City officials: Proposed Detroit charter revisions could spur 'fiscal crisis'

Detroit — Proposed revisions to Detroit's City Charter would spur an "imminent fiscal crisis" that would send the city $3.4 billion into debt within four years, trigger placement of an emergency manager and violate terms of its bankruptcy order, city finance officials warned in a memo released late Monday. 

The grim financial outlook was detailed in a Feb. 19 memorandum distributed Monday evening to the Detroit City Council from the city's Office of the Chief Financial Officer in response to amendments proposed by the Charter Revision Commission.

Detroit's Chief Deputy CFO, Tanya Stoudemire, called the proposals "very disturbing" and argued they would leave the city unable to balance its budget.

The proposals are laid out in a draft as recommendations; after a formal adoption by the charter commissioners, it would go to the governor and state Attorney General's Office for review and ultimately before voters later this year. 

The draft is the culmination of the Charter Commission's three-year process of proposing changes to Detroit's 2012 charter. City voters in 2018 empanneled the nine-member commission to conduct the work.

Detroit Charter Commission Vice Chair Nicole Small countered that the administration's criticisms were a vague, last-minute "bullying tactic" to derail the proposed rework of the charter.

"It's a scare tactic," Small said. "They want to bully us into submission and we're not too tolerant of it."

Stoudemire wrote in her memo to the council that the proposed revisions, which call for additional elected city commissions, economic development policy changes and modifying city contracting procedures, would increase city spending by well over $800,000 annually.

At the same time, she claimed the revisions would result in revenue losses from the creation of a free fare system for buses, new water-rate system requirements and new median income calculations that would cost Detroit federal block grant dollars. 

The charter proposal, she said, does not comply with state budgeting rules or municipal finance laws. It would expose the post-bankrupt city to litigation and financial risks "that cannot be readily quantified," Stoudemire said. 

"In the 2014 bankruptcy, major city assets, such as art and the water system, were major pieces of the solution," Stoudemire said. "I am deeply concerned that a return to bankruptcy would jeopardize the pensions of all city of Detroit retirees since the pension fund is the lone remaining asset creditors could go after. Detroit’s right to self-determination will almost certainly be lost."

John Roach, a spokesman for Mayor Mike Duggan, said the administration had no comment beyond the what was outlined in the CFO office memo. 

The City Charter is a document that operates within the framework of the U.S. Constitution and Michigan Constitution and defines how city government is structured, its powers and responsiblities.

The voter-established Charter Revision Commission set out through public meetings and community engagement to identify recommended changes with the goal of improving government transparency and accountability. 

The charter commission is expected to vote on a final draft of any revisions on June 8, according to a timeline the commission established.

Charter Commission Vice Chair Nicole Small said the memorandum, submitted after a Feb. 12 deadline for feedback, lacks detail.

"We will consider any responses and recommendations that are supported by some type of factual documentation," she said. 

Small said the administration's financial conclusions aren't substantive. The charter proposal is 190-plus pages and many of the criticisms, she claimed, are too vague.

"What is catastrophic? Everything? The whole gammut? You can't just miraculously make up a number," she said. "They want to dismantle all of the work. This will not be based on conceding to the opposition."

The commission, she added, has vetted the financial effects of the plans while formulating the proposal and it has and will continue to make adjustments. 

Small said the commission's role is to "fill in the gaps" of the existing charter.

"There's no checks and balances," she said. 

The Charter Commission has until Feb. 27 to sign off on the proposed amendments. They document will go to Michigan Gov. Gretchen Whitmer and the Michigan Attorney General's Office for a 90-day review. If approved, the proposed changes will go before voters in the Aug. 3 primary, Small said. 

The commission's goal, she said, is to perfect the charter to better represent the interests of the people of the city and ensure they have access to government. 

Detroit City Councilwoman Janee Ayers sought the assessment of the charter amendment plan from the CFO's office. On Monday evening, she told The Detroit News that the memo will be discussed during a Wednesday afternoon subcommittee session and it's expected to be brought back the following week for a discussion with the full council.

She said she'd like to have the CFO's office present their conclusions prior to making a comment. 

City Council members reviewed the charter plan last week and made various recommendations to the Charter Commission related to the language and terms of the plan.

Detroit City Councilman Scott Benson said he has paid close attention to the charter revision process and has "serious concerns and reservations about this draft charter."

"In less than 18 months, we have a $200 million pension payment due to our pensioners," he said. "I do not want to break our promise the the pensioners ever again."

In 2014, Detroit exited the largest municipal bankruptcy in U.S. history with a deal that allowed the city to shed $7 billion in debt, restructure another $3 billion and direct $1.7 billion into service improvements.

The city, through a funding package coined the "grand bargain," was able to shield the city's arts collection from creditors in its bankruptcy and soften cuts to retiree pensions.

The city's debt-cutting plan also relieved Detroit from much of its pension payments through 2023. In 2024, Detroit will have to start funding a substantial portion of those obligations from its general fund for the General Retirement System and Police and Fire Retirement System.

In recent years, Detroit created a dedicated fund to amass $377 million toward pension payments.

Since bankruptcy, the city has posted consecutive balanced budgets and was released from strict state oversight. But the COVID-19 pandemic dealt Detroit a massive financial blow that prompted cuts and budget revisions to account for more than $410 million in virus-induced shortfalls. 

"I am really conscious of our fiscal policy and how we prioritize spending in the city of Detroit," Benson said. 

The charter proposal, he said, would add operational costs of about $850 million each year. The figure, he said, would nearly double what Detroit is allocated each year in its $1 billion General Fund budget. 

"This document in its current form would almost double the cost to run the city of Detroit, but would bring in no additional revenue," he said. "But I'm still reviewing. It's going to be a very challenging document."

Detroit City Council's Legislative Policy Division weighed in on the proposal in a Feb. 15 memorandum, noting the commission and residents are “clearly concerned about increasing transparency and facilitating citizen involvement in governance.”

While most of the Charter Commission recommendations are important and have merit, the policy division letter reads, they aren’t necessarily appropriate, are “inordinately expensive to accomplish, and, unless major revenue streams suddenly emerge, could hinder efficient government.”

“The city has only recently emerged from bankruptcy and still faces an uncertain financial future,” the report from Legislative Policy Division director David Whitaker said. 

Small on Monday said the Legislative Policy Division's report was "not substantive" and "very conflicting."

Among the proposals, the commission wants the city's top lawyer to be elected, rather than remain a mayoral appointee, and is seeking the addition of two elected boards: a panel of fire commissioners and election commissioners. 

The Charter Commission is pursuing changes that would mandate candidate debates and issue forums for city elections and ballot initiatives.

Other amendments range from requiring contractors to provide detailed reports on hiring and wages, a task force on reparations and African American justice, measures to address housing affordability and a five-year cap on certain tax abatements.

Stoudemire's memo to the council said the draft charter would violate the state budgeting act and municipal finance laws, and that proposals, if implemented, would would send Detroit back into active oversight of the Financial Review Commission.

Further, the city remains obligated to follow its bankruptcy plan of adjustment ordered by the U.S. Bankruptcy Court. The charter, as presented, would add new annual spending requirements, including youth employment, changes in city contracting procedures, sidewalk maintenance and Police Department-related costs.

The city also would lose out on additional revenue, the CFO analysis argued, based on new economic development requirements and new water-rate directives, among other changes.

The Legislative Policy Division report noted the charter plan would call for Detroit's purchasing department to prepare contractor reports to detail where employees are from, the jobs and wages they provide and any union affiliation. 

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“This is an inappropriate provision and will chill the city’s ability to secure contracts,” it warned. “It seeks personal information about people who do not work for the city — too intrusive.”

Overall, Stoudemire said, the proposal would impair the city's ability to adopt a balanced budget annually and a four-year financial plan, which violates state law and would spur an "imminent fiscal crisis."

Small said the commission will hold a special meeting on Wednesday and Saturday to discuss its proposal. The biggest challenge, she said, will be adequate funding to produce materials and correspondence to inform voters of the nuts and bolts of the revision plans. 

"We're going to have to be very creative in order to get this done," she said. 

cferretti@detroitnews.com