfall of $3,303,385 which is 22% of general fund revenues of $14,827,148. This deficit eliminated the general fund balance and resulted in an unrestricted accumulated deficit of $753,733 or 5% of general fund revenues. The cause of the imbalance was the result of the loss of reve- nue due to the expiration of the Poletown tax increment financing agreement and the failure of the City to reduce its expenditures accordingly. e The City has submitted an application for an emergency loan for $3 million. The Depart- ment is reviewing the application to determine if the City qualifies. In addition to the emergency loan, the City is pursuing the issuance of a tax anticipation note to address its cash shortage expected to occur in March 2013. e Late last year, the City Council voted to request a financial review by the State. Prior to initiating the requested review, Treasury asked for and the City has submitted a deficit elimination plan (DEP). The plan relies heavily on the receipt of an emergency loan, an increase in rental inspection fees, and an increase in traffic violation revenues. Given the inadequacy of the DEP, Treasury is initiating a preliminary review on Monday, February IL. City of Highland Park! il e For fiscal year ending June 30, 2012, the City had a general fund operating surplus of $1,293,462 or 12% of general fund revenues of $10,718,332. This increased the City’s unre- stricted general fund balance to $2,199,762 or 20% of general fund revenues. The positive fund balance is a result of the restatement of accrued state revenue from the fiscal year 2011 fi- nancial statements and, in large part, the forgiveness of a $4 million payable due to DTE in 2011. © The City’s updated general fund projections indicate the City will reach a deficit situation during FY 2018. Should the City resolve the financial issues related to the Water system the ' Several EFMs have been appointed in Highland Park. While the financial emergency in the City remains in effect, no replacement EFM has been appointed. Treasury is working with the Mayor and Council, without an EFM ap- pointment, to get the City out of the business of providing public services. xxxEND_PAGE:treasury01_b06_0561_0924_123 _Index i; Go To Dashboard Governor Snyder February 8, 2013 Page 12 of 20 2018 date could be extended. Office of Fiscal Responsibility staff is working with local offi- cials to develop and implement cost savings. ¢ Update: The Mayor has announced the City’s intent to discontinue using their water treat- ment plant after attempting to implement MDEQ mandated improvements to the plant. Ini- tial improvements were estimated at $340,000, but escalated to an estimated $5.9 million after valves and other essential parts of the system were found to be inoperable. The estimat- ed cost to demolish the facility is $3.6 million. Currently, the City is purchasing water from DWSD. Negotiations continue between the City and DWSD with the intent of DWSD oper- ating the City’s utility systems. One challenge to finalizing this arrangement is the $8 million the City owes DWSD for sewage treatment. Treasury and City officials expect a proposal