Post Number: 2181
|Posted on Thursday, April 03, 2008 - 4:14 am: || |
$300-million plan for upgrades, jobs hinges on rise in gambling tax revenue
BY ZACHARY GORCHOW • FREE PRESS STAFF WRITER • April 3, 2008
The City of Detroit can fund crucial upgrades to its aging infrastructure and create jobs by tapping into increasing revenues from the three new permanent casinos, Mayor Kwame Kilpatrick said Wednesday as he unveiled the details of his $300-million economic stimulus plan.
The plan's linchpin is $200 million in public works projects to rebuild everything from police and fire stations to streetscapes and parks.
Reaction to the plan included worries about whether the money would materialize to repay the bonds the city hopes to sell and criticism that shiny new facilities are meaningless if the city doesn't have enough employees to deliver services. The plan also drew praise for addressing infrastructure.
It's still unclear whether the city will need the state's permission to sell the bonds because it's late in submitting its 2006-07 fiscal year audit. But city officials voiced optimism.
"People need jobs," Kilpatrick told reporters. "People need their ... rec centers and police departments and fire departments to be upgraded to instill a sense of urgency and hope in people that we are getting that job done."
Opposition from council looms
Kilpatrick's staff delivered the plan to the City Council's offices at a time of unprecedented tension between the mayor and council, which has called for the mayor to resign in the wake of the text message scandal.
Last week, the council declined a request from Kilpatrick to give a presentation on the stimulus plan, with members saying it made no sense to do that until they had the full plan.
"We're hopeful that in the midst of rising gas prices, in the midst of foreclosures, in the midst of people losing their jobs ... that council will look past the politics, look past their own personal issues and look to the citizens of the city of Detroit and put the people before them," Kilpatrick said.
Councilwoman Sheila Cockrel said the administration's time frame for getting council approval in time to start selling the bonds in May is too aggressive.
"There's an enormous amount of due diligence to be done," she said.
Part of the plan, for example, calls for upgrading some fire stations.
Dan McNamara, president of the Detroit Fire Fighters Association, said fire station upgrades are needed, but what the department really needs is another 150 firefighters. The city idles 10 fire companies each day, he said.
"It doesn't matter how many firehouses they fix if we don't have people to put inside them," he said. "Those firehouses don't put out fires. Firefighters put out fires."
Nevertheless, Cathy Square, the city's chief operating officer, said many of the projects have been on department directors' wish lists for years.
"There's something in every part of the city," she said.
One proposal is to renovate the city's garages to segregate vehicles that need only oil changes from those requiring major repairs. The plan would avoid the long waits that occur for simple maintenance, Square said.
Another project, Square said, would be a camera system on major streets that would allow officials to determine where plows and salt trucks should go first in a snowstorm.
To pay for the plan, the city would earmark $29 million a year in casino tax revenues, money that now goes toward regular city operations.
Deputy Mayor Anthony Adams said officials are confident the opening of the permanent casinos -- MGM Grand Detroit and MotorCity are up and running and Greektown is under construction -- will mean enough revenue to cover the lost $29 million, which is 15% of what the city receives overall in casino taxes. Adams said another reason the revenue growth would materialize is the city wouldn't have to make its first bond payment for three years.
But it's unclear whether the money will grow as expected. Casino tax revenues for this year are up slightly compared with the 2006-07 fiscal year, although an exact comparison is difficult because the tax rate has dropped slightly.
Cockrel said if casino tax revenues are growing, then they should be used to address the city's long-running deficit. The council's fiscal division has projected a $100-million deficit as of June 30, but Kilpatrick's administration has said it expects all red ink to be gone by then.
Selling bonds may be difficult
The bonding process itself is complex.
The city's quasi-public Economic Development Corp. would sell the bonds, not city government -- an arrangement that will require council approval.
Adams said he did not think the city would need state approval for the sale, but said the city would inform the state of its plans. Because the city's 2006-07 audit was due Dec. 31 but isn't expected to be complete until November, the state generally requires the city to receive approval for any bond issues.
Whether state approval is necessary depends on the deal's structure, said Terry Stanton, spokesman for the Michigan Department of Treasury.
The city has not submitted the plan to the state pending the council's response, Adams said.
Eric Lupher, director of local affairs for the independent Citizens Research Council of Michigan, said the key to the bond sale is having a stable revenue source to repay the bonds. The casino tax is a stable source, but if the revenues don't grow as anticipated, cuts to city services could result, Lupher said.
"The more stable the revenue source, the better your chance of selling those bonds," he said.
The plan could mean more jobs, at least in short-term construction, but would not overcome a national recession if it happens, said Charles Ballard, an economics professor at Michigan State University.
But more important, Ballard said, the city needs to address its aging infrastructure.
"Fixing up crumbling bridges and roads and firehouses and schools makes a whole lot of sense in and of itself," he said.
Contact ZACHARY GORCHOW at 313-222-6678 or email@example.com.
http://www.freep.com/apps/pbcs .dll/article?AID=/20080403/NEW S01/804030428
I don't know about you guys but I think this plan has legs. The money being borrowed will be paid back and there is no way you could object to infrastructure improvements. Lets hope they get all the technicalities ironed out so this can get moving soon.
Post Number: 1546
|Posted on Thursday, April 03, 2008 - 5:55 am: || |
I think this plan has too many problems to have legs.
First off, when a municipality sells long term bonds to finance capital infrastructure projects, it is called a "capital improvements plan", not an "economic stimulus plan". The fundamental principle behind selling long term bonds to finance infrastructure improvements is that the improvements will still be functioning after the bonds are paid off, which in this case is 30 years. In other words, it is not fiscally sound practice to still be paying back long-term debt (bonds) long after the thing you bought or built has been used or exhausted.
A tip-off as to why this is not being called a capital improvements plan is right there in the article:
"...he unveiled the details of his $300-million economic stimulus plan. The plan's linchpin is $200 million in public works projects..."
Gee, what happens with the other $100 million?
For the answer to that question, look in the sidebar of the article (which was not copied and pasted above).
Ah, it is going to fund city operations!
• $75 million for a rainy-day fund.
• $15 million for a loan fund to encourage businesses to expand.
• $10 million for a neighborhood preservation fund to address foreclosures and other issues.
The second problematical issue is that the funding source to pay off the bonds has yet to materialize. The city expects with the opening of the permanent casinos that casino tax revenues will increase by 15%, yet for this year they are up only slightly compared to last year, and the tax rate is now less than it was in past years.
A third "red flag" is contained in this statement:
[Deputy Mayor] Adams said another reason the revenue growth would materialize is the city wouldn't have to make its first bond payment for three years.
In other words, this little bit of a fiscal shell game can be made to help the budget deficit look smaller. They begin selling the bonds this May and start spending soon after, while they still get to spend the $29 million on operations that they supposedly have committed to repay the infrastructure bonds. The same thing can happen next year and the year after that before they have to begin using it to service the bond debt. Only the fiscally ignorant would allow themselves to be quoted as calling this an example of "revenue growth".
Add this all up and it's no wonder KK expects the estimated $100 million budget deficit to be gone by the end of the budget year. Issue long-term bonds to cover most of it and find some "revenue growth" accounting tricks to cover the rest.
(Message edited by Mikeg on April 03, 2008)
Post Number: 252
|Posted on Thursday, April 03, 2008 - 6:04 am: || |
I agree that it has legs. But IMHO if Detroit isn't fixing the school systems then it is just throwing good money after bad.
It is no secret that the city is trying to draw in more money making people for its tax base. A city can only draw so many single people and DINCs. They need to be able to start bringing in more families, and also need to stop losing the people who are starting or planning families. And they are losing those family minded people because they aren't willing to pay high taxes, and to pay for private school, at the same time they are spending money on their new home or trying to keep an older home alive.
But it is a good start and shows a commitment to trying to fix things and I am sure it will have longterm benefits. It just needs to be part of a master plan and I am not convinced that the school step is being planned yet.
Post Number: 2182
|Posted on Thursday, April 03, 2008 - 6:13 am: || |
On a second and more awake read I have to agree with you though you could argue that some of this "infrastructure" would still be around 30 years from now such as police stations and firehouses. I really wish they would put that other 100 million into the Woodward light rail fund, as that too would still be of use 30 years from now. I hope someone on the council raises that point.
Post Number: 1547
|Posted on Thursday, April 03, 2008 - 6:44 am: || |
Without a doubt, capital improvements like the police station and firehouse fall within the long-term debt "rule-of-thumb", but fully $100 million of this "economic stimulus plan" does not.
Post Number: 17
|Posted on Thursday, April 03, 2008 - 8:32 am: || |
Thanks for the critique Mikeg, too bad the Freep can't do more than get quotes from spokesmen. A couple things confuse me--are the casinos only paying for $29 mil out of the announced $300 mil?
I also don't get why the kinds of infrastructure improvements specified in the plan shouldn't qualify for long-term bonds--will they be obselete by the time the bonds are paid off? And how should things like parks and other improvements be responsibly funded? And is the $100 mil going to be paid for by bonds--i.e., borrowing to run the government rather than expand it in new infrastructure? And what the hell is a rainy day fund? Sorry for all the questions but sometimes it feels like you need to be an expert to know exactly how you're being misled.
I sure would like to see some new parks, though.
Post Number: 4553
|Posted on Thursday, April 03, 2008 - 9:04 am: || |
How about renovations to existing parks?
Post Number: 2941
|Posted on Thursday, April 03, 2008 - 9:09 am: || |
The first question that came to my mind is why would the city spend money to build new fire and police stations when they are closing them at lightning speed? Sounds like a bit-o-smoke and mirrors to me.
Post Number: 1549
|Posted on Thursday, April 03, 2008 - 10:04 am: || |
Perhaps I didn't explain myself as best as I could have. Yes, most of the proposed spending for infrastructure projects can be considered "capital improvements" and can be justifiably funded using 30 year bonds. However, $100 million of the $300 million in proposed spending does not fall into the "capital improvements" category and that is probably why they used the "economic stimulus plan" euphemism.
The $29 million represents 15% of the annual casino tax revenue the city currently receives. Instead of sending that $29 million into the general fund like the rest of the casino tax revenues, the mayor is proposing to set it aside so that it can be used to re-pay the $300 million. The $29 million that would no longer be available to the general fund will HOPEFULLY be made up by a similar increase in the casino tax revenues once the permanent casinos are all open. It appears that all future growth in casino tax revenues above and beyond the $29 million per year will also have to go towards the repayment of these bonds.
I just read the Detroit News story on this subject, which is much more detailed than the Freep article.
According to the DN article, they would actually be borrowing $365 million - the extra $65 million is to permit the three-year deferral of the start of re-payments. Therefore, by borrowing an extra $65 million, the possibility of an additional $29 million general budget deficit in each of the next three years is avoided if casino tax revenues do not increase at the projected rate. This is a slick way to make it $29 million easier to balance the budgets in each of the next three years and pay for it over the next thirty.
Can you spell "fiscal death spiral"?
Post Number: 492
|Posted on Thursday, April 03, 2008 - 10:17 am: || |
Mikeg, Very nice analysis.
Melocoton, You are correct, New parks are key to providing new jobs and reviving the city.
Post Number: 493
|Posted on Thursday, April 03, 2008 - 10:19 am: || |
Parks are not going to exist after your Mayor sells off every asset that the city has while trying to save his azz.
Post Number: 587
|Posted on Thursday, April 03, 2008 - 10:29 am: || |
If the mayor keeps pissing off everyone with his us versus them attitude then he is going to find attendance at the casinos deceasing, thus revenues. He is not the best marketer at the present time.. A solid plan always needs to be backed by solid promotion.
Post Number: 4103
|Posted on Thursday, April 03, 2008 - 11:08 am: || |
Mikeg, I actually agree with you. This plan seems very fiscally irresponsible. Then again, what do you expect from a guy who let the City pay $25,000 for his wife to drive around in a leased Navigator?
The entire plan is predicated on a hoped-for uptick in casino business once the permanent casinos open. How does one justify this assumption? Has Kwame used actual projections from the casinos, or is he just guessing? Given the state of Michigan's economy, (and that of Ohio and SW Ontario), I think KK is being *incredibly* optimistic.
It would help his case if he could quantify the economic benefits as well, instead of trotting out the old, "We need to provide jobs" line.
Post Number: 5720
|Posted on Thursday, April 03, 2008 - 4:49 pm: || |
This stimulus program is just a toned-down version of Kilpatrick's other failed bonding programs. Once, he planned on $2 billion in bonds, and has come down every year while accomplishing next to nothing all that time. He's posturing himself again for his largely ignorant, illiterate, and easily duped constituency.
Post Number: 44
|Posted on Thursday, April 03, 2008 - 5:10 pm: || |
LY - Don't be an A$$... How do you know if the folks following him are Illiterate or Ignorant? I'll give you easily duped (imo, they are misguided), but as far illiterate and ignorant that's taking it a bit far. I think your statement (the last part) is ignorant!
Post Number: 5721
|Posted on Thursday, April 03, 2008 - 5:19 pm: || |
Lmcdet: Are you from Detroit Michigan or Detroit Lakes in Minnesota?
The rampant ignorance and illiteracy of the majority of residents in the former shouldn't surprise anybody, based on readily available facts and stats.
Post Number: 171
|Posted on Thursday, April 03, 2008 - 5:46 pm: || |
Dubious bonding is a common tool of governments that want to put off dealing with fiscal reality.
While "fiscal death spiral" is an apt description of where the city is headed. I thought the city was headed for bankruptcy already, so this doesn't really change my opinion. However, the municipal bond market kind of stinks at the moment, so this is probably even a worse idea right now than usual.
Post Number: 45
|Posted on Friday, April 04, 2008 - 10:38 am: || |
LY-I'm from Detroit, MI (Between Livernois and Wyoming) you knob.... The people I hang out with are literate and intelligent. It sounds to me like you're saying most of the people in Detroit voted for Kwame, I did not... Not to mention, a lot of folks didn't turned out to vote during the election. I take great offense to you call a majority of Detroiter's (that didn't vote for Kwame included) ignorant and illiterate, the vast amount of folks that I have come in contact with are not! Now, I'll give you the stats, but than I will also ask what are these "stats" base on, who ran them, and did the entities that conducted the studies do a complete comprehensive study (mistakes can play a factor). The studies maybe be correct, but I think some folks are just misguided (not ignorant) and I also think you can be informed and make an informed decision without being able to read.