Over the last several decades, the City of Ecorse, Michigan (Ecorse) has experienced radical financial, operating and structural changes. Certain of these changes were not controllable by Ecorse. Operating reductions resulting in the loss of jobs by a major employer and the resultant decline in assessed property values, reductions in State and federal grants, reductions in the overall revenue base, declines in the quality of services provided to its residents, and an ever increasing expenditure requirements were just a few of these changes. By the mid-1980s, a once vibrant Ecorse was teetering on the brink of bankruptcy.
When Wayne County Circuit Court Judge Richard D. Dunn appointed a receiver on December 3, 1986, he set in motion a series of events that would change the history of Ecorse, and potentially the operations of many other fiscally distressed communities. Tired of the City's inability to address its failing operations, Judge Dunn sought out a municipal bond expert, Mr. Louis Schimmel, as Receiver, to correct the fiscal distress of Ecorse and to ensure that the residents received the minimum level of quality services mandated by State statutes.
Black's Law Dictionary defines a receiver as "a trustee or ministerial officer representing court, and all parties in interest in litigation, and property or funds intrusted to him."
The steps taken by Mr. Schimmel as Receiver (Receiver) to resolve Ecorse's fiscal problems may assist other governmental entities in their efforts to improve operations into the 21st century. Declining revenues, increasing expenditures, anti-tax sentiments from residents, increasing needs of residents, and a general decline in the financial health of cities throughout the nation require that the story of Ecorse be told. Ecorse experienced all of these fiscal problems and more.
Locally, the Cities of Detroit, River Rouge, Hamtramck, and Highland Park and Royal Oak Township (and others) are currently experiencing various levels of fiscal distress. Several have recently missed payrolls. Many of Ecorse's fiscal problems are likely being experienced by these governmental units. The manner in which the Receiver resolved these concerns would be of interest to their management.
Many have argued that the Receiver's accomplishments resulted from the backing of the Court system. While in several instances this is true, more often than not the accomplishments arose from the Receiver's stead-fast desire to restructure Ecorse's services because it was the right thing to do. Several Ecorse officials, although publicly outraged at the Receiver's appointment, were privately relieved that the tough decisions required to correct the fiscal ills were finally being addressed.
Failure to restructure Ecorse's services at the time of the Receiver's appointment would have resulted in continued financial condition declines and ultimately the potential restriction of critical services affecting the safety or health of Ecorse's residents. Bond defaults were possible and likely, if the operating trends continued. Delays in Ecorse's preventative repairs and maintenance of its infrastructure (roads, sewers, water transmission lines, etc.) saved Ecorse current cash outlays only to create more severe infrastructure problems subsequently.
The "political will" to change financial and operating patterns was critical to the successful restructuring of Ecorse services. The effort to thwart change was institutionalized at Ecorse, as is the case in many governmental units. The City Council, bargaining groups and others fiercely objected to the loss of autonomy at the outset of the receivership. Various lawsuits and petitions were filed throughout the receivership to either block the Receiver's actions or to challenge the receivership itself. Physical threats by more than one of the receivership opponents occurred. Yet, the Receiver persisted.
Throughout the objections by residents and Ecorse employees, the Receiver continued to implement his program to restructure services, improve financial management and prevent a recurrence of fiscal distress after the receivership's termination. No formal deficit elimination plan was developed by the Receiver. The Report on the Analysis of the Receivership of the City of Ecorse, Michigan (Report) identifies the depth of fiscal distress, the 'informal' deficit elimination plan used by the Receiver, the "plan's" implementation, and the status of Ecorse today.
During the 45 months of receivership, the Receiver set about addressing the many financial and operating issues facing Ecorse. While much has been written about the receivership, this Report assembles as complete a document as can be developed at the current time. The Report is based upon interviews with the parties involved in the receivership, audited financial statements and related account analyses prepared by Ecorse management, and other sources of information.
Many may consider this Report to be informational and of use only to those governmental units facing fiscal distress. However, the financial and operating issues facing governmental managers today are similar to those discussed throughout the Report. It is the enlightened governmental manager who can look past Ecorse's fiscal distress and see similarities in their own communities. The problems facing the Receiver at the inception of the receivership were not unique to Ecorse. The approach and resolution to the problems can be used as a model for improvement in other communities, providing there is the political will to accomplish the necessary tasks.
SCOPE OF REPORT
This Report has been segregated into the following sections:
History preceding the receivership. This section briefly describes Ecorse's size, operations, organizational structure, demographics, and other information useful to an understanding Ecorse, as well as a six year financial history leading up to the receivership.
Fiscal distress at inception of receivership. The depth of fiscal problems at the time the Receiver was appointed by the Court is discussed. An understanding of the nature and extent of the issues addressed during the receivership is critical to an evaluation of its success.
Actions taken by Receiver. This section discusses issues facing the Receiver, alternative solutions explored and final resolution of the problems. To the extent possible, costs and benefits associated with the Receiver's actions have been quantified. This section highlights the actions taken in the first six months of the receivership (through June 30, 1987) and the actions taken through the receivership's termination on August 31, 1990.
Post-receivership status. The actions taken by the Mayor and City Council since August 31, 1990 are discussed, as well as several of the operating issues currently facing Ecorse.
Conclusion. A summary of the Receiver's actions, the applicability to other governmental units and future concerns affecting governmental units facing problems similar to Ecorse is provided.
Comparative operating statements for the General Fund, Water and Sewer Fund, and Police and Fire Pension Plan have been included as Appendices A and B for the pre- and post-receivership periods, respectively. The operations of these funds reflect approximately 95% of Ecorse's financial transactions. Other operations, to the extent necessary, have been reflected in the body of the Report.
In addition to the above comparative analyses, comparative property tax millage rates and State Equalized Valuations for property within Ecorse are included in Appendix C for the 1983 through 1991 fiscal years.