CHICAGO - The head of Wayne County, Mich., home of Detroit, unveiled a recovery plan with deep cuts - including wiping out retiree health care - in an effort to avoid bankruptcy.
"If we go on with business as usual, the money is going to run out in 2016," county Executive Warren Evans said in a press conference Monday morning. "This plan will prevent bankruptcy even though in some areas we are worse off [than when] Detroit was pre-bankruptcy."
"We're not going to be to do any of the projects we've talked about; we're not in a position to borrow money or to do anything new until we get rid of the structural deficit," said Evans.
Since 2008, the county's government has plugged its general fund shortfall by shifting money from its pooled cash fund, a move that has amounted to "robbing Peter to pay Paul," Evans said.
By next summer, the county will not be liquid enough to rely on fund transfers anymore and will be entirely out of money, he warned.
The county can tackle the problem itself or the state will step in and take over, said Evans.
"This is a plan that will fix it if we come together as Wayne County," he said. "If not, it will come to the next level, whether that's an emergency manager or a bankruptcy; trust me, it's going to get fixed."
The plan would eliminate health care for future retirees. It would move most employees and some retirees to high-deductible insurance plans and provide retirees with fixed and limited subsidies for the purchase of supplemental insurance, likely under the new federal health care law. That's similar to a move Detroit made in bankruptcy, shifting retirees to the national exchange. The health care cuts would save the county $28.4 million in 2015, with savings growing every year and hitting $49.8 million by 2020, according to the report.
It raises the retirement age to 62 and reduces future pension benefits by changing the pension multiplier. It increases the number of years used to determine compensation to 10 years from the current three- to five-year equation. All county employees would see 5% salary cuts.
Altogether the cuts would mean $60.3 million in savings for the county's funds, including $53.4 million in the general fund.
He said officials are working on revenue-generating ideas but won't rely on them to balance the budget.
Evans stressed that the plan makes cuts for all employees on all levels.
"I understand how terrible this sounds but it will be terrible to everybody, and that's as honest as we can be and as transparent as we can be," he said.
Evans said he delivered the plan to unions and elected officials Monday ahead of the press conference.
"There's going to be a lot of dialogue," he said. "But at the end of the day the numbers have to total $52 million, and if they don't it's a nonstarter."
Evans took office in January, replacing long-time county executive Robert Ficano. In February, Evans announced that Wayne County's finances were far more grim than he had realized, and that a state takeover was likely without major fixes.
He blamed the county's problems on a loss of property tax revenue and "fiscal and managerial mismanagement." The county receives 60% of its general fund revenue from property taxes, which fell to $289 million by fiscal 2013 from $408 million in fiscal 2008, according to the plan. Evans' plan assumes no increase in property tax revenue until 2018, and then only a $4 million boost.
The county is also struggling with a half-built jail.
The county issued $200 million of bonds in 2010 for the project, which is supposed to replace the current aging criminal justice facilities. But the county was forced to abandon the project in 2013 when it became too costly, and Evans said the county cannot return to the markets for additional financing in its current fiscal condition. In a recent report, Fitch warned that the county's jail bonds are particularly vulnerable to default.
The county lost its last investment-grade ratings shortly after Evans first raised flags about the county's finances in February. Moody's Investors Service dropped it into speculative territory with a three-notch downgrade in early February. Standard & Poor's downgraded it into junk territory in mid-February. Fitch Ratings, which already had junk ratings on the credit, downgraded it to B from BB-minus and kept the rating on negative watch in mid-March.
Wayne has just under $700 million of limited-tax general obligation bonds and $302 million of LTGO notes.
