DETROIT — Detroit is no longer at risk of running out of cash by April because cost-cutting and other measures are taking effect, Mayor Dave Bing said Thursday, but the city council president and others do not share Bing’s optimism.
Bing presented a financial and operational restructuring plan update to the council Thursday afternoon. It highlights cost savings from 1,000 imminent layoffs, overdue payments from the Detroit Public Schools district and a corporate tax increase he says will mitigate a cash shortfall.
The 18-month plan calls for $102 million in savings through June and $258 million over the 2013 fiscal year. Auditors had previously warned Detroit could run out of money as early as April.
Bing said members of a state review team won’t uncover any financial issues in the city that his administration doesn’t know about when they meet with his staff in the coming weeks.
A preliminary review last month determined there was “probable financial stress” in city government and that Detroit faces a general fund deficit of about $200 million. The review team is looking into Detroit’s finances – a step in a process that could lead to Michigan taking over the city’s government.
“Do we have financial stress? Damn right we do. We’ve had it since day one,” Bing said.
The review team’s recommendations will be forwarded to Gov. Rick Snyder. City officials have said they want to avoid the need for a state-appointed emergency manager.
City Council President Pro-Tem Gary Brown said he was not as hopeful about the plan as Bing. In the past, including the previous two years under Bing, city budget officials have repeatedly overestimated the revenue coming in to the city treasury, Brown told Bing and mayoral aides.
“It (revenue) just didn’t show up as projected,” Brown said. “And we don’t have a system in place in city government to react.”
In particular, Brown said he has reservations about projected savings from reduced overtime, work rule changes and a reorganization of the municipal bus system’s management.
City labor union leaders have been collaborating with the council and Bing to convince the state that an emergency manager is not necessary. Changes to union contracts and the pension system still are needed to eliminate the city’s long-term structural financial problems.
Bing and union leadership are negotiating medical benefits concessions that can save the city $15 million through June and changes to pensions that would bring about $25 million in savings in the 2013 fiscal year. Bing has said he’ll cut 1,000 jobs early this year to save about $14 million.
“A large percentage of the city’s budget is tied up in labor contracts in terms of hourly wages, health care and retirement issues,” said Mike Boudreau, director of Bloomfield Hills-based O’Keefe and Associates financial turnaround consultants.
“There’s no way around that, but I think it’s unfair to put it totally on (the unions). I think the pain needs to be spread around.”
While Bing’s plan focuses on the next 18 months, Detroit’s structural issues also need to be addressed, Boudreau added.
“I think he’s headed in the right direction, but I think it’s missing the mark,” Boudreau said. “They’ve come forward with plans before that didn’t materialize.”
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