CHICAGO - After releasing its long-delayed fiscal 2006 audited financial results last week, Detroit officials are expected to present Michigan this week with a timetable for the release of its already-overdue 2007 audit - a move that could advance the city's stalled borrowing plans and persuade the state to resume all of its aid payments.
The state has withheld roughly $61 million of Detroit's bi-monthly state revenue aid payments over the last few months in an effort to push the city to release the overdue 2006 and 2007 certified audited financial results. In December, the state Treasury Department withheld roughly $26 million in state revenue-sharing aid funds due to the 14-month delay in the city's release of its 2006 audit. The city released that audit last Wednesday - but Thursday state officials said they were withholding an additional $35 million until the city drafts a comprehensive plan to release its fiscal 2007 audit. That audit was due Dec. 31, 2007.
"The city did submit its CAFR for 2006 on Wednesday evening, and the city indicated to us that they plan to provide the department with a plan and a timetable for completion and submission of fiscal 2007 CAFR," said treasury spokesman Terry Stanton Friday. "As soon as that plan is received and reviewed by us, the department will determine whether the portion of the revenues being withheld will be restored."
The late audits - which Detroit Mayor Kwame Kilpatrick blames largely on the city's auditing firm, KPMG - have held up the city's plans to enter the debt market with a total of $575 million of new-money and refunding bonds.
And in a recent appearance before the City Council, Kilpatrick agreed that he had laid off too many accountants, but placed most of the blame on KPMG, according to public reports.
A number of capital projects approved in Kilpatrick's $3.1 billion 2008 budget remain either stalled or left half-completed until the city is able to sell the bonds to finance the projects. The city's fiscal year begins July 1.
While the state is withholding about $35 million in revenue aid, it continues to allot about $11 million to the city that is guaranteed under the state constitution. City officials are using the $11 million to cover upcoming debt service payments on bonds secured by state aid revenues. Stanton said the state would consider releasing additional money for debt service payments if it's needed.
City officials believe that the $11 million is sufficient for the time being to cover debt service payments on behalf of the Greater Detroit Resource Recovery Authority for bonds that are backed by state revenue aid funds, said Irvin Corley, Jr., Detroit's City Council fiscal analyst. The scaled-down aid would also be sufficient to cover debt service on a pair of $130 million notes that were sold in July 2006, the last payment on which is due in April, said Corley.
Corley attributes the late CAFR to several factors, including lack of finance staff, though in a 2007 report Corley suggested that the delayed CAFR "actually appears as a strategy by the administration to ignore addressing the accumulated deficit."
The city currently plans to sell roughly $100 million of unlimited general obligation bonds in two series with proceeds funding a myriad of capital improvement projects. The city would also likely move to sell a $75 million unlimited GO issue, as well as $400 million of water revenue refunding bonds.
Meanwhile, city officials continue to pursue the potentially lucrative option of leasing, in exchange for the right to future toll revenues, the Detroit-Windsor Tunnel, a move that city officials estimate could bring in around $60 million for fiscal 2008.