CHICAGO — The emergency manager of Pontiac, Mich., said his plan to raise new money for the cash-strapped Detroit suburb relies on a court-ordered property tax increase.
Michael Stampfler said he has already skipped a June 30 payment to a voluntary employees beneficiary association, or VEBA, and plans to skip a September tax refund payment due to General Motors Corp. following the company's tax appeal. He expects the missed payments to spark lawsuits, and that a judge will then order property tax increases to cover the payments.
As the city is already at its property tax millage cap, a court-ordered tax hike is the easiest way to raise taxes, Stampfler said. The increase would cost the homeowner of a $100,000 home an additional $400 annually. Stampfler's 2012 fiscal plan counts on the court-ordered property tax increases.
"There isn't enough money in the stressed community to pay all the bills, and this is the only solution in those two cases," Stampfler said. "If we need to pay those bills, we're going to need additional revenue from somewhere. The easiest way is for a judge to order it."
With a population of 66,000, Pontiac suffers from a 26% unemployment rate and 31% of its population lives below the poverty line. It has been under state-ordered emergency management since March 2009. Stampfler is the third emergency manager appointed by Michigan during that time.
Chief problems stem from falling revenue — property taxes and state aid have tumbled by double digits over the last several years — combined with rising costs. The city's pensions are well-funded, though its other post-employment benefits liability is high.
The city had a liability of over $306 million for retiree health and life insurance obligations, and had only set aside $35 million, just below 12%, as of the end of fiscal 2010, according to fiscal information.
Fitch Ratings, the only credit agency that rates Pontiac, dropped its general obligation rating to CCC in January, making it Fitch's lowest-rated U.S. city. The rating signals that default is a real possibility — Pontiac has $57.1 million of outstanding bonds — but Stampfler said the city will not default on its bonds.
"By not paying VEBA and not paying GM without additional taxes, we have enough money for other obligations that can't be treated that way," he said.
Stampfler, who as emergency manager works for the Michigan Department of Treasury, would not comment on the prospect of bankruptcy except to say that it is "not on the table." Local governments in Michigan need state approval to file Chapter 9, and the state so far has refused to allow any governments to file.
The new law, which is the target of lawsuits, greatly expanded an emergency manager's powers, including the ability to unilaterally terminate a labor contract. Stampfler used that power earlier this year when he terminated the dispatcher's labor contract, and said he was preparing to do the same with the firefighters' contract next.
Stampfler said the broadened powers have helped in some ways, but that recovery depends heavily on the economy.
"It's more an issue of the economic cycle and how progress can quickly be erased by a failing economy," he said.
He added that many of the problems afflicting the city are suffered by other local governments in Michigan.
"In Pontiac, the problems are more severe because it's been in the situation longer, but the same issues are in Detroit, the same issues are with Detroit Public Schools," Stampfler said. "It's just a question of where they're at in the cycle."