Foster McCollum White & Associates

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FMW 17 point draft plan to re-align Detroit’s fiscal and operational structure
1. Understand and accept the real debt load and deficit situation for the City of Detroit. Detroit has a long term principal and interest debt bubble. The principal debt and relationship for the debt is as follows: a. General Obligation Bonds - $1,034,505,000. b. Revenue Anticipation bonds - $5,190,891,968. c. Pension Obligation Certificates - $1,468,799,999. d. Other principal debt - $363,928,233. e. Post Employment benefits - $4,982,355,243. f. Pension Liability - $615,701,032. g. Downtown Development Authority loan to City - $33,600,000. h. State of Michigan Drinking Water Revolving Loan Fund (Sewage Department) $2,028,744. i. State of Michigan Drinking Water Revolving Loan Fund (Water Department) $45,512,406. j. Municipal Parking Department Bonds - $25,800,000. k. Hedging Derivatives extra – $1,136,007,248. l. D-DOT Bonds - $2,406,855. m. Unlimited General Obligation Bonds (Police & Fire HQ) - $100,000,000. n. 2010 fiscal year interdepartmental loan fund balance (loans from department to department to cover shortfalls in operating expenses) - $447,000,000. o. 2011 fiscal year unaudited interdepartmental loan fund balance (loans from department to department to cover shortfalls in operating expenses) - $334,000,000. p. Water fund bond commitment shortfall for 2010 fiscal year - $6,446,061. q. Sewage fund bond commitment shortfall for 2010 fiscal year - $36,348,689. Total Detroit Obligation principal = $15,830,331,478 The interest debt and relationship for the interest is as follows: a. General Obligation Bond interest - $467,740,950. b. Water Fund Revenue Anticipation Bond interest - $1,943,976,879. c. Sewage Fund Revenue Anticipation Bond interest - $2,075,424,762. d. Other principal debt interest - $39,400,000. e. D-DOT bond interest - $1,626,495. f. Pension Obligation Certificates Government Interest - $482,844,364. g. Pension Obligation Certificates Water Fund Interest - $32,157,154. h. Pension Obligation Certificates Sewage Fund Interest - $36,439,627. i. Pension Obligation Certificates D-DOT Interest - $42,521,802.
Total Detroit Obligation interest = $5,122,132,033 Total Detroit Obligation principal & interest = $20,952,463,511 Total Detroit Obligation principal & interest per 2010 citizen population (713,077 persons) = $29,383.17 per person. Total Detroit Obligation principal & interest per 2012-2013 proposed budget revenue ratio ($2,538,750,778) = $8.25 debt obligation to $1 of proposed revenue.

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Fiscal Restructuring Plan June 4, 2012

Foster McCollum White & Associates
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Annual Minimum Debt Service contribution to meet minimum payment obligation $568,000,000. Annual minimum Pension Plan Contribution - $110,000,000. Annual minimum Post Employment Benefit Contribution - $313,900,000. Annual Minimum Long Term Debt & Obligation Payments for Detroit = $991,900,000. Current unrestricted accumulated deficit $1,612,643,641 (total deficit if city of Detroit sold all assets to pay all existing obligations if payments were due immediately). Total net assets as of fiscal year 2010 = $265,114,621 decreased from $1,983,454,227 in 2002.
2. Revise revenue estimates to realistic levels a. General fund revenues have been overestimated for the past 10 years by 5.17% to 29.93%. We are projecting a 15% decrease in general fund and enterprise fund revenues to be realistic. The adjustment would result in the following revenue projections: i. 2012-2013 General fund revenue = $1,111,783,467 reduced by $196,197,082. ii. 2012-2013 Enterprise Fund revenue = $984,592,098 reduced by $173,751,546. iii. 2012-2013 Total City of Detroit projected revenue (in line with 10 year trend adjustment of 15%) $2,096,375,565. 3. Reduce the number of core retained agencies within City of Detroit’s operational authority. Even with the proposed reductions of Human Services, Health & Wellness Promotion, Human Rights and Airport, Detroit is attempting to fund too many agencies that do not impact quality of life, the buying decision of residents and businesses or satisfy a statutory requirement of governance. Also, eliminate the designation of enterprise and general fund departments. All of the traditional enterprise agencies have received general fund subsidy via direct contribution or interdepartment loans. The maintained agencies in the New City of Detroit budget and projected 2012-2013 expenses allocation would include: a. Budget Department (mandatory fiscal operations) = $2,023,517. b. Department of Public Works (impacts QOL & buying decision) = $101,246,334. c. Fire Department (impacts QOL & buying decision) = $159,954,156. d. Human Resources (mandatory governmental operation) = $8,007,953. e. Law (mandatory governmental operation) = $8,631,938. f. Mayor’s Office (mandatory governmental operation) = $3,953,534. g. Planning & Development (Impacts buying decision) = $45,989,612. h. Police (impacts QOL & buying decision) = $339,593,842. i. Recreation (impacts QOL & buying decision) = $12,268,611. j. General Services Department (impacts QOL & buying decision) = $39,099,514. k. Auditor General (Impacts QOL & improves operations) = $2,942,305. l. Board of Zoning Appeals (Impacts buying decisions) = $606,566. m. City Council (mandatory legislative governmental operation) = $8,296,003. n. Ombudsman (Impacts QOL) = $592,292. o. Inspector General (Impacts QOL & improves operations) = $592,292. p. City Clerk (mandatory governmental operation) = $2,070,070. q. Elections Commission (mandatory governmental operation) = $5,092,776. r. 36th District Court (mandatory judicial governmental operation) = $31,033,117. s. Non-Departmental staff (specific divisions of government) = $57,649,723 (Non fixed cost factored).
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t. u. v. w.

Building Safety & Engineering (impacts QOL & buying decision) = $23,135,868. Municipal Parking (Revenue generator for operations) = $19,214,738. Debt Service (mandatory budget obligation) = $74,426,582. Total base projected appropriations = $946,421,343

New revenue projections based on these departments can be totaled into the following categories: 1. Taxes & State Revenue Sharing = $695,000,000. 2. Sales of services = $200,000,000. 3. Grants & shared taxes = $66,000,000. 4. Special assessment taxes = $60,000,000. 5. Non-departmental verified revenues = $75,000,000. 6. Casino infrastructure assessment = $17,000,000. 7. Fines, penalties & forfeits = $6,000,000. 8. License & permits = $6,000,000. 9. Cable franchise fee = $6,000,000. 10. Revenue from assets = $4,000,000. 11. Sale from assets = $3,000,000. 12. Detroit Building Authority revenues = $1,000,000. 13. Total projected base revenues = $1,139,000,000

We also project the following “surplus revenues” from the following activities (adjustments from the 2012-2013 proposed budget)
1. Relief from dedicated subsidy to phased out city departments = $72,000,000. 2. Reallocation of General Services Department Budget once combined with Department of Public Works = $18,000,000.

FMW projects total operating revenues at $1,229,500,000 for 2012-2013 fiscal year We would recommend the follow appropriations changes to the budget:
   Increase the Budget department appropriations by $8,000,000 to shift various accounting functions from Finance department. Increase DPW appropriations by $21,099,514 transferred from General Services Department. Decrease net appropriations amount by $10,000,000.

2012-2013 City of Detroit total projected appropriations = $936,421,343 2012-2013 City of Detroit total projected revenue = $1,229,500,000 2012-2013 City of Detroit projected budget surplus (deficit) = $292,078,657
4. Pass the proposed public safety millage for City of Detroit. 9 mils would generate the following annual amount of revenue Detroit Estimated SEV at $8,000,000,000: a. Public Safety Millage (impacts QOL & buying decision) = $72,000,000 5. Separate out EMS division from Fire Department and implement proposed billing model changes for service options and expand units to service excess medical treatment and transport capacity. Work with City Lobbyist or hire expert lobbyist to lobby for federal changes in Medicaid & Medicare billing for medically distressed and disproportionate share community designation and state statue change for medical transportation service delivery. Implemented changes could result in following revenue enhancements for Detroit: a. Potential 2012-2013 realized revenue opportunity (at a 33% projected minimum
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b.

c.

d.

e.

collection rate) of $5,570,730 from additional hospital transports – Current billable model. Potential realized revenue opportunity (at a 33% projected minimum collection rate) of $3,163,050 from servicing non-hospital transports – policy and legislative policy/ billable model (By fiscal year 2013-2014). Potential realized revenue opportunity (at a 33% projected minimum collection rate) of $2,533,079 from increased Medicare billings – policy and legislative policy/ billable model (By fiscal year 2013-2014). Potential realized revenue opportunity (at a 33% projected minimum collection rate) of $1,294,071 from Medicaid billings – policy and legislative policy/ billable model (By fiscal year 2013-2014). Potential maximum net realized revenue of $$30,628,750 (2011-2012 of $16,903,580) projected revenues from current City of Detroit Adopted budget revenue estimate and potential realized revenue from additional hospital transports (By fiscal year 2014-2015).

City of Detroit could generate an additional $77,570,730 in revenue for the 2012-2013 fiscal year, which would increase revenues to $1,307,070,730 and 2012-2013 fiscal year budget surplus to $369,649,387.
6. Use 2012-2013 fiscal year budget surplus of $369,649,387 to fund the following department expansions: I. Police Department - increase budget by $140,000,000 to fund 1,500 uniformed officers’ only, expanding uniformed police force to 4,000 officers. Total budget would be $479,593,842. II. Fire Department – increase budget by $30,000,000 to increase uniformed fire fighters by 500 personnel to 1,400 uniformed fire fighters’ total. Total budget would be $194,954,156. III. EMS Department – Increase budget by $12,000,000 to hire 100 new EMT’s and Paramedics and procure 30 new ambulances via leasing program. New department budget would be $37,000,000. IV. Recreation Department – Increase budget by $13,000,000 to hire 170 FTE’s and re-open 4 recreation centers. New department budget would be $25,268,611. V. Building Safety & Engineering – Increase budget by 7,000,000 to hire 100 FTE’s for inspection, code violation and approval process. The department budget would increase to $30,135,868. VI. Law Department – Increase budget to 2011-2012 staffing levels and add an additional $2,000,000 to hire 25 new FTE’s. Budget increase would total $13,000,000 to produce a new budget of $21,631,938. VII. Human Resources – Increase budget by $8,000,000 to hire restore 2011-2012 staffing levels and add an additional 25 FTE’s focused on risk management programming. New budget would be $16,007,951. VIII. Budget Department – transfer 50 FTE’s from former Finance department. IX. Department of Public Works – Transfer 320 FTE’s from former General Services Department. X. Total budget adjustments would cost $223,000,000. XI. 2012-2013 remaining budget surplus would be $143,649,387. 7. Sell all excess physical infrastructure and land inventory for down payment on long term debt. Set 2012-2013 fiscal year goal to generate $50,000,000 to $150,000,000 for increased debt service payments
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8. Spin off Detroit Water and Sewage Division to public private authority. The components of the spinoff would have to take place: a. Work with State of Michigan (leverage State of Michigan’s bond status) Get the bondholders to convert 40% of the long term debt financing to ownership equity in the new authority. b. Restructure long term payment terms to spread out payment dates. c. Convert existing retirement (pension and post retirement benefits) plan underfunded amount to a VEBA based plan and provide an ownership stake for DWSD unions (10% to 20%) to contribute to the VEBA plan payouts. d. Expand DWSD product mix including bolted water products and sales model to other communities in Michigan and neighboring states & Ontario. e. Allow all regions to get an ownership stake (Detroit, Wayne County, Oakland County, Macomb County, Washtenaw County and Genesse County) in new authority. f. Transfer all non converted debt/obligations (current range is $9,144,057,130 to $11,034,132,909 of existing Detroit debt & obligations) to new authority. g. State legislative action to allow authority to expand debt financing options. h. Transfer all operating revenue and expenses to new authority. 9. Spin off D-DOT to public private authority, similar to DWSD structure. Debt relief for Detroit would range from $186,208,882 to $1,025,917,323. a. Work with State of Michigan (leverage State of Michigan’s bond status) Get the bondholders to convert 20% of the long term debt financing to ownership equity in the new authority. b. Restructure long term payment terms to spread out payment dates. c. Convert existing retirement (pension and post retirement benefits) plan underfunded amount to a VEBA based plan and provide an ownership stake for DDOT & SMART unions (10% to 20%) to contribute to the VEBA plan payouts. d. Merge SMART & Ann Arbor Transit Authority into new authority. Include light rail, rolling rapid transit and other transportation models in authority. e. Update fee structure to generate additional operating revenue. f. Voter authorized quad-county millage to fund portion of authority. g. Allow all regions to get an ownership stake (Detroit, Wayne County, Oakland County, Macomb County and Washtenaw County) in new authority. h. Transfer all non converted debt/obligations to new authority. i. State legislative action to allow authority to expand debt financing options. j. Transfer all operating revenue and expenses to new authority. 10. Spin off Detroit Public Library system from Detroit to County based authority. This authority would also absorb all other municipal libraries in Wayne County. Library assets would be planned to share borders and community centers to maximize physical plant facilities. a. Push for all state legislation to allow regional library authority for Wayne County. b. Push for state appropriations from HAL to partially subsidize the new authority for initial 10 years. c. Modify millage statues for Libraries to increase millage capacity. d. Work with State of Michigan (leverage State of Michigan’s bond status) Get the bondholders to convert 20% of the long term debt financing to ownership equity in the new authority. e. Restructure long term payment terms to spread out payment dates. f. Convert existing retirement (pension and post retirement benefits) plan underfunded amount to a VEBA based plan and provide an ownership stake for DPL and other
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municipal sector unions (10% to 20%) to contribute to the VEBA plan payouts. g. Review all local library millages to adjust for capacity of new authority and proper taxing distribution. h. Transfer all non converted debt/obligations for all municipalities to new authority. i. State legislative action to allow authority to expand debt financing options. j. Transfer all operating revenue and expenses to new authority. 11. Speed up transition of Public Lighting Department to Authority or transfer of assets and operations to DTE or Consumers Energy. Additional items in the transition discussion would include: a. State Legislative action to allow for expended debt financing capacity beyond the $160,000,000 that is being discussed. b. Plan to secure Department of Energy grants to fund power generation capacity expansion to allow energy sales capacity to resident, business and open energy market. c. Convert retirement underfunded amount to a VEBA based plan and provide an ownership stake for PLD unions (10%). d. Work with State of Michigan (leverage State of Michigan’s bond status) Get the bondholders to convert 20% of the long term debt financing to ownership equity in the new authority. 12. Negotiate relationship with Wayne County to transfer Detroit City Airport to DetroitWayne County Airport Authority ownership and operations. Negotiate with Macomb County Executive and State of Michigan to address Airport improvements to allow for expansion to regional airport model (Reagan in D.C or Midway in Chicago). 13. Outsource all tax collection functions to Wayne County Treasurer’s department. Work with State, Wayne County and other municipalities to create enabling legislation to allow all 43 municipalities in Wayne County to transition out of tax collection and treasury functions and allow Wayne County Treasurer to provide service for each municipality. 14. Outsource all internal IT staff and functions to a partnership consortium of State of Michigan, Wayne County, DPS and a Private sector partner. Consortium can also include other municipalities in Wayne, Oakland and Macomb County. 15. Enter into purchasing consortium with Wayne County, DPS, EAA, Highland Park, Hamtramck, Inkster, Ecorse, River Rouge, Harper Woods, Allen Park and other governmental agencies for procurement of insurance products (health, life, disability, property & causality, workman’s compensation, etc.) and other commodity procurements to reduce per unit cost and generate savings on total product procurement. 16. Lead in push for public safety modifications to geographical scope and service delivery model. Changes would include: a. Negotiation with Wayne County Sheriff, Detroit Public Schools Police, Wayne State Police, U of D Mercy Police, Michigan State Police and Macomb County Sheriff to create policing zoning districts. Each agency would take a specific zone inside of Detroit for policing. Zones would be self contained and less populated or border areas. The partner agency would be responsible for patrolling, responding to 911 calls and have arresting powers with Detroit borders. Detroit’s police department would patrol on non partner zones only, but would respond to 911 calls in partner zones on priority dispatch and unit availability basis.
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b. Push for legislation to create a county based public safety authority (similar model to Washington State). Detroit and the major 12 Wayne County communities would become the primary public safety responders (police, Fire, EMS) to zones within Wayne County. c. Centralize local millages into a county-wide millage model to fund centralized operations. d. Implement EMS billing model changes for service options and expand units to service excess medical treatment and transport capacity. Coordinate with State legislature and Congressional delegation to secure changes in Medicaid & Medicare billing for medically distressed and disproportionate share community designation and state statue change for medical transportation service delivery. e. The 13 regional providers will absorb uniformed staff, vehicle equipment and stations from the other 30 communities as necessary to maintain minimum patrolling capability for each zone. 911 call center and dispatch services will be regionalized into 4 regions (Detroit, Western Wayne, Downriver and Near Detroit Suburbs). f. Bonding authority for technology, communications, station improvements and vehicle investment. 17. Enter into parks management relationship with State of Michigan DNR, Huron-Clinton Valley Metro Parks and Wayne County to transition management of the majority of Detroit’s park system. Belle Isle would continue as planned to be transferred to the State of Michigan. Chandler Park & Rogue Park would be leased or transitioned to Huron-Clinton Valley Metro Parks and other medium size parks would be transitioned to Wayne County. State legislative change would be necessary to allow Wayne County to increase its parks millage to allow for management of the transitioned parks from Detroit.

Benefits of this 17 point plan
1. Detroit’s government functions are aligned to three key areas (quality of life, buying decision impact and maintaining mandatory statutory functions). 2. Detroit finally will live within its budget means and start creating surpluses to either pay down debt or invest in core departments. Detroit has a core base of revenue that is overly stretched to meet citizen needs and deliver positive impact. 3. Long term debt relief – By spinning off the agencies we propose, Detroit can experience a range of $10 billion to $14 billion in debt relief. It would leave Detroit with long term debt and obligations of $6 billion to $10 billion. This allows the city to develop restructuring plans to address the overall debt situation for bonding obligation, retirement and health care obligations. That is more manageable and functional to address. 4. Decreased annual minimum debt service payment obligation. – Detroit’s current minimum debt service and retirement obligation payment amount would equal $991,900,000. This equals 39.07% of the 2012-2013 projected fiscal year budget. This amount equals to 4.734% of the total outstanding obligation load. To make a significant impact on the current outstanding obligations, Detroit would need to increase the payment amount to 7% or 8%, which would equal $1,466,672,445.80 to $1,676,197,080.90. That would remove a minimum of 57.77% of the 20122013 projected operating budget before paying for any personnel to deliver municipal services. Under our proposed business model, Detroit would potentially decrease its annual minimum debt and obligation payments (using the current 4.734% of total obligations model) down to a range of $284,040,000 to $473,400,000 (assuming obligation load is between $6,000,000,000 to $10,000,000,000). 5. Public safety can expand and be properly targeted to deter crime across Detroit and Wayne County. Patrol can be increased to a three to four police car per square mile ratio in the densely
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populated areas of Detroit and other high crime areas in Wayne County (Inkster, Highland Park, Hamtramck, River Rouge) and one to two cars per square mile in less dense population centers in Detroit, business areas and low crime communities in Wayne County. Investigation divisions and special units (gang squad, narcotics, vice, etc.) can be realigned to address high crime density areas and coordinate case prosecutions with the County Prosecutor’s office. 6. Detroit can leverage it’s existing size for Fire and EMS services to absorb smaller agencies and expand its physical footprint with a consistent and dedicated revenue stream to pay for operations and expansion. Smaller neighboring municipalities can get out of the function of public safety, spend a smaller portion of their budget on public safety and spread savings to other core municipal functions. 7. Regionalizing the dispatch function from 43 municipal 911 call centers dispatch services to 4 regional call centers dispatch services will benefit Detroit. Detroit will be able to expand and invest in technologies to improve call management and add staffing to reduce stress on existing staff. The other 39 communities will pay a participation fee which will be much smaller than their existing budget outlay for 911 and dispatch services and be able to spread the savings to other core municipal functions. Similar benefits will exist for the other three regional providers as it will for Detroit.
FMW Researched Documents 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 2008-2009 City of Detroit Fiscal Budget Documents from Mayor Kwame M. Kilpatrick 2008-2009 City of Detroit Adopted Budget 2008-2009 City of Detroit Auditor General’s Report and Analysis on Mayor Kilpatrick Fiscal Budget 2008-2009 City of Detroit City Council Fiscal and Budget Analysis Documents 2009-2010 City of Detroit Fiscal Budget Documents from Mayor Kenneth V. Cockrel Jr. 2009-2010 City of Detroit Adopted Budget 2009-2010 City of Detroit Auditor General’s Report and Analysis on Mayor Cockrel Fiscal Budget 2009-2010 City of Detroit City Council Fiscal and Budget Analysis Documents 2009 City of Detroit CAFR 2010-2011 City of Detroit Fiscal Budget Documents from Mayor Dave Bing 2010-2011 City of Detroit Adopted Budget 2010-2011 City of Detroit Auditor General’s Report and Analysis on Mayor Bing Fiscal Budget 2010-2011 City of Detroit City Council Fiscal and Budget Analysis Documents 2010 City of Detroit CAFR 2011-2012 City of Detroit Fiscal Budget Documents from Mayor Dave Bing 2011-2012 City of Detroit City Council Fiscal and Budget Analysis Documents 2012-2013 City of Detroit Fiscal Budget Documents from Mayor Dave Bing 2012-2013 City of Detroit City Council Fiscal and Budget Analysis Documents March 26, 2012 State of Michigan Review Team Report Citizens Review Council Report, Detroit and its indebtedness – 2012 Moody’s Detroit Bond Downgrade Report 2011 and bond reports from 2008 through 2011 Fitch’s Detroit Credit and Bond rating downgrade report - 2011 and bond reports from 2008 through 2011 Standard & Poor’s Detroit Credit and Bond rating downgrade report - 2011 and bond reports from 2008 through 2011

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