City can collect $800 million owed by businesses, says Crittendon
From: Committee to Elect Krystal A. Crittendon
February 25, 2013
FOR IMMEDIATE RELEASE
CONTACT: Phillip Brown, 313 717 5077
Detroit Mayoral Candidate Krystal Crittendon released this statement today in response to the Governor-appointed Financial Review Team’s release of findings after its 30-day review:
“The Financial Review Team’s (FRT) findings in their report concerning the City of Detroit’s financial status should come as no surprise to anyone. The bottom line: the Report provides no justification for the appointment of an emergency financial manager, especially when it makes no mention of $800 million in accounts receivable owed to the City as confirmed by State Treasurer Andy Dillon.
The FRT had already found the City to be in severe financial distress in 2012. The specific findings contained in the report regarding whether the City was in ‘severe financial distress,’ whether the City ‘had a plan in place to address the financial distress,’ and whether the City had a likelihood of fixing its financial problems, are findings which are required to be made and contained in a financial report to the Governor by an FRT empaneled under PA 72. No one reading the report should be shocked that these findings are included.
“The FRT criticizes the City’s Charter as containing ‘restrictions and structural details that make it extremely difficult for City officials to restructure the City’s operations in any meaningful manner.’ It must be noted that the City’s Charter was required to be, and was, actually, approved by the State of Michigan before it was placed on the ballot to be voted on by Detroit voters. It is unclear as to whether this state-appointed advisory board is aware that the State signed off on the Charter before it was adopted by the residents of Detroit.
“The report also criticizes the fact that the 36th District Court has allegedly failed to collect $279.3 million in outstanding accounts receivables, of which approximately $100.9 million is owed to the City of Detroit. The report suggests that the failure to collect is somehow a failure by City of Detroit government. What the FRT apparently fails to realize is that 36th District Court operations are NOT under the control of City of Detroit government; the City is simply the Court’s funding source. The Court operations are not within the control or authority of the Mayor or the Detroit City Council. Moreover, to the extent that the report suggests that the City somehow failed to collect outstanding revenues, then so did the State of Michigan, as the report alleges that $76 million is owed to the State by 36th District Court.
“The report further criticizes the City for failing to have a satisfactory plan to resolve its financial problem, as required by the Emergency Financial Manager Act. This finding is patently incorrect. The City negotiated over $150 million dollars in cost savings with the City’s labor unions in December of 2011. These savings were verified by the accounting firm the State forced the City of Detroit to retain to assist in deficit reduction measures. After the contracts were negotiated, the Governor then advised the Mayor NOT to submit these contracts to the City Council for approval. Had these contracts been approved in January of 2012, the City would have realized $150 million dollars in costs savings in 2012. The FRT’s criticism of the City regarding whether the City has a plan in place to address its financial problems and the slow progress the City has made in implementing cost-saving measures is, therefore, the fault of the State, and not the City.
“In addition, according to State Treasurer Andy Dillon, $800 million is owed to the City in accounts receivable. However, according to the City Charter, the Mayor must authorize the City Corporation Counsel to seek recovery of these dollars.
“The FRT criticized the City for failing to have a plan to address the cash crisis, or the City’s $13.6 billion in long-term liabilities. The FRT report contains a table of figures that supposedly comprise the City’s long term liabilities. The table includes lines for ‘Non-General Obligation(s),’ ‘Other Post Employment Benefits Unfunded Actuarial Liabili(ties)’ and ‘Other.’ These three categories total just under $12 billion.
“We know these are not ‘General Obligations, or ‘General Retirement System Unfunded Actuarial Accrued Liabilities’, or ‘Police and Fire Retirement System Liabilities’, because those figures are found on other lines in the table. If they are obligations of the Water Department, they are funded by Water Department revenues, which are not part of the City’s general revenues, nor are they debts of the City. Rather they would be debts of the Water Board, which Federal District Court Judge Cox has declared to be an entity separate and distinct from the City.
“This finding is problematic for several significant reasons. First, the long-term liabilities referenced in the report include debt which is not attributable to the general fund. Less than $2 billion is general fund debt; the rest is attributable to “other” sources, such as DWSD bond debt which is secured. Second, the State had to, and did, approve of the bond transactions which the state-appointed FRT now criticizes. Troubling is the fact that the now the State will not give the City all of the money it borrowed—$50 million is being withheld from the City in escrow. Even more troubling is the fact that the City cannot utilize the money it has received to help pay down any debt, as the State has required the City to spend millions of dollars on experts selected by the State to tell us what we already know: the City of Detroit is experiencing financial difficulty. This is actually what the FAB was appointed to tell us
“Finally, the State made it necessary for the City to have to borrow money in the first place. The State eliminated revenue sharing for all Michigan cities, causing all cities, not just Detroit, to experience financial distress. Moreover, the State used Federal stimulus money to bail itself out, and now enjoys a billion and a half dollar surplus, while cities across the State are suffering.
“I urge the Governor to take all of these factors into consideration as he weighs his decision regarding the appointment of an emergency financial manager for Detroit.”