Delinquency on Audit Means City of Detroit is in Violation of Uniform Budget and Accounting Act

For Immediate Release

MIDLAND—The Mackinac Center for Public Policy has confirmed with officials at the Michigan Department of Treasury that the City of Detroit is delinquent in filing its annual audit for 2000, required by law, and therefore is currently in violation of Michigan’s Uniform Budget and Accounting Act. Also, according to a provision of another law, the Local Government Fiscal Responsibility Act, the city’s delinquency should automatically trigger a review by the state treasurer.

“Detroit officials knew that the city’s audit was going to be delinquent several months ago and asked the state for an extension of two months, which they are allowed to do by law,” wrote Mackinac Center Policy Analyst Michael LaFaive in a letter to Mark A. Murray, the state treasurer, dated Jan. 3, 2001. “The extension was granted, but on Jan. 2, that extension expired.” LaFaive concluded that the city, therefore, was in violation of the law, and asked Murray for confirmation.

In a letter dated Feb. 1, Murray confirmed that “the City of Detroit has failed to timely file its audit for FY ending 2000.” Failure to do so, he wrote, “is a violation of the Uniform Budget and Accounting Act (Public Act 2 of 1968) and a trigger [for a preliminary review of the city’s finances] under Section 12(1)(L) of Public Act 72 of 1990.”

Murray stated, however, that his office would not be conducting such a revie, as called for in Public Act 72. “Missing the audit deadline is not as clear an indication of a financial problem as are some other triggers provided” in the law, Murray wrote. “Hence, in the case of a late audit, we would only proceed with a formal preliminary review if there were other indicators of financial problems present.”

LaFaive believes, on the contrary, that sufficient indicators exist for the state Department of Treasury to initiate a preliminary review of Detroit’s finances. For example:

  • A rapidly declining General Fund, which dropped from $102 million in 1998 to $71 million in 1999, indicating an alarming deterioration of the city’s fiscal integrity;

  • Airport and Transportation Fund deficits of $4.5 million and $15.9 million respectively, and rising;

  • A discrepancy of $69.5 million between what was appropriated for Detroit’s Fire and Police Departments ($570.5 million) and what was actually spent ($501 million).

  • Over-reliance (representing 78 percent of General Fund revenues) upon municipal income taxes and shared taxes and grants from the state of Michigan and the federal government;

  • A health insurance plan for city employees that is not actuarially sound, having accrued a current and future liability between $1.75 billion and $3 billion.

  • Only $500 million in legal debt margin left, with future financial obligations of more than $10 billion (according to Mayor Archer) for upgrading the city’s wastewater infrastructure alone.

“This is what Detroit’s finances look like during economic good times,” LaFaive points out. “When the impact of the current economic downturn begins to be felt, the city’s ability to finance its operations will be in serious doubt,” says LaFaive.

For these and many other reasons—including the provision of Public Law 72 which calls for an inquiry in case a city is delinquent in submitting an audit—LaFaive says the state of Michigan should initiate an official inquiry into Detroit’s financial situation.

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