Detroit released from active state oversight of finances

DETROIT — Detroit reached a key step in fiscal redemption on Monday by reclaiming control of its own finances roughly three years after exiting the largest municipal bankruptcy in U.S. history.

A state review commission unanimously agreed to release the city from state financial oversight after Detroit delivered three consecutive years of audited balanced budgets. The city was about $12 billion in debt and unable to deliver basic services like prompt responses to 911 calls and park maintenance when the state took financial management.

"Detroit is once again finally a city of full self-governance," Mayor Mike Duggan said following the commission's vote.

The change means that when contracts are approved by the City Council, Detroit won't have to wait for the commission to approve them. But the city must still submit monthly financial reports to the commission, which will continue to monitor Detroit's fiscal health for the next 10 years and could resume oversight if a budget deficit occurs.

Gov. Rick Snyder placed the city under state receivership in early 2013, angering local officials and some residents because the move essentially stripped power from the City Council and mayor's office. The Republican governor also appointed turnaround expert Kevyn Orr as an emergency manager to oversee Detroit's finances. The city, under Orr, filed bankruptcy the same year.

After restructuring about $7 billion in debt and setting aside $1.7 billion in savings and revenue over a decade to improve city services, Detroit exited bankruptcy in December 2014. Part of the restructuring plan was creating the nine-member financial review commission, which is chaired by state Treasurer Nick Khouri and includes Duggan, state Budget Director John Walsh and former Detroit police Chief Isaiah McKinnon. Members were given oversight of borrowing and large city-issued contracts.

Most city operations were returned to Duggan's control in September 2014, but Monday's action helps wipe away the stain of bankruptcy and the anger some in Detroit carried.

"Today is an important day in the history of our city," City Council President Brenda Jones said. "Now, with the dormancy of the (review commission) and a reduction in state oversight, local control is returning to our city and its elected officials can assume the role that voters expect us to carry out."

Under the terms of the bankruptcy, creditors received pennies on the dollar for what they were owed and thousands of retirees saw their pensions cut by 4.5 percent. Annual cost-of-living increases also were eliminated.

Detroit's general fund balance was about $595 million at the end of the 2017 fiscal year, compared to a deficit of about $73 million that the city faced at the end of the 2013 fiscal year following years of a plummeting population and tax base.

A $36 million operating surplus is expected for the fiscal year 2018.

Another move by the city: Planning ahead by reducing costs and increasing revenue. Property tax collections are up nearly 10 percent and income tax revenues 15 percent over the past four years.

The city has been setting aside surpluses ahead of large pension and debt payments due to start in 2024.

The financial review commission's vote "validates Detroit's remarkable progress and path toward continued financial stability," Snyder said in a statement. "Detroit is America's comeback city and I have every confidence that we will continue to see Detroit reach new heights under the city's leadership."

Credit rating agency Moody's Investors Services, which currently rates Detroit's credit as B1 with a "positive outlook," said Monday that Detroit's emergence from financial oversight "is a testament to the positive momentum the city has made in strengthening its reserves and fiscal operations." David Levett, Moody's vice president and senior analyst, said the agency expects "the strong financial management to continue."

Must Read

Global stocks drift lower as investors await US data

Aug 16, 2016

Shares were lower across global markets on Tuesday in sluggish trading, while oil prices resumed gains

Conventional tax proposals in an unconventional US campaign

Aug 17, 2016

In this unconventional campaign season, Donald Trump and Hillary Clinton have produced two conventional tax plans that mostly track their parties' long-standing views

Hong Kong airline Cathay's 1H profit tumbles 82 percent

Aug 17, 2016

Cathay Pacific Airways' profit tumbled in the first half of the year as economic weakness in China and other important markets cut passenger demand while it faced cutthroat competition from rivals

Search

Obserworld delivers the most accurate and up-to-date world news for the global audience with a thorough research and in-depth interviews. Discover the world through Obserworld.

Contact us: sales[at]obserworld.com