Ensnared in a Structural Deficit.

eBlog

June 5, 2015

Visit the project blog: The Municipal Sustainability Project 

Ensnared in a Structural Deficit.  Detroit’s surrounding neighbor, Wayne County, is struggling to avert insolvency, and facing an annual structural deficit of $70 million, as well as an underfunded public pension system—funded at less than 50 percent, or $910.5 million, according to the most recent actuarial report done for the county; nevertheless its Board yesterday rejected Wayne County Executive Warren Evans’ proposal to cover a court-ordered pension payment with a special property tax levy. Wayne County has about 5,500 retirees. (Last week, Wayne County Circuit Court Judge Lita Popke, based upon up by a Michigan Supreme Court ruling in December in which the justices  determined that the county owed money because it did not pay into the pension fund as it should have in 2010, provided the go-ahead to file for a special tax levy.) Judge Popke determined the county must pay $49 million into a fund for retirees, a judgment stemming from the county’s decision to pull $32 million out of its “13th check” fund in 2010 to cover its annual pension contributions. The $49 million would cover the original amount, plus lost earnings, with the payment ordered to be deposited into the “Inflation Equity Fund,” created in 1985 to counteract inflation for retirees collecting a pension.) The Board, instead, voted to take funds from a delinquent revolving tax fund in order to comply with the order of Judge Popke, who had agreed that the county could impose a one-year tax levy after top officials had testified the county could not afford to cover the payment. Nevertheless, the Board did not support Mr. Evans’ proposal to impose the special levy, which was estimated to have cost the owner of a $100,000 home about $62; the board instead voted to tap the Delinquent Revolving Tax Fund to make the payment—a fund which provides local governments with funds to cover uncollected property tax payments and which currently has $78 million—but which threatens County Executive Evans’ economic recovery plan and the county’s ability to borrow money to deal with its half-built jail. The disputed Board action came in the midst of ongoing efforts to address the county’s $52 million structural deficit and balance its annual budget—even as it has yet to put together a plan to address its underfunded pension plan or with a $200 million, bond-financed, half-built jail currently abandoned in downtown Detroit. Thus, in the wake of the vote yesterday, County Executive Warren Evans said he plans to veto the County Commission’s action, noting: “You can’t plug a hole in the deficit by creating a deficit…The commission is attempting to take money that was earmarked to pay Wayne County’s past accumulated deficit and redirect it for another purpose. The commission has not identified where we will get the money to pay our past deficit.” Because a veto override, under the County’s charter, requires a two-thirds majority, the outcome is uncertain. The County Executive believes his proposed one-time tax, estimated at 1.23 mills, would be less painful for taxpayers and better for the county’s long-term health, noting: “No one finds this judgment levy more distasteful than I do, but the county simply has no reasonable alternative…This problem was created in 2010 when the commission acted in a manner that was not only found to be illegal by the Michigan Supreme Court, but exacerbated our financial problems. We can no longer kick the can down the road. We must provide solutions that will resolve our financial problems.”

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