The ball is now in the Governor’s court, so to speak. The report is not public yet, but the press release is out. It only took the State independent review team 18 calendar days to figure out what everyone knows: Wayne County is in a ‘Financial Emergency’. Here is the money shot from the Michigan Department of Treasury press release:
The team’s extensive report indicates that numerous conditions led to the determination that a financial emergency exists in the county. Those conditions include the following:
- The county’s last four annual financial audits revealed notable variances between General Fund revenues and expenditures as initially budgeted, as amended, and as actually realized. In addition, County officials underestimated actual expenditures in three of the fiscal years by amounts ranging from $16.7 million to $23.7 million.
- County officials engaged in unbudgeted expenditures in violation of Public Act 2 of 1968, the Uniform Budgeting and Accounting Act.
- Although there was agreement among county officials that existing detention facilities are inadequate, there is no consensus about whether to complete construction on a new jail or to renovate existing facilities.
- According to the county executive’s recovery plan, unfunded healthcare-related liabilities were estimated to be $1.3 billion as of the last actuarial valuation with funding set aside for this purpose of less than one percent of liabilities. Healthcare-related liabilities represent 40 percent of the county’s long-term financial obligations.
The Governor now has 10 days to take one of five actions: do nothing, conduct another ‘neutral’ evaluation, arrange a consent agreement, impose an emergency manager, or file the County for Chapter 9 bankruptcy in U.S. Bankruptcy Court.
Doing nothing or another ‘neutral’ evaluation is just wasting time, time that comes at a price of $ 200,000 a day out of the hide of Wayne County taxpayers at the County’s current cash burn rate. That is what the $ 52 million ‘structural’ deficit and the $ 20 million a year ‘current’ deficit really amount to. [‘Structural deficit’ is politicalspeak for continued deficit spending, year after year. ‘Current deficit’ is politicalspeak for the current year’s new overspending, beyond the usual annual irresponsibility.] The $ 200,000 a day being burned doesn’t even consider the County’s long term liabilities, which eventually have to be payed.
The Southeastern Michigan political elites haven’t been properly warmed up to a Chapter 9 filing, so the political response to such a filing at this time would be explosive. Wayne County has no Institute of Pretty Pictures which can be used to extort money from its neighbors. The Wayne County Airport Authority has been independent since 2002, so the County really doesn’t have any attractive assets to sell or use for extortion. But they do have a partially finished jail eating $ 1.4 million every month in cash. Our Governor may not have gauged public sentiment very well in his quixotic pursuit of Proposal 1, but he is well tuned into the Wayne County political elites. So no bankruptcy for Wayne County – yet.
County Executive Warren Evans would love being handed imperial power under a consent agreement, or elevation to emergency manager status. Most Wayne County Commissioners do not share his enthusiasm for either of these options, but they are small fry in the Michigan political firmament. The Detroit consent agreement did little to improve its financial condition, so their Plan B was an emergency manager followed by Plan C, bankruptcy. Emergency management has an especially checkered history in any event, as the trials and travails of the Detroit Public Schools well illustrates. Past failure, however, is no bar to repetition in the Michigan political storybook.
Mark Twain once said “History doesn’t repeat itself, but it does rhyme”. Governor Snyder will probably implement the Detroit ‘solution’: Plan A, a consent agreement followed by Plan B, an emergency manager, followed by Plan C, bankruptcy. Consent agreements and emergency managers do not have the power to address pension and OPEB driven government financial losses under the Michigan Constitution. This is Wayne County’s biggest financial problem, so neither a consent agreement or an emergency manager will succeed. The problem here is that price of $ 200,000 a day coming out of the hide of Wayne County taxpayers. Stopping the bleeding by immediately filing the County under Chapter 9 would be best for taxpayers, but this is Michigan, a state where taxpayers are the very last concern of politicians.
It would also be nice to see the officials making unbudgeted expenditures in violation of the Uniform Budgeting and Accounting Act prosecuted, but that isn’t likely either. Those unbudgeted expenditures weren’t made on the roads, whose dedicated funds have been looted by County funds transfers for the last 10 years. Go through the County’s CAFR’s, the transfers out are on the revenues and expenditures pages for their road fund. Michigan has an awful lot of laws, but they rarely apply to politicians’ acts in office. Removing such spendthrifts from office – beyond just the beneficial effect upon County finances – would be a useful object lesson across the State. Only the Feds prosecute Michigan politicians, and then only for outright theft.
Time is of the essence, but not in Michigan and certainly not in Wayne County. The last Wayne County Executive, Robert Ficano, actually drafted a consent agreement back in 2013. Expect Warren Evans to dust it off and get it to the Governor posthaste. Sadly, $ 200,000 a day spent going nowhere. Only bankruptcy will solve Wayne County’s financial emergency. But we are going to get a very expensive consent agreement. Bankruptcy will come hundreds of millions of dollars later.