Wednesday, August 12, 2009

Detroit Economic Crisis Update: Bing Meets With Bond Agency; Workers Threatened With 1,000 Layoffs; State Tax Revenue Declines

August 12, 2009

Bing meets with bond agency to ease fears


Two days after Detroit Mayor Dave Bing warned that the city is broke and in danger of going into receivership, the mayor is in Chicago today meeting with bond rating agency officials to allay their fears, the Free Press has learned.

Bing is meeting with officials at Moody’s Investor Services and Standard & Poor’s, two bond rating agencies that rank the city’s financial health and credit worthiness. The mayor left Detroit this morning and is expected back this evening, said Edward Cardenas, Bing’s press secretary.

“These meetings are standard practice for a new mayor to meet with the ratings agencies to discuss the city's finances and his plans to address Detroit's financial issues,” Cardenas said. “During the campaign, the mayor said he would be working hard to wrap his arms around the budget, and this is yet another example of how he is addressing this issue.”

In January Moody’s, Standard and Poor’s and Fitch Ratings downgraded Detroit’s bond rating to junk bond status as a result of the city’s inability to regain structural balance and ongoing financial deterioration. Approximately $4.7 billion of the city’s debt was affected by the downgrades.

Downgrades can carry severe consequences for the city. Besides higher interest rates on the city's debt, depriving the budget of money to fund services to residents, it also could force the city to pay millions of dollars to investors with certain deals with the city.

Mimi Barker, Standard & Poor’s director of corporate communications, said it is her company’s policy to not comment on internal meetings with its customer base, such as Bing or other city officials.

“But in general we stay in touch with our issuers and ask for additional information right along if we think there is an imminent problem,” she said.

On Monday, Bing met with leaders from the city’s 50 unions, and implored them to agree to take at least a 10% wage reduction by Aug. 28. After the meeting, Bing told reporters that the city is in financial peril, on the verge of both bankruptcy and possible receivership.

“Time is not our friend, it is not our ally — we’ve got to move fast,” Bing said Monday. “We are in a tough, tough predicament.”

The city is facing at least a $350-million deficit, and could run out of money by Oct. 1. Bing also warned Monday that the city’s 13,000-person workforce will be trimmed through at least 1,000 more layoffs. The city has already laid off roughly 300 workers since Bing took office in May.

Come back to for updates to this developing story.

Tuesday, August 11, 2009

Mayor warns of 1,000 layoffs, seeks union concessions

David Josar and Christine MacDonald / The Detroit News

Detroit -- Mayor Dave Bing warned Monday the city is bleeding money and heading for receivership if city unions don't agree to a 10 percent wage cut by Aug. 28.

"You are talking about running out of cash in the next 60-70 days," Bing said after an hour-long closed-door meeting in Cobo Center with leaders from roughly 50 unions.

"Time is not our friend, it is not our ally. We have to move fast. If we go to receivership, all bets are off."

Over the past few years, Detroit has accumulated a $350 million deficit. It could grow this year because revenues are down $100 million because of falling taxes and fees. Bing has said the city won't be able to pay its bills by Oct. 1 unless unions agree to wage concessions. He couldn't say how much the cuts would save.

Other options include closing City Hall one day a week. But even if the unions agree to compromise, Bing said a large-scale reduction in the city's 13,000-member work force is inevitable.

"There are going to be layoffs regardless. At a minimum of 1,000 layoffs," he said.

Union leaders, who were heard shouting inside the meeting, remained steadfast in their refusal to alter contracts to lower pay and balked at claims the city is going broke. Some accused Bing of ignoring other cost-saving measures before pushing the pay cuts.

"Clean up your own house and then come talk to us," said Henry Gaffney, president of the Amalgamated Transit Union, which represents roughly 1,000 bus drivers who make about $17 an hour. "Do your due diligence."

Under receivership, a state-appointed official would oversee the city's finances. That would shield Detroit from liquidating assets to pay creditors and could free the city from contracts. But it also would likely be wildly unpopular in a city that is wary of outside intervention.

John Riehl, president of American Federation of State, County and Municipal Employees Local 207, said Bing is "bluffing" about receivership.

"He is just pushing his agenda but it's not having any effect," said Riehl, whose union represents water and sewer workers, and has threatened to strike.

"The city can always borrow money on anticipated revenues and get loans. That's just business as usual."

Ed Cardenas, Bing's press secretary, said Bing has had no discussions with Lansing lawmakers about receivership.

But it is a possibility, Cardenas said.

Bing already has persuaded the City Council to adopt an ordinance to cut pay of non-union workers by 10 percent to save about $11 million a year. Salary reductions for his employees begin Sept. 1, Bing said.

All eight members of the City Council said Monday they will voluntarily cut their pay 10 percent in September. Members make $81,312; the council president makes $85,456.

"It's lead by example," said Council President Pro Tem JoAnn Watson. "The city desperately needs to harness its resources."

The cut would be voluntary because elected officials' salaries are set by the Elected Officials Compensation Commission, which hasn't met in several years. New council members who take office in January wouldn't be obligated to follow suit unless the commission acts.

Al Garrett, president of AFSCME Council 25, which represents 3,500 city employees, said workers want assurances they wouldn't lose their jobs later if they agree to the 10 percent pay cut that would be carried out through 26 unpaid days off per year.

"This is quid pro quo," Garrett said.

The layoffs Bing promised Monday, which would come on the heels of another 318 since he took office in May, will result in some loss of services.

Last week, a top aide to Bing warned residents to anticipate decreased bus service and less diligence in cleaning up illegal dump sites.

Another scenario on the table involves some employees working four-day weeks that could result in the closure of City Hall once a week.

"It's a part of the negotiations," Cardenas said.

If the city were to go into receivership, the governor would have to intervene and appoint an emergency manager. (313) 222-2073

Find this article at:

Tuesday, August 11, 2009

Michigan tax revenues fall $50M in July

Mark Hornbeck / Detroit News Lansing Bureau

Lansing -- Michigan's freefall off the financial cliff is still seeking bottom.

A top state economist says the tax collections report for July that is due out today will show the state is another $50 million short, due to a moribund economy that continues to underperform even the most dismal projections.

"Right now, the economy is weaker than we thought it would be, and it's affecting almost everything, particularly income and sales taxes," said Jay Wortley, senior economist for the Senate Fiscal Agency, the financial arm of the state Senate.

Consumers aren't spending. State income tax receipts are in the tank largely due to Michigan's 15.2 percent unemployment rate, the highest in the nation. Business activity is slow.

To understand the depth of the problem, consider:

• Gov. Jennifer Granholm and lawmakers figured out in May the national recession and the collapsing auto industry would rip a $1.3 billion hole in this year's budget, so they made $304 million in budget cuts and spent $1 billion in federal recovery cash to balance the books.

• The state's financial experts then huddled and adjusted revenue projections based on the new reality. They said at the time it was the most pessimistic revenue outlook they had ever made. Now, with the $50 million shortfall in July and similar deficits in May and June, tax receipts are coming in $170 million short of those off-the-chart estimates for the budget year that ends Sept. 30.

• The picture gets even worse for the 2010 budget year that begins Oct. 1. The shortfall in the general fund, the state's main checking account, for next year will be $1.8 billion, the Senate Fiscal Agency estimates. Tax receipts that feed the school aid fund will be nearly $1 billion low, so the state is looking at an overall shortfall of $2.7 billion to $2.8 billion, Wortley said.

Granholm and legislative leaders are meeting weekly behind closed doors to try to resolve next year's budget with a combination of program cuts, tax or fee increases, tax loophole closings and federal stimulus money.

The governor has said the shortfall in this year's budget will be patched with the dwindling pot of federal recovery cash. That means less of the stimulus money will be available to help balance next year's budget.

"When the governor signed the executive order in May, she noted that we intended to fill any shortfall with recovery dollars," said Megan Brown, spokeswoman for Granholm. "We're trying to minimize that with ongoing spending restraints."

As it stands, the state will have $1.17 billion from the stimulus plan to bail out next year's general fund and $833.7 million for the school aid fund, the Senate Fiscal Agency reports. But leaders are haggling over whether that money should be used to erase the deficit or to stimulate the economy or some combination of the two.

Matt Marsden, spokesman for Senate Majority Leader Mike Bishop, R-Rochester, said further evidence of Michigan's declining revenues underscores the Senate's focus on living within the state's means. The Senate has proposed $1.3 billion in cuts for next year, some of them painful.

"It's just an indication again of how bad the economy in Michigan is, and how important it is to operate within the revenue we have," Marsden said.

Details about the declines in the state's array of taxes won't be available from Treasury until today, but based on figures from May and June, sharp drops are expected, Wortley said.

The state took in only about $516 million in sales tax revenue in July, the Associated Press reported, a drop of 13 percent. State economists had expected July 2009 sales tax revenue would be closer to $565 million, a drop of 5 percent.

Wortley added that there's still time this year for revenues to pick up. "You never know what's going to happen the next couple months. Revenues could rebound," he said.

Gary Olson, director of the Senate Fiscal Agency, said the economy is not the only problem. The percentage of personal income that state residents and businesses pay in state taxes has dropped over a full percentage point since hitting a high of 8.4 percent in the mid- and late 1990s. That's because the state has been cutting taxes and adding exemptions.

The state tax system also has failed to change as taxpayers' behavior has changed. Consumers are spending less of their personal income on sales taxes, for instance, because they're buying fewer goods, which are taxed, and more services, which are not.

"Our tax system, for a variety of reasons, is not keeping up with the economy," Olson says. "Part of it is tax cuts, but part of it is that we are not taxing things that are growing in the economy." (313) 222-2470 Detroit News Staff Writer Karen Bouffard and the Associated Press contributed.

Find this article at:$50M-in-July

No comments: