CHICAGO — The Detroit City Council Tuesday approved a $150 million bond sale that will generates cash to cover looming debt-service payments.
The council passed the measure 6-3 in a special afternoon session after postponing an earlier vote amid concerns they did not have enough time to review the three-resolution package.
Several members said they were concerned that one of the resolutions would restrict the city’s access to bond proceeds if it did not agree to a consent decree with the state over its shaky finances.
The deal will be privately placed as soon as this week. The private placement is forced in part by last week’s two-notch downgrades from Moody’s Investors Service and Fitch Ratings.
City Council fiscal analyst Irvin Corley Jr. said Detroit badly needs to complete the bond offering, as otherwise it would “absolutely” run out of cash by May.
“We’re at a point now where there has to be some type of cash infusion, and I think this is a creative way to do it given our financial crunch and the bond downgrade we just suffered,” Corley said.
The Michigan Finance Authority will act as conduit issuer for the city on the deal.
The new-money piece of the deal includes $105 million of new-money self-insurance bonds, which would free up dollars in the general fund, which usually pays the claims.
The refunding would push off $35 million of debt service payments due on an outstanding chunk of self-insurance bonds and $10 million of capital improvement bonds.
The city’s next debt-service payments are due April 1 and May 1. The April 1 payment reportedly totals $19 million.
Council members’ chief objection during the morning session was to the resolution that would give Michigan control of the proceeds of the bond sale, potentially restricting the city’s access to the escrow account unless it met certain standards.
Council members also said they were not given enough time to review the documents.
“This is arguably the most significant financial transaction that anyone around this table will ever vote on, and the outcome of this vote is potentially going to determine what happens with this city,” council member Ken Cockrel said. “So, it typically and ideally would be the sort of thing that we would get more advance notice of.”
Deputy mayor Kirk Lewis, who is running the city while Mayor Dave Bing remains hospitalized after stomach surgery, thanked the council members who voted for the debt issue as well as the state for “acting with necessary urgency.”
“This vote is an important step as we work towards resolving the city’s financial crisis,” Lewis said in a statement issued after the vote.
Earlier Tuesday, Lewis said that any deal with the state needs to come with an infusion of cash beyond the bond sale.
“I’m not going to say we don’t have a deal unless there’s money, but I think we all have to come to an understanding that there needs to be money to make this plan work,” Lewis said during a press conference in his office, according to local media reports.