CHICAGO — Detroit Mayor Dave Bing told the City Council Tuesday that failure to implement his budget proposals would lead to a state-mandated emergency financial takeover.
Bing’s warning came as he presented a $3.1 billion fiscal 2012 budget plan that relies on a series of revenue-generating proposals that would require the approval of the Michigan Legislature in addition to the City Council.
During his budget address, Bing said he has met with Gov. Rick Snyder to lobby for his support for the measures.
Bing said he wants to revisit current labor contracts for employees and retirees to renegotiate pension and medical benefits, which he said would gobble up 50% of Detroit’s operating budget by 2015 if left alone.
While cutting into benefits, the budget avoids layoffs. It would raise the city’s portion of the casino tax from 10.9% to 13.9% for one year and would also suspend a $65 million pension payment owed in the next budget year.
Those moves, among others, would plug part of a $200 million deficit heading into the fiscal year that starts July 1. The budget includes a five-year deficit elimination plan, and Bing repeatedly warned that the state would take over if city officials did not implement a plan to achieve a structural balance within five years.
The mayor said Detroit’s $155 million structural deficit would balloon to $1.2 billion by 2015 without action.
“The stakes have never been higher,” Bing said. “If we are unable to make these changes, an [emergency manager] will be appointed by the state to make them for us.”
Under Snyder’s guidance, Michigan lawmakers recently passed a major overhaul of the law for fiscally distressed municipalities that gives the state significantly more power to intervene and dissolve the local government.
Detroit already qualifies for state takeover under several of the new triggers.
“It’s incumbent upon us to have all the discussions we need to have over the next 60 to 75 days,” Bing told council members. “If we don’t, I don’t think any of us will have anything to say about governing Detroit.”
The city’s most pressing fiscal problems are rising pension and medical benefit costs, according to the mayor. He proposed that employees would cover 20% of their medical costs, which cost the city $230 million annually.
Those savings, however, are not built into the proposed 2012 budget, as it requires re-opening current contracts, said city finance director Tom Lijana.
Bing proposed suspending Detroit’s pension payments for the year to save $65 million.
“We have a responsibility to fully fund our pension system, and I intend to do so,” the mayor said. “But we’d like to suspend this payment one year to ease the city’s fiscal burden.”
The proposed all-funds budget of $3.1 billion represents an increase of $207 million from the current year’s spending plan and includes a $1.29 billion general fund budget. The city’s debt service totals $77.7 million in 2012.
Bing’s spending plan relies on several proposals that will require state legislative approval. Lawmakers would need to allow the city to raise its casino tax rate, a move that would generate a projected $20 million in new money annually.
The city also needs legislative approval to continue to collect income taxes and utility-user taxes in light of recent Census figures.
Existing state laws tie Detroit’s ability to impose an income tax and a utility-user tax to a requirement that its population totals than 750,000. Recent Census figures show the city’s population has dropped to 713,000.
Together those two taxes produced $265 million for the city in the current year, the bulk of it from the income tax.
Finance director Lijana said he has met with state Treasurer Andy Dillon’s office to draft legislation allowing the city to continue to collect those taxes despite its population dip.
“It’s moving at a pretty fast pace right now,” Lijana said.
The city is also asking the state to approve measures related to parking ticket revenue and the number of pension payment checks that go out per year.
City Council members appeared skeptical that the Republican-controlled Michigan Legislature would approve all the measures.
“If we’re including revenues that we don’t control, are we setting ourselves up?” asked council member Saunteel Jenkins. “I’ll be pushing for us to look at alternatives for revenue in case.”
Bing said he has been working closely with Snyder, a Republican, on all the measures.
“We’re not so naïve as to think that everything is going to be accepted as presented,” Bing said. “But I don’t think the state wants to take over Detroit and I think that some of the initiatives we are requesting will only help Detroit, and by helping Detroit will help the state.”
