Good afternoon,
Please find attached an electronic communication and documentation from Ed Kurtz.
Thank you.
1/22/2016
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RE: JWC - Northwest Pump Station - Koryzno, Edward (Treasury)
Maxine Murray
Executive Assistant to
Mayor Dayne Walling
Edward J. Kurtz, Emergency Manager
Michael K. Brown, City Administrator
1101 §. Saginaw Street
Flint, MI] 48502
810.237.2035 Telephone
810.766.7218 Fax
Page 2 of 2
1/22/2016
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CITY OF FLINT
OFFICE OF EMERGENCY MANAGER
EDWARD J. KURTZ
June 19, 2013
Mr. Andy Dillon, State Treasurer
Michigan Department of Treasury
Lansing, MI 48922
Re: JWC— Northwest Pump Station
Dear Treasurer Dillon:
This is to request your approva! to enter into a no bid contract with JWC for emergency repairs to
Flint’s northwest pump station. As described in the attached memorandum from Robert J. Case,
Water Pollution Control Supervisor, these repairs are critical for the proper function of the main
sewage pumps at the northwest pump station.
The City recently made similar repairs at the Third Avenue pump station, and the low-bid vendor
was JWC. The needed equipment is customized for each installation, and its design and fabrication
will take approximately 12 - 16 weeks. On that basis, and due to the emergency nature of the
necessary repairs, | recommend a no-bid contract with JWC to perform the repair work at the
northwest pump station. The estimated cost is $275,000.
The Local Financial Stability and Choice Act (Public Act 436 of 20{2) states that “[e]xcept as
otherwise provided in this subsection, any contract involving a cumulative value of $50,000.00 or
more is subject to competitive bidding by an emergency manager. However, if a potential contract
involves a cumulative value of $ 50,000.00 or more, the emergency manager may submit the
potential contract to the state {reasurer for review and the state treasurer may authorize that the
potential contract is not subject to competitive bidding.” MCL 141.1552(3).
1 am requesting your approval of a no bid contact with JWC to perform emergency repairs to the
northwest pump station at an estimated cost of $275,000. If you need any further information
concerning this request, please jet me know. Otherwise, thank you for your consideration of this
matter.
Very-ruly you
ward J. Kurtz
Emergency Manager
City Hail
1101 S, Saginaw Street - Flint, Michigan 48502
810-766-7346 FAX: 810-766-7218 = www.cityofllint.com
xxxEND_PAGE:treasury01_b08_1053_1162_020
CITY OF FLINT
OFFICE OF EMERGENCY MANAGER
EDWARD J. KURTZ
June 28, 2013
Mr. Andy Dillon, State Treasurer
Michigan Department of Treasury
4th Floor Treasury Building
430 West Allegan Street
Lansing, MI 48922
Dear Mr. Dillon:
Attached please find Update 3 for the City of Flint Financial and Operating Plan. This
update will also serve as my closing memorandum as specified in the Emergency
Manager's contract with the State of Michigan.
This report includes a summary of the financial conditions and goals for the City of Flint,
the plan to conduct the operations of the City and the on-going actions being taken to
resolve the financial emergency. This update will be posted on the City’s website:
www.cityofflint.com .
Respectfully submitted,
Aw No —
Edward Kurtz
Emergency Manager
ce:
Governor Rick Snyder
|. Brown, Clerk of the City of Flint
E. Koryzno, Dept. of Treasury
City Hall
1101 S, Saginaw Street - Flint, Michigan 48502
810-766-7346 FAX: 810-766-7218 | www.cityofflint.com
xxxEND_PAGE:treasury01_b08_1053_1162_021
City of Flint Financial and Operating Plan — FY 2013 — Third Update
June 30, 2013
Introduction
This update to the Financial and Operating Plan for the City of Flint is submitted by the
Emergency Manager for the City of Flint to Governor Rick Snyder, through the
Department of Treasury for the State of Michigan, in accordance with Public Act 436,
Section 11.
The City of Flint had previously submitted a Financial and Operating Plan under PA 72
and was not required under PA 436 to submit a new plan. However, as this is the end of
the 2013 fiscal year and end of the service of Emergency Manager Kurtz, the City felt it
was appropriate to prepare an update to the current plan. This is also the end of the first
full fiscal year under the administration of the Emergency Manager. The FY 2014 Budget
and Five Year Strategic Plan has been adopted and in October, 2013 a City Wide Master
Plan will also be adopted.
This update will also serve as Emergency Manager Kurtz’ closing memorandum as
specified in the Emergency Manager’s contract with the State of Michigan. On June 26,
2013 former EM Michael K. Brown has been reappointed by Governor Snyder as
Emergency Manager for the City of Flint.
This report includes a summary of the financial conditions and goals for the City of Flint,
the plan to conduct the operations of the City and the on-going actions being taken to
resolve the financial emergency. This update will be posted on the City’s website:
www. cityofflint.com .
Summary of the EM/EFM Appointment Sequence and Development of the
Operating and Financial Plan
The Flint Financial Review Team determined in November 2011 that the City of Flint
was in a financial emergency. See Attachment #1.
On December 1, 2011 Governor Rick Snyder appointed Michael K. Brown as Emergency
Manager. EM Brown developed the Financial and Operating Plan utilizing the resources
of a five person Advisory Committee as well as five additional advisory committees. EM
Brown sought broad expertise to ensure public engagement and to maintain a sense of
continuity with the Mayor and City Council. In fact, all nine City Council members and
over fifty other citizens participated in the advisory committees.
EM Brown's original Financial and Operating Plan (45 Day Plan) was submitted to the
State Treasurer on January 15, 2012; the first update to the Plan was submitted on June 1,
2012. On August 8, 2012, PA 4 was suspended and Edward J. Kurtz was appointed
Emergency Financial Manager under PA 72. (Mr. Brown stepped aside as he was
prohibited from serving as EFM due to his recent service as Interim Mayor for the City of
Flint.)
xxxEND_PAGE:treasury01_b08_1053_1162_022
EFM Kurtz established a new Advisory Committee in accordance with the requirements
of PA 72,
Utilizing the Advisory Committee and the City of Flint management team, EFM Kurtz
presented a second update to the Financial and Operating Plan and submitted this to the
State Treasurer on February 8, 2013.
Operations of the City of Flint
Shortly after his appointment as EM, Michael Brown took steps to reorganize the city
government operations including: elimination of departments, consolidation of
departments, elimination of management level positions, adjustment of the compensation
of elected and appointed officials, elimination of the Civil Service operation and the
Office of Ombudsman.
Management appointments were made to ensure that the essential services necessary for
the public’s health, safety and welfare are provided and to continue conducting all aspects
of the City of Flint’s operation within the resources available. Necessary employment
contracts were extended with the approval of the Treasury Department.
Department management reconfigurations were completed in anticipation of reductions
in staffing levels as provided in the FY 13 Budget (See Attachment # 2 Organizational
Chart FY 13). Subsequently, as part of the FY 14 Budget process a Strategic Plan was
adopted and more changes in the organizational structure occurred. The primary change
was the inclusion of a new Planning and Development Department (See Attachment #3
Organizational Chart FY 14).
When PA 436 became effective in March 2013 the City Council members’ and Mayor’s
compensation was eliminated. EM Kurtz partially restored compensation for Mayor and
Council through Orders 1 and 2. These orders also defined specific responsibilities and
requirements. For example, the City Council members must complete Level One of the
Michigan Municipal League (MML) core course for municipal government and must
receive the MML education award with in one year.
All Orders and Directives issued by the Emergency Financial Manager (under PA 72)
and Orders issued by the Emergency Manager (under PA 436) are listed in Attachment
#4; Orders and Directives of the EFM and EM.
Financial Status
The financial condition of the City of Flint has begun to improve, with revenues and
expenses generally tracking with budget projections. While the FY12 results showed
an increase in the accumulated deficit, that increase was anticipated, due to a
decision early on to focus efforts on developing and implementing a budget for FY13
that would maintain essential services while moving the City toward long term
Update 3 Final June 28, 2013 2
xxxEND_PAGE:treasury01_b08_1053_1162_023
financial solvency.
These efforts are proving successful. To-date, the FY13 budget was balanced without
increasing the deficit; and revenues and expenses have been generally in line with
expectations. The budget for FY 14 has been adopted, with anticipated revenues and
expenses balanced. In both FY13 and FY14, difficult decisions have been made with
regards to staffing, fringe benefits, organizational structure, levels of service, and
increases in fees and taxes.
Development of the FY14 budget was done in the context of developing budgetary
projections through FY 18, and recognizing the need to eliminate the City’s accumulated
deficit. With a desire to develop and maintain a multi-year perspective on city resources
and operations, the development of the FY15 budget is now beginning. While FY15 will
be extremely challenging due to continued property value declines and the anticipated
loss of some major grants, the budget for FY15 will be realistically balanced.
Finally, as a result of analyzing projected revenues and expenses for the next five years, it
has become clear that the City will continue to face a structural deficit in the area of $3
million to $5 million annually, More than anything, the City’s stagnant revenue streams
(no growth projected over the next 5 years) and its high amount of legacy costs ($37
million for FY 14) have created this situation.
This structural deficit essentially precludes the City from stabilizing service levels even at
minimal levels, and prevents it from addressing significant unmet capital needs (currently
estimated at more than $300 million). Without structural change, this situation is not
sustainable and the City will not achieve even a minimal level of financial solvency in the
long term.
While bankruptcy has been mentioned as a possible solution to this, investigation of the
alternative shows it to be expensive, slow, and with outcomes that are far from certain.
However, investigation of an alternative which focuses on improving the City’s revenue
stream while continuing to reduce legacy costs shows promise. For example, an increase
in the local income tax rate to the levels afforded other urban centers, coupled with
significant additional changes in health care and pensions for active employees and
retirees appears to bave the potential to overcome the $3-$5 million structural deficit
while providing a similar amount for stabilizing services and beginning to address capital
needs.
Cash Flow as of June 30, 2013
Cash flow has improved with the receipt of revenues from the public safety millage,
street light assessment, and waste collection fees. Pooled cash on hand is now in excess
of $25 million, compared to $13 million as of December, 2011. However, the General
Fund still relies heavily on borrowed cash as a result of its $19 million accumulated
deficit. This cannot be resolved without borrowing, as stated in the Draft Deficit
Elimination Plan submitted to Treasury in January 2013. As of this date, Treasury has
not approved the Deficit Elimination Plan.
Update 3 Final June 28, 2013 3
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FY13 Budget — Preliminary Year End Projection
As of June 1, 2013, revenues and expenses are generally on target. The budget was
amended in December to reflect some adjustments to revenues and expenses, including
the proceeds of the voter approved millage for police and fire protection, projected
revenues and expenses for the operation of the City lock-up; and the extension of a public
safety grant from the Mott Foundation which provided continued funding for 11 law
enforcement officers. Additional Budget amendments were adopted based on an
unplanned special election, the proceeds from two auctions, utility refunds and other
minor issues. Income tax revenues appear to be slightly less than projections, and over
expenditures in Fire Department overtime have been addressed.
Absent any catastrophic event, such as an adverse decision on modifications of retiree
health care, FY13 is projected to end with revenues slightly exceeding expenses.
FY13 Budget Decisions
The FY 13 budget was balanced realistically, and encompassed significant revenue
increases and expenditure reductions. The FY13 budget process started with a projected
gap of $25 million between projected revenues and projected expenses. The result was a
total budget of $192 million, of which $82 million is sewer and water; $58 million is
General Fund and $30 million is Federal CDBG.
The budget encompassed expenditure reductions which included the elimination of nearly
150 positions (20% of the workforce); employee concessions including a restructuring of
health and pension benefits and employee costs; and various organizational changes.
The budget also recognized the implementation of new health care plans and pensions
benefits for active employees, as well changes in healthcare plans for retirees. These
changes reduced the City’s OPEB liability from nearly $900 million to less than $400
million.
The change in retiree health care is the subject of litigation in Federal District Court,
where a temporary restraining order has been issued and is being appealed. Should the
City be precluded from implementing these changes in health care for retirees, there will
be a projected (unbudgeted) increase in expenses of $1.7 million in FY13 and more than
that in FY14 and beyond, this will be devastating to efforts to return Flint to financial
solvency. On June 25, 2013, the court denied the City’s request to stay the order and in
fact, applied the injunctive order to all retirees as a class (without actually certifying a
class). The City’s legal counsel has recommended the City immediately comply with the
court’s order. The City has authorized legal counsel to immediately apply for relief in the
6" Circuit Court.
For future employees, city retiree health care will no longer be an option, and the
traditional defined benefit pension plan for non-police and fire employees will be
replaced with a hybrid pension plan. There are also numerous changes which increase
management flexibility and reduce other employee costs. Note: The City of Flint
basically is operating a Medicare system for retirees from the time they retire (as early as
Update 3 Final June 28, 2013 4
xxxEND_PAGE:treasury01_b08_1053_1162_025
their mid-forties to early fifties) at the same cost as regular employees ($5,000 to
$17,000) which is unsustainable.
The FY 13 budget also implemented new revenues in order to provide the level of
revenues still required — in spite of expense reductions — to continue the marginal level of
city funded public safety personnel and basic city services. These revenues include
numerous fee increases; a $143 annual fee for waste collection (replacing a dedicated 3
mill tax levy); a $62 special assessment fee for operation, maintenance, and improvement
of street lights (in the past this was a $2.85 million general fund expense); and an overall
25% increase in water and sewer rates (12.5% water; 45% sewer). Unfortunately, the
reliance on fees and assessments will create hardship for many of the City’s residents.
However, the choices for increasing revenues at this time were limited. For those
homeowners who qualify for the property tax exemption, the City recently will waive the
street light assessment ($62) and the ready to serve charge on the water bill ($52
approximately).
In November 2012, a 6 mill Police and Fire Protection Millage was approved by Flint
voters. The first year of this millage is expected to generate $5.3 million. The Emergency
Manager also issued a resolution (2012EFM101) on October 17, 2012 as a charter
revision requiring that the new millage revenue would be in addition to the 55.5% of
unrestricted General Fund dedicated to Police and Fire departments. The percent
dedicated to police and fire will increase to 60% in Fiscal 14.
Though the FY13 budget was been implemented as planned, the City still faces several
legal challenges. While the challenges may not be sustained in the long term, any
impediments to implementing the budget will have severe financial impacts.
For example, legal challenges which prohibit the City from implementing revenue
increases or expenditure decreases will require immediate actions to further reduce
spending — including public safety — and may impact the City’s ability to function at an
adequate level, particularly in light of the marginal cash flow.
Potential challenges the City may face from budgetary perspective include ones
associated with the numerous rate increases incorporated into the budget, changes in
retiree health care, and the unilateral implementation of changes to three collective
bargaining agreements. It should be noted that through the Emergency Manager the City
of Flint was able to reach tentative agreements with three of the six bargaining units.
To this point, the City was sued over the implementation of increased water and sewer
rates, by the President of the City Council et al. This is a prime example of litigation that
could impede the COF’s ability to maintain fiscal solvency. With regard to this lawsuit,
the City filed a motion to dismiss and in late June 2013 the court dismissed this suit.
Two additional law suits were filed: in late May 2013 AFSCME Local 1600 is seeking to
repeal the contract imposed by the EM in April of 2012, and URGE (a retiree
organization) is seeking to negate the transfer of the pension plan from FERS to MERS.
Update 3 Final June 28, 2013 5
xxxEND_PAGE:treasury01_b08_1053_1162_026
FY 12 Audit
The Comprehensive Annual Financial Report (CAFR) for FY12 was completed and was
filed with the state in a timely manner. The results were as expected, with fewer auditor
comments than in past years. Deficits exist in the General Fund ($19.1 million) and in the
Water Fund ($8.8 million).
In the FY 13 budget document, prepared in April 2012, the accumulated deficit for the
FY 12 General Fund was projected to be $18.1 million. However, this projection did not
include the $1.54 million write down for the value of Genesee Towers. Adding the write
down to the projected deficit of $18.1 million would have resulted in a total of $19.7
million.
In the FY12 CAFR, the amended budget projected a deficit of $16.3 million. However,
this projection did not include the $1.54 million write down for Genesee Towers. It also
included $739,406 in federal grant revenues and $602,192 in local revenues which did
not materialize. Taking these items into consideration, the deficit projection would have
been $19.2 million.
The $19.1 million accumulated deficit reflected an excess of expenditures in the General
Fund for FY12 of $11.1 million. This was anticipated by the Emergency Manager shortly
after being appointed, which was almost six months into the FY12 year. Given that FY12
was nearly half over, and that significant unplanned reductions in services, primarily
public safety, would need to occur if the projected deficit were to be immediately
eliminated, the decision of the Emergency Manager, in consultation with Treasury, was
to contain costs as much as possible but without significantly reducing services —
especially public safety - for the balance of the year. Instead, focus was concentrated on
developing a budget for FY13 which would move towards restoring Flint to long term
financial solvency. It was projected that as a result of this decision, the deficit for FY 12
could have been as much as $12 million, resulting in an accumulated deficit of $20
million.
The deficits identified in the City’s Comprehensive Annual Financial Report for FY12,
the year ended June 30, 2012, are follows:
General Fund - $ 19,184,850
Water Supply Division - $ 8,758,091
Economic Development Corporation $ 119,439
FY 11 Deficit Financing
In April 2012 the Emergency Manager filed a 2011 Deficit Elimination Plan focused on
the accumulated deficit as of June 30, 2011. That plan indicated the City’s intent to
request authorization to borrow approximately $9 million in Fiscal Stabilization Bonds in
order to address the accumulated General Fund deficit once a credible FY13 budget was
in place. The 2011 Deficit Elimination Plan was approved by the State. On May 24, 2012
the City filed an application for borrowing with the State Administrative Board, and the
Department of Treasury has issued a memorandum stating that the request satisfies the
Update 3 Final June 28, 2013 6
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necessary statutory requirements. However, Treasury did not authorize the borrowing as
proposed and approved in the 2011 Deficit Elimination Plan.
While this borrowing request addressed the accumulated FY11 deficit, there was an
additional deficit at the end of FY12 of approximately $10 million. It is estimated at this
time that an additional $10 million will need to be financed in order to address the FY12
deficit. However, the FY13 budget as adopted should create no additional General Fund
deficit. There will be ongoing deficits in the water and sewer funds, but only as related to
unfunded OPEB liabilities.
Deficit Financing 2012
FY12 ended with an accumulated $19.1 million deficit in the General Fund. The City has
shared with Treasury a draft plan to eliminate the deficit over the next five years. The
draft plan proposes a mixture of borrowing ($12 million) and dedicating future revenues
($7 million) over the next five years (FY14 to FY18).
The deficit of $8.8 million in the Water Fund is less than the unfunded OPEB liability.
Since the City is not in the position to address OPEB liabilities throughout the City, there
is little reason to increase water rates to eliminate this deficit. Additionally, the City’s
approach to containing its OPEB liabilities has been to restructure its active and retiree
health care benefits, and to eliminate the promise of retiree health care for new
employees. The changes have had a significant impact on the City’s OPEB liabilities,
reducing the total unfunded liability from nearly $900 million to less than $400 million,
and reducing the Annual Required Contribution (ARC) from $60 million to $22 million.
To the extent these efforts are successful; the deficit in the Water Fund will be lessened.
Treasury has not responded to this draft plan.
Revenue Enhancement Activity
As noted in “FY13 Budget Decisions” section, several new revenue actions were
implemented for the FY13 Budget: waste collection 3 mils eliminated and fee
established, Street Lighting Assessment established, new 6 mil Police and Fire Protection
approved by voters, also fees for licenses and permits were adjusted.
The EFM via Order No. 8 established the Poverty Exemption to the Street Lighting
Assessment. Individuals who qualify for relief from property taxes may apply for an
exemption from the street lighting assessment as well.
Also, through EFM Order No. 11, water service procedures were modified. The City’s
procedures and rate structure for the provision of water service has a substantial financial
impact on the City. The Emergency Financial Manager has determined that it is necessary
to make a number of changes to these procedures.
The following new procedures were adopted regarding water service:
1. Property owners who apply for and are granted the annual poverty tax
exemption will also be exermpted from the monthly ready to serve charge for
Update 3 Final June 28, 2013 a
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water service. Exemptions will be for the period of July 1 to June 30. Exemptions