CHICAGO - The Detroit City Council is poised to vote today on Mayor Kwame Kilpatrick's $3.04 billion fiscal 2009 budget, days after signaling it would replace a key piece of the mayor's proposal with a plan to borrow the money to balance the budget
The council on Friday approved a measure to sell up to $110 million of so-called fiscal stabilization bonds in order to eliminate the current deficit and balance the fiscal 2009 budget. The measure came a day after the council rejected Kilpatrick's long-touted proposal to sell Detroit's half of the Detroit-Windsor Tunnel in a transaction that would generate $75 million.
In voting to omit the tunnel proposal from the current budget, council members repeated their criticism that the administration has not provided enough information on the deal.
For the mayor, the stakes are high as the administration has reportedly assured rating agency analysts for months that the city would be able to sell the tunnel and use the funds to eliminate Detroit's ongoing general fund deficit, now approaching its fifth consecutive year.
The budget negotiations come at a time of unprecedented tension between the council and the mayor, who was recently indicted on eight felony counts stemming from testimony in a whistleblower trial last year. Kilpatrick and his former chief of staff Christine Beatty are accused of lying under oath about the nature of their relationship, their role in the firing of the three city police officers, and the facts surrounding their decision to settle the officers' lawsuits for a total of about $8.4 million in city money.
The council has argued that Kilpatrick should resign his post before his criminal trial begins, and in the last few weeks has passed a trio of measures designed to force him from the office. Under city charter, Council President Ken Cockrel Jr. would become mayor in the event of a vacancy.
A mayoral aide said the administration would urge the council to overturn its vote rejecting the tunnel sale - and that the mayor may veto the budget if it relies on borrowing to plug the deficit.
"We don't believe that fiscal stabilization bonds are an appropriate means to balance our budget," Kilpatrick spokesman James Canning said in an interview Friday. "That's what got us to where we are today. With bonds you have to pay them back. The tunnel deal gives us the opportunity to balance budget."
The council must pass the budget by today. Detroit's fiscal year begins July 1. Detroit sold $69 million in fiscal stabilization bonds - which is considered deficit borrowing - in 2004 to plug that year's deficit.
Canning said the administration would provide the council with additional information about the tunnel sale today. "We believe there's still plenty of time to help the City Council fully understand the agreement," he said.
In a recent ratings report on the city, Standard & Poor's analysts said the tunnel sale could prove to be an important credit factor as Detroit tries to overcome four straight years of deficits.
"If the sale does not close, the city will once again end the year with a large negative balance in its general fund," Jane Hudson Ridley wrote in the report. "Should the tighter financial controls the city is relying on not result in an improved finance performance, or should the goals of structural balance and elimination of the negative carry-forward not be reached, this would pressure the rating."
The city's unlimited-tax general obligation debt is rated in the triple-B category by Standard & Poor's, Fitch Ratings, and Moody's Investors Service.
In other budget actions, a council committee Friday approved a measure to sell $171 million of notes to bring in cash next year, and the full City Council approved a measure to take $25 million out of the overfunded police and fire pension fund to help eliminate the deficit.
The exact amount of the deficit is itself the subject of debate. Estimated to be at $112 million earlier this year, fiscal analysts put it at $66 million more recently, and last week at $41 million if Detroit dips into its public safety pension funds.
Under the mayor's tunnel plan, the city would sell its stake in the tunnel for $75 million to a new holding company, the Detroit Tunnel Authority. The DTA would consist of seven members appointed by city officials. The Ontario government would loan the authority $75 million to pay the city, and the new agency would use tunnel revenues to repay a loan for the funds over a yet-to-be determined period of time. The current proposal calls for $10 million to go for insurance and transaction costs, with the remaining $65 million plugging the fiscal 2008 budget deficit.
The city of Windsor, which has already approved the deal, would also sell its half of the tunnel to a Windsor-operated holding company.
