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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 xxxEND_PAGE:treasury01_b26_3730_4111_135 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 xxxEND_PAGE:treasury01_b26_3730_4111_136 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, xxxEND_PAGE:treasury01_b26_3730_4111_137 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. xxxEND_PAGE:treasury01_b26_3730_4111_138 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. xxxEND_PAGE:treasury01_b26_3730_4111_139 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. xxxEND_PAGE:treasury01_b26_3730_4111_140 - 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. xxxEND_PAGE:treasury01_b26_3730_4111_141 - 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. xxxEND_PAGE:treasury01_b26_3730_4111_142 Cline, Richard (Treasury)