Detroit eyes bonds to replace federal dollars for residential blight program
Detroit Mayor Mike Duggan plans to ask voters to support $200 million of bonds to help fully remove residential blight by 2024.
If they approve in March, the junk-rated city would issue $200 million of new money unlimited tax general obligation bonds in the summer of 2020. The city issued its first standalone borrowing since its 2013 bankruptcy last December.
“We're going to take down 4,000 houses a year, and in five years by the end of 2024, we will not have a single abandoned house in any neighborhood in the city of Detroit," Duggan said in his keynote address at the annual Mackinac Policy Conference on Mackinac Island Thursday.
Duggan said the bonds will not require a tax increase because the city has paid off enough of its debt to accommodate new borrowing and is positioned to post its fourth consecutive balanced budget since exiting bankruptcy in late 2014. The city was given back control of its finances in April 2018.
"We're showing [city council] that we can raise $200 million plus," Duggan said. "We can meet our other capital needs without raising taxes because our revenues and finances are running way ahead of schedule."
Detroit's Chief Operating Officer David Massaron said officials are confident the tax rate term won't exceed the rate of 9 mills that's expected this year, which is up from 7 mills last year, he said.
“On the basis of debt issue we did in December this year’s millage will be 9 and the city’s long term unlimited tax debt is going to start to roll off as principal is paid down,” he said. “If we continue to levy at the 9 mills the debt will be supported at the 9 mill level.”
Massaron said the city plans to take the proposal to city council in September.
“We are at the very beginning stages,” Massaron said. “We have had broad outline conversations with council and I think as we develop the program it will be easier for us to gauge what support will be but I am fairly confident the idea of finishing off the residential blight problem in the city will be well received by both council and the public."
Massaron said that the city will still contribute to blight remediation program from its assigned fund balance. The city has budgeted to use more than $100 million of assigned fund balance for capital projects and blight remediation in fiscal 2020.
“We have been funding through annual surplus and fund balance but we have also been using hardest hit funds; now we are seeking to replace those with this bond financing,” Massaron said.
Detroit has received $265 million in federal funding since 2013 to target blight by tearing down vacant structures. It has demolished nearly 18,000 blighted structures, and the Detroit Land Bank has sold 6,000 vacant houses to be rehabbed and occupied.
Duggan said the $200 million bond, if approved, would "get us most of the way there" in tending to the remaining 18,000 blighted residential structures. The bond would also give the city freedom to use some of the funding to renovate them. Under federal rules, Duggan said, blighted houses had to come down.
The bonds would be unlimited tax general obligation bonds of the city.
“We still have a bunch of areas we haven’t gotten to and it’s my obligation as mayor to get to everyone and now we have to figure out how we do it without federal money,” Duggan said.
Moody’s Investors Service rates Detroit's general obligation bonds Ba3, three notches below investment grade, and last upgraded the city nearly a year ago. S&P Global Ratings in February upgraded the city’s general obligation ratings to BB-minus — also three notches away from investment grade — from B-plus.