FW: Local Government Memo and Summary
- From
- Wayne Workman
- To
- Rick Snyder
Governor Snyder, Attached is the latest update on distressed local governments along with a summary table. We can
discuss in detail during our Tuesday briefing. Thank you, Wayne
Workman, Wayne (TREASURY) <WorkmanW @michigan.gov>
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3600 (Rev 01-11)
STATE OF MICHIGAN
RICK SNYDER DEPARTMENT OF TREASURY NICK A. KHOURI
GOVERNOR STATE TREASURER
DATE: August 14, 2015
TO: Rick Snyder, Governor
FROM: Wayne Workman, Deputy State Treasurer
SUBJECT: Status of Financially Distressed Local Governments
EMERGENCY MANAGER
Lincoln Park
Emergency Manager: Brad Coulter
Appointed: July 3, 2014
Anticipated Exit: January 2016
Recent Developments
- A four-month plan has been developed, listing the priorities to be accomplished for the
remainder of EM Coulter’s term and beyond.
- The city is contemplating a lawsuit against the pension funds’ actuary.
- PA 345 pension system millage of six mills will be on the November 2015 ballot. This is
the second time PA 345 is going before Lincoln Park voters.
- The city ended FY 15 with an estimated $100K General Fund operating surplus. The city
has a General Fund deficit from previous years. EM Coulter will be submitting a Deficit
Elimination Plan to Treasury.
- An actuarial analysis published on May 20, 2015, shows a further decline in pension
funding down to 23%. More conservative actuarial assumptions were used in this report.
- EM Coulter has modified retiree collective bargaining agreements to reduce healthcare
benefits. These changes were implemented in July 2015 and will reduce annual retiree
healthcare costs from $4.1M to $600K.
- On August 10, 2015, the Lincoln Park Retiree Associations filed a lawsuit against the State
of Michigan, Department of Treasury, and the City of Lincoln Park regarding the reduction
of city retiree healthcare.
- Mathew Coppler, City Manager of Enfield, Connecticut, accepted the position of City
Manager. His contract has been finalized and he will begin work October 1, 2015.
wvew michigan goviteasury
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Lincoln Park (continued)
Significant Actions/Issues
FY 15 ended with a General Fund accumulated deficit of $636K, out of a total budget of
$21M. This is a significant increase from the FY 13 accumulated deficit of $89K.
Increases were in Public Safety - $1.1M, Public Works - $700K, and Culture and
Recreation - $600K.
Last May voters rejected the Firefighters and Police Officers Retirement Act proposal by
a 53% to 47% margin. Had it been approved, an additional $3M annually would have
helped fund fire/police pension and healthcare costs. EM Coulter is pursuing an alternative
plan under provisions of PA 345 of 1927 to create a Board of Trustees to manage and
operate the retirement system. A request for up to six mills per year to fund public safety
pensions will be placed on the November ballot.
Issues to Resolve before EM Exit
Increase and stabilize pension funding levels.
Permanently eliminate structural deficit for future fiscal years.
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 Detroit City Council reconsidered the Detroit Water and Sewerage Department’s
proposed FY 16 water and sewer rate increase and approved it on July 21, 2015. This
action eliminated a potential budget deficit, which was a concern raised by the State
Treasurer in his July 2, 2015 letter to the city.
The city issued its FY 14 Comprehensive Annual Financial Report (CAFR) on June 30,
2015 (following two three-month extensions granted by the State Treasurer). The city
continued to have a deficit for FY 14 as that year closed prior to the bankruptcy
confirmation in December 2014. The city expects to report a surplus in its FY 15 CAFR,
which is currently underway and expected to be completed no later than March 2016,
At the FRC’s July 27, 2015 meeting, the city indicated it would reduce its bankruptcy exit
financing debt by $30M (from $275M to $245M) prior to its scheduled syndication in mid-
August. The State Treasurer and FRC Executive Director are participating in the city’s
rating agency and investor presentations to discuss the State’s oversight role.
On July 29 and July 30, 2015, the city received its first post-bankruptcy credit ratings from
S&P and Moody’s. Only S&P rated the city’s exit financing, for which it received an
investment-grade “A” rating, with a stable outlook. The exit financing is secured by a
statutory lien on city income tax revenue. Both rating agencies provided the city with
updated underlying General Obligation (GO) ratings. S&P assigned a “B” rating, with a
stable outlook. Moody’s upgraded the city from “B3” to “B2,” with a positive outlook.
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Detroit (continued)
Significant Action/Issues
The first statutorily required biannual report on Detroit was filed by the FRC on May 28,
2015. The report detailed the FRC’s activities and formal requirements since its
appointment in November 2014. The FRC will file its second biannual report in December
2015.
The city submitted its Four-Year Financial and Operating Plan (Plan) to the FRC in March.
After reviewing the Plan and determining it was based on sound assumptions and met all
statutory requirements, the FRC granted approval on April 20, 2015. The city’s Plan
encompassed the second year (FY 16) of Emergency Manager Orr’s two-year budget and
used this as its base year with no changes, plus three years (FY 17, FY 18, and FY 19).
The City of Detroit Assessor’s Office is currently conducting a multi-year project to
reappraise all properties in Detroit, after the State Tax Commission found significant
problems with property valuations. The reappraisal is scheduled to be completed in 2017.
RECEIVERSHIP TRANSITION ADVISORY BOARD (RTAB)
Allen Park
RTAB Appointed: September 26, 2014
RTAB Members: Suzanne Schafer, Joyce Parker, Fredrick Frank, Karen Barann
Recent Developments
The City Council has approved a new, four-year collective bargaining agreement with the
police bargaining unit. Treasury reviewed the tentative agreements and had a number of
concerns with the terms including the identification of over $237K in increased costs in
Year 1, Despite these concerns, the RTAB voted 2 to 1 to ratify the approval of these
collective bargaining agreements.
The city wishes to seek bids for retiree health insurance coverage after being informed by
Blue Cross that a 23% rate increase of $644K will become effective October 1, 2015. The
RTAB has approved this request and Treasury is working with the city to identify potential
legal ramifications in the lawsuit with retirees if coverage is changed to a new provider.
The city was informed by Blue Cross that a billing oversight has resulted in the city
underpaying for insurance coverage for retirees in the amount of $853K.
The city received a $1.2M Staffing for Adequate Fire and Emergency Response Grant,
which will allow them to retain six firefighters over the next two years.
On May 15, 2015, an updated five-year budget projection from the city was received. The
RTAB approved this item on August 5, 2015.
The RTAB approved the hiring of a professional search firm to assist with finding qualified
City Administrator candidates. Treasury is participating in the selection process. The City
Council will be interviewing the finalists for the position in August 2015.
Completion of the bond tender process is projected for August 2015. The 2015 Refunding
Bonds will be rated Single A. due to the city’s pledge of distributable state aid.
Standard & Poor’s released its rating of the city on June 24, 2015, in anticipation of the
bond tender release. The city’s long-term rating for the existing bonds was downgraded
with a negative outlook. The downgrade of these bonds is similar to the rating by Standard
and Poor’s on the City of Detroit’s DWSD tender refinancing.
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Allen Park (continued)
Recent Developments (continued
A retired city employee has brought a breach of contract and age discrimination lawsuit
against the city. The city’s insurance policy covers only a small portion of the alleged
damages. A Settlement Conference was held between all parties on July 20, 2015, but no
resolution was achieved. The court has ordered mediation proceedings.
The city’s current budget is balanced.
Significant Actions/Issues
The city completed its move to a new temporary City Hall on June 8, 2015.
The City Council adopted the FY 16 Budget on May 26, 2015, and the RTAB approved
this action on June 3, 2015.
Inquiries are being made to add one member to the RTAB.
Litigation was filed by retirees challenging the EM’s authority to reduce other post-
employment benefit (OPEB) liabilities. A motion for summary disposition is pending. No
date has been set to hear this motion.
Benton Harbor
RTAB Appointed: March 10, 2014
RTAB Members: Larry Steckelberg, Bret Witkowski, Marvin Raglon, Sharon Hunt
Recent Developments
On August 3, 2015, the City Commission adopted a resolution requesting a hearing with
the Department of Treasury to discuss financial assistance for decisions made during the
tenure of emergency managers that resulted in legal fees and settlement costs.
TAt-Large Commissioner Mary Donald passed away on June 12, 2015. On August 10,
2015, the City Commission appointed Edward Isom to finish her unexpired term, which
ends December 31, 2015. On August 11, 2015, the RTAB approved the appointment.
The first annual evaluation from the RTAB was conducted on July 29, 2015. It will be sent
to the RTAB for review.
The City Commission adopted the FY 16 Budget on June 15, 2015. The RTAB approved
this action on June 22, 2015.
Significant Actions/Issues
FY 14 audited General Fund revenues exceed expenditures by $1M, out of a total budget
of $6.1M.
Former Benton Harbor Public Safety Director Roger Lange brought a Whistleblower and
Elliot Larson Civil Rights case against the City of Benton Harbor and former EM Tony
Saunders. Mediation took place on July 17, 2015, with Jon March of Miller Johnson
serving as the mediator. No settlement was reached.
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Ecorse
RTAB Appointed: May 1, 2013
RTAB Members: Edward Koryzno, Robert Bovitz, Joyce Parker
Recent Developments
The city has completed a balanced five-year financial plan. One challenge includes the
outsourcing of fire services which must be realized soon to keep the financial plan solvent.
This is the first time the city has proposed a viable path out of receivership.
The degree of State oversight may be reduced if the city can convincingly show a
commitment to the cost saving measures they have promised.
The RTAB approved the city’s choice for city controller at the August meeting, Tim
Sadowski will commence work later this month.
A second annual evaluation from the RTAB will commence in the coming months.
Significant Actions/Issues
Flint
The city continues to have difficulty attracting qualified candidates and filling higher level
administrative positions.
Municipal Employee's Retiree System pension contributions are anticipated to increase