Detroit's CFO to depart at year's end
Detroit's chief financial officer, John Hill, who steered the city through bankruptcy and helped lift it to higher junk ratings, plans to leave Mayor Mike Duggan's administration by the end of the year.
The government and finance turnaround expert was hired in 2013 by the state-appointed emergency manager at the time, Kevyn Orr, to help manage Detroit’s financial restructuring during bankruptcy.
Hill had originally planned to leave Detroit shortly after it exited bankruptcy in December 2014 but was asked to stay on by the Duggan administration to oversee restructuring of the city's financial operations and prepare for scheduled increases in the city’s pension contributions. Hill steered the city through the adoption of four consecutive balanced budgets that allowed it to emerge from state oversight this spring.
“From a financial management standpoint, the city of Detroit is now one of the most professionally run cities in the country,” said Duggan in a statement.
“Considering where our city was just five years ago, this is a remarkable turnaround, and it simply would not have been possible without John Hill’s leadership and the outstanding team he has assembled,” the mayor said.
"John is one of the most effective and capable municipal chief financial officers I have worked with in my 20 years in this business," State Treasurer Nick Khouri said. "His leadership managing the city of Detroit's finances during and after bankruptcy created a framework for future success."
Hill and his team replaced Detroit’s annual budget with a four-year financial plan, which is designed to require balanced operations for the upcoming fiscal year plus the three following fiscal year budgets. The approved financial plan includes Duggan’s budget for fiscal 2019 that began on July 1 and three forecasted years: fiscal 2020, 2021 and 2022.
Continuity is expected as other financial team members remain. Chief Deputy CFO and Finance Director John Naglick, along with deputy CFO and Treasurer Christa McLellan, will remain on the city’s finance team.
Hill has almost four decades of experience in financial management, organizational design and development, and strategic business planning. He came to Detroit after serving as CFO of the Federal City Council, a not-for-profit, non-partisan organization dedicated to the improvement of Washington D.C. He also previously served as the CEO of Arthur Andersen's government consulting practice in Washington.
Under his leadership the city earned three bond rating upgrades although it still remains in junk bond territory and has structured bond deals with state intercept support to access the market. In May, Moody’s Investors Service upgraded the city’s issuer rating to Ba3 from B1. The outlook, previously positive, is stable at the higher rating. Moody’s had upgraded Detroit to B1 in October. In December, S&P Global Ratings upgraded the city’s issuer credit rating to B-plus. The outlook is stable.
Hill helped establish the city’s Retiree Protection Fund that's expected to accumulate $335 million by 2023 to address to meet an increase in pension payments of nearly $100 million more than initial post-bankruptcy estimates beginning in fiscal 2024.
Hill and his team also embarked on a strategy to reduce debt service expenses by paying off debt early and executed a successful refinancing.
The city anticipates an escalation of debt service payments on $1.28 billion of borrowing the city closed on in December 2014 to fund creditor settlements and raise funds for revitalization efforts. The deal paved the way for its exit from Chapter 9, during which it shed $7 billion of its $18 billion of debt and obligations. General obligation debt service costs are scheduled to rise to $161 million in fiscal 2021 from $132 million in fiscal 2017.
The city is reviewing ideas and proposals submitted by bankers who responded to a request for proposals to assist with possible restructurings of the city’s $632 million of LTGO debt obligations. The unsecured bonds were used to pay off various creditors.
Issued as term bonds, the debt has a 30-year maturity, and bears interest at 4% for the first 20 years and 6% for the last 10 years. Payments are interest-only for the first 10 years and start amortizing principal in year 11.
In March, the city fully defeased the C series of bonds that were part of the city’s exit financing. The bonds carry a final 2026 maturity. The C series of unrated, taxable bonds totaled $88.4 million and paid 5% interest. They are secured by the city’s limited tax general obligation pledge and payable from city parking revenues.
Hill also helped the city transition to having the state government handle income tax returns and withholding of city income taxes. Under the new system, taxpayers can now file and pay taxes electronically, which increased the number of new filers substantially. The city’s second major revenue driver is the 6% state income tax that is passed back to cities, which brings Detroit about $200 million per year.
Detroit plans to conduct a national search to find Hill’s replacement, said John Roach, a spokesman for the Duggan administration. Hill hasn’t revealed his next move.