CHICAGO -- The Detroit suburb of Allen Park is in danger of running out of money by the end of February and has started to delay payments to vendors while the city’s new emergency manager crafts a deficit elimination plan.
Michigan Gov. Rick Snyder declared the city to be in a state of financial emergency last October. He appointed Joyce Parker -- who has served as manager for two other distressed governments -- as emergency financial manager.
In taking over the city, Michigan officials cited ongoing deficits and a 2009 $31 million bond sale that financed a now-failed film studio.
The city has been forced to dip into its deficit-ridden general fund to make debt-service payments, which total roughly $2 million annually, on the debt.
Voters have twice rejected tax-increase requests to pay off the bonds, and the city has been cutting staff and making other general-fund cuts.
City officials have made plans to try to sell off the film-studio property, according to a recent audit.
A recent memo sent to city employees warns that the general fund is projected to run out of cash by the end of February or beginning of March.
“In order to ensure adequate cash flow while the Emergency Financial Manager develops and implements her plan, the city will be delaying payments to general fund vendors by approximately 30-60 days beginning immediately,” said the Jan. 24 memo by city treasurer Carl Johnson.
The latest audit, dated Dec. 29, 2012, shows the city had a general fund deficit of $847,145 as of June 2012 despite a $2 million tax anticipation note borrowing last spring. The audit also showed a $10 million net deficit in the Southfield Lease Properties Fund, which services the film studio bonds.
“These conditions raise substantial doubt about the city’s ability to continue as a going concern,” the audit, conducted by Detroit-based firm Alan C. Young & Associates PC, said.
Some residents are pushing for a Chapter 9 bankruptcy filing, an option that is now available -- at least as a request -- under the state’s new emergency management law.
Standard & Poor’s maintains a below-investment grade rating of B on the city and has it on negative watch.
In its most recent ratings report last summer, analysts warned that the city could run out of cash by February 2013 without “major budget adjustments” or a new cash-flow note borrowing.
“We anticipate resolving the CreditWatch negative listing upon determining the success of the city’s efforts, whether through an emergency manager or some other manner, to balance its fiscal 2013 budget,” the report said.