While Ecorse was ordered by Judge Dunn on June 25, 1985 to
issue $4.0 million in judgment bonds, the proceeds did not cover the entire
General Fund deficit as of June 30, 1985. The bond proceeds recorded in the
General Fund was $2,648,051 (after considering the direct deposits to the
Pension Plan of $1.1 million). The General Fund deficit at June 30, 1985 before
the bond issuance was $3,270,903. Despite the now heavy burden of an additional
property tax levy that would soon exceed 3.00 mills, the bonds fell short of
eliminating the deficit by $622,852.
While it is possible in retrospect to accurately evaluate
the size of the bonds, the June 30, 1985 General Fund deficit was not known at
the time the bonds were issued. Ecorse's accounting records and ability to
internally manage its financial affairs was deficient. The 1985 audited
financial statements were not issued until February 1986. The level of the
General Fund deficit at the time of the judgment bonds' issuance could only be
estimated based upon the prior year losses. Ultimately, the mounting Ecorse
deficits were far greater than anticipated.
In addition to the judgement bonds, the Court Order also
included a requirement of Ecorse Council to pass a balanced operating budget for
the 1986 (and beyond) fiscal years. The Court Order essentially emphasized the
existing State statutes (Uniform Budgeting and Accounting Act). In addition, the
Court Order further required that Ecorse analyze its actual operations on a
quarterly basis and adjust its operations when expenditures were exceeding the
operating budget. As the accounting system and related personnel were incapable
of performing this quarterly (or annual) analysis, no analysis was performed in
compliance with this Court Order.
Shortly after the issuance of the $4.0 million judgment
bonds in the fall of 1985, Ecorse began withholding the payment of its water,
sewer and utility invoices to the Detroit Water and Sewer Board, Wayne County,
and Detroit Edison, respectively. The withholding of the vendor payments was a
principal cause for the issuance of the judgment bonds. Ecorse's General Fund
continued to use the cash applicable to other operations even as the judgment
bonds were issued.
The withholding of pension contributions, which had been an
issue throughout the early 1980s, was not an immediate problem throughout the
1986 fiscal year as the $408,000 portion of the pension contribution (which was
in addition to the actual retiree benefits paid directly by the General Fund)
had been included in the $4.0 judgment bonds.
In addition, the Ecorse School District had filed a lawsuit
alleging that the District was owed between $200,000 and $400,000 in interest
arising from Ecorse's untimely remittances of School District property taxes
collected. Interfund borrowings from restricted revenue sources again began to
be used as a mechanism to fund the General Fund's operations.
While the initial cash flow crisis was somewhat mitigated
through the issuance of the judgment bonds, the underlying operating causes of
the fiscal problems had not been addressed.