CHICAGO – Once bankrupt Detroit ended fiscal 2016 with a $63 million surplus, according to audited results posted Wednesday.
“The audit shows that the city has performed better than budget at the same time we have made investments that will improve our financial future,” the city’s chief financial officer, John Hill, said in a statement announcing the release of the city’s comprehensive annual financial report for the fiscal year that ended June 30.
“With deficit-free budgets two years in a row, we have put the city on the path to exit Financial Review Commission oversight,” Mayor Mike Duggan said in the statement.
Detroit must record three consecutive years of deficit-free budgets to win release from oversight by the Detroit Financial Review Commission under terms established as part of its exit from Chapter 9 in December 2014. The city projects a $51 million surplus in the current fiscal year that ends June 30.
Detroit is on course to meet the exit criteria early next year. If so, the commission would enter a dormant stage. The commission currently has the final word on contracts, budgets, capital and facilities planning, with formal revenue estimates offered biannually.
While under state emergency management, Detroit filed for bankruptcy with Gov. Rick Snyder’s support in July 2013. The city had a battered tax base and could not deliver adequate services. In bankruptcy, it shed about $7 billion of its $18 billion in debt and retirement obligations and turned a $133 million deficit into surpluses for the last two years.
Pension ills still loom large on the city’s balance sheet but the city is building up a cushion by assigning a portion of its fund balance to help cover a big jump in payments scheduled in 2024.
The CAFR reported $143 million in fund balances when counting the surplus. The city is setting aside $50 million to set up the Retiree Protection Fund and $50 million in the next budget for blight remediation and capital improvements. The remaining $43 million will be carried over into the next fiscal year.
“This cushion will allow the city to manage risks associated with potential changes in the economy or federal funding,” the statement said.
The city also reports improvements in its management of $157 million in federal grants with no questioned costs resulting from audits, a first in more than a decade.
“These results will help aid Detroit in its ability to compete for and secure grants that support critical services and opportunities for our residents and communities,” said grants management director Nichelle Hughley.
Despite the surplus, Detroit continues to struggle with a decades-long population decline, Frank Shafroth wrote on his GMU Municipal Sustainability Project blog.
The most recent Census data, he wrote, reported that fDetroit lost population—0.5% or 3,541 persons. The figure is similar to the previous year which marked the slowest rate of exodus in decades. The city has seen other positive data with building permits, home prices, and occupied residences on the rise.
An April letter from the Chicago Federal Reserve reported that the local economy has come a long way over the last few years.
“The influx of new capital and an improved attitude about Detroit’s recovery following its bankruptcy started to pay early dividends for the city. In fact, while Detroit’s municipal government was still working out the details for exiting bankruptcy, the city’s economic conditions were already starting to improve,” authors Scott Brave and Paul Traub wrote in “Tracking Detroit’s Economic Recovery After Bankruptcy with a New Index.”
“However, there remains room for improvement” as disparity remains in where the improvements are being felt across the city’s roughly 140 square miles, they wrote.
“There are also other challenges for Detroit’s economy …such as improving schools, access to affordable housing, and neighborhood safety, as well as creating a better regional transit system,” the letter said.