Shortly After the Issuance of the Judgment Bonds

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.