DALLAS – Wayne County, Michigan says it's made sufficient gains in balancing its books and is ready to exit a state consent agreement.
County Executive Warren C. Evans formally petitioned state Treasurer Nick Khouri on Thursday seeking release from the consent agreement which the county and state entered into in August 2015 as the county struggled with growing red ink.
"We've stuck to our 'Recovery Plan' and come very far in a short period of time," said Evans. "There's much more work to do, but we're on a sustainable path and I think the state recognizes that. I look forward to exiting the consent agreement and taking the next steps toward securing a financially strong future for the county."
With more than 1.7 million residents, Wayne County, with its seat in Detroit, is Michigan's most populous.
Evans credits the agreement with helping pave the way for the county's turnaround which has won recent rating upgrades though ratings are still below investment-grade.
The consent agreement "was essential to implementation of important pieces of its recovery plan," Evans said in his March state of the county address. The agreement allowed the county to renegotiate contracts, improve the county's cash position, reduce underfunding in the pension system and eliminate the county's structural deficit.
To win release form the pact, the county must receive written notification from the state treasurer that it has complied with terms. Wayne eliminated a nearly $100 million accumulated deficit and a yearly structural deficit of approximately $52 million through measures in its recovery plan aimed at better aligning revenues with liabilities.
The county reduced its unfunded pension liabilities from $817 million to $636 million.
Last week, the Wayne County commission approved a $1.5 billion 2016-17 budget on a 12-2 vote. The approved budget shows a $180 million decrease in spending from the 2014-15 fiscal year. The next fiscal year begins October 1st. The county ended the last fiscal year with an accumulated unassigned surplus of $35.7 million, of which $5.7 million is available for general fund operations.
It marked the county's first accumulated surplus in eight years.
The county has plans to borrow as much as $200 million to complete its stalled Gratiot jail project in Downtown Detroit. The county halted construction in 2013 after having spent $157 million. It recently launched a request for qualifications process to pre-qualify firms with the goal of issuing a design-build request for proposals no later than January.
"In less than two years, we've identified the fiscal problems and taken swift action to address them. The county faces significant challenges ahead, but is on its best footing in quite some time," Evans said.
On Sept. 29, Moody's Investors Service upgraded the county by one notch to Ba2, two notches away from an investment grade, and signaled more positive action could be forthcoming by assigning a positive outlook.
In June, Fitch Ratings raised the county four notches to BB-plus, one notch below investment grade, in recognition of its progress toward structurally balancing its books.
Also in June, Standard & Poor's revised its outlook on Wayne County's BB-plus rating to positive from negative.
The county has $510 million of long-term limited tax general obligation bonds and limited tax general obligation supported lease bonds. It also has $287 million of short-term limited tax general obligation delinquent tax anticipation notes. Moody's rates $300 million of the county's long-term debt and does not rate the county's short-term debt.
Michigan's emergency management system has come under heightened scrutiny over the last year. Gov. Rick Snyder has been criticized for EM-driven decisions that led Flint to break off from Detroit Water and Sewerage System in 2014 when its contract to receive Detroit-supplied water ended and to improperly treat its new source of water.
The decision ultimately led to the water contamination crisis that Flint is grappling with. Flint began pulling water from the Flint River and intended to use it until later this year, when it links to a new Karegnondi Water Authority pipeline.
The emergency manager program, in which the state governor appoints a manager with extensive powers over a troubled municipality or school district that meets certain criteria, was launched in 1990. It's the state's go-to method for dealing with local government financial trouble.
In addition to the appointment of an emergency manager who reports directly to the governor, local governments may also opt for bankruptcy, mediation, or a consent agreement – as in Wayne County's case -- between the state and the city to permit local elected officials to balance their budget on their own.