April 14, 2003
HONORABLE CITY COUNCIL:
Good morning.
I am here today to present to you the City of Detroit budget for the 2003-2004
fiscal year.
As you all know, this is a very difficult time for state and local governments
across America. The global economic crisis affects us all. Our national economy
remains very weak.
Adding to the uncertainty is the fact our country is presently at war in Afghanistan
and Iraq. Other potential trouble spots range from the Middle East to North Korea.
We’ve seen a huge drop in the stock market with no recovery in sight. That drop
has put many individuals’ prospects for a comfortable retirement in jeopardy. And it has
depleted city employee pension funds as well, creating a major problem in preparing this
budget.
At the state level, we’ve seen a $1.9 billion deficit where in previous years
surpluses existed. Both the former governor and the current governor have cut numerous
programs as a result. Some of their actions have directly increased our burden.
The structure of our own financial support base makes us, as a city government,
even more vulnerable to economic fluctuations than neighboring cities. For instance,
most cities get at least 50 percent of their budget funds from the property tax, probably
the most stable source of funds for government. Only 12 percent of our revenue comes
from the property tax.
On the other hand, more than 50 percent of our General Fund revenues come from
the city income tax and from state revenue sharing funds. Both are extremely vulnerable
to fluctuations in the economy. Shortfalls in both income tax revenues and revenue
sharing funds are a significant part of the budget problem we face at this moment.
Detroit’s economy has always been at the mercy of national and international
economic trends. The late Mayor Coleman A. Young used to say that when the nation
gets a cold, Detroit catches pneumonia.
As a result, forces beyond our control have forced this administration to deal with
potential deficits from the day we took office more than a year ago.
The projected deficit we inherited for the 12-month period that ended last June 30
stood at $75 million when I took office. We closed that and ended our last fiscal year
with a very small surplus.
When we began preparing the budget for the current fiscal year, we faced a
potential deficit of $94 million. But we closed that gap and adopted a balanced budget.
Then former Governor Engler cut state revenue sharing funds that had been
guaranteed to us. This cut has caused a hole in this year’s operations. We are still
working to end this fiscal year with a balanced budget, possibly through the sale of city
assets.
In the midst of this economic hardship, we have managed our budget very
prudently. We have made changes in operations and improved efficiency. We are
starting to deliver services better. Our streets were cleaner this past year. Our snow has
been plowed. We’re making continual improvements in the way we manage.
Still, even with this tighter management and increased efficiency, when we began
working on this 2003-2004 budget we faced – through no fault of our own – an even
larger potential shortfall. If we were to maintain city government operations at their
current level with no adjustments, that potential shortfall would be more than $196
million.
That $196 million problem came in two basic areas – both beyond our control.
The first involved dramatic increases in employee-related costs related to pensions, costs
of medical care and projected salary increases.
The single biggest piece of the problem is the need for an increase of more than
$88 million in city pension fund contributions to the Police and Fire Pension Fund and
the General City Pension Fund. The increase totals $75 million for the Police and Fire
Fund and more than $13 million for the General City Fund. It is the result of a sharp drop
in performance by their investment portfolios.
These payments are required by state law. They are not discretionary. Beyond
that, I am committed to insuring that every city employee’s retirement is stable, even as
our economy is unstable. I believe we all share a commitment to those who came before
us and made a way for all of us to assure that their well-earned retirement is secure, with
no worries that their pensions might not live up to the original commitment that was
made. So I am determined to fully meet the funding requirements of those pension funds.
We’ve all read and heard a lot in recent years about spiraling health care costs.
The next largest component in the challenge we face is an 18 percent increase in city
employee health insurance costs, an increase totaling almost $31 million for the year.
The final employee-related costs come from anticipated pay raises of 3 percent for
uniformed employees, 2 percent for civilians and other special pay increases for certain
underpaid categories, with a total price tag of $28 million. Our employees have gone two
years without a pay raise. I am committed to assuring that they get a raise – a raise that
we can afford – this year. I believe we can achieve that goal.
The second part of our budget problem stems from lowered revenues, primarily
from our city income tax and state revenue sharing payments. We anticipate our city
income tax will produce $23 million less than it did this year. Cuts in state revenue
sharing will cost us more than $21 million.
As you may remember, in 1998 the City of Detroit and the State of Michigan
reached an agreement where the city was forced to roll back income tax rates by onetenth
of one percent per year. In exchange, we received a guarantee from the state that
revenue sharing payments to Detroit would be frozen at $333.9 million per year.
But late last year Governor Engler broke that agreement and slashed our revenue
sharing payments by $11.7 million. Gov. Granholm then imposed an additional $9.7
million cut early this year, resulting in a total cut of more than $21 million in revenue
sharing funds – funds the state had guaranteed us.
Even though the state has not provided its supposedly guaranteed level of revenue
sharing to Detroit, we are still required by state law to continue rolling back our city
income tax this year. That one-tenth of one percent decrease in the city income tax rate
will cost us $15 million this year. On top of that, an additional loss of $8.1 million will
be experienced in income tax revenues because of the weak economy. Thus, the city
income tax will produce $23 million less for the coming year than it did during the
current year.
The combined hit from the revenue sharing cuts, the forced income tax rollback
and less taxable income in the city totals $44 million.
The combined hit from additional employee costs and revenue reductions created
the $196 million hole from which we started preparing this budget.
To make up that $196 million gap, we are implementing a series of significant
spending cuts, we are carrying out several special financings and we have identified
several places where we can realize revenues on a one-time basis.
As we have prepared this budget, we have gone through each department very
carefully, making individual decisions based on conditions in each department.
We didn’t impose an arbitrary across-the-board cut of a fixed percentage. I
believe that would be a lazy approach to the very serious problem of preserving necessary
programs in an efficient, effective way. It would be, to be blunt, bad management.
Rather, we began a systematic evaluation of each department, looking at each one
individually to evaluate the services that it provides to the citizens of Detroit and how
efficiently it is providing those services. My goal in conducting that evaluation was to
preserve the best level of services possible while meeting my responsibility to produce a
balanced budget.
The overall city budget I am presenting to you today is about $750 million smaller
than the current year. The General Fund budget, even with all the added employee costs I
have outlined, is only $10 million larger than this year’s budget.
Every department is sustaining a cut in this budget. The cuts range from 3 percent
to 13 percent, depending on the department. In total, we are cutting $78 million from our
departmental operations.
In some cases we have identified outdated practices that, when corrected will
provide more efficient service with no reduction in services.
For instance, as we looked at the Department of Public Works, we discovered that
solid waste and bulk trash collections have been conducted in a disjointed fashion rather
than a systematic area-by-area approach. We are restructuring pickups to make them
much more efficient, covering one area at a time and thereby improving service levels.
We are also moving responsibility for maintenance of trees and grass on
boulevards, greenways, and beltways from the Recreation Department, where it has been
housed, to DPW. DPW already is responsible for maintaining our streets, so moving this
function to them should allow them to carry it out more efficiently.
At the same time, the Recreation Department can concentrate on its core mission
of operating and maintaining our recreation centers and public parks.
One area where we must make reductions is in our 33 recreation centers. This
budget closes six recreation centers.
The centers chosen are ones where there has been low participation in programs.
The six centers to be closed are: the Bradby Center, the Delray Center, the Evans Center,
the Lighthouse Center, the St. Hedwig Center and the Wigle Recreation Center. Each
center was once located in a densely populated area and each has had significant numbers
of people move away.
The closing of these centers will not mean any loss of programs. We will
transition the programs that have been provided at these centers to other nearby centers
and will provide a shuttle service between the new site and the closed center for those
who need it.
For example, activities now conducted at St. Hedwig Recreation Center, such as
their summer day camp and indoor peewee sports programs, will be transferred either to
Kronk or South Rademacher Recreation Centers. The outdoor playfield at St. Hedwig,
which is the site for the Mexican Baseball League, the St. Hedwig Baseball Association,
a park ranger program and the Holy Redeemer baseball and football programs, will
continue to be maintained and used.
Many of the reductions found in this budget involve the elimination of funding for
vacant positions in departments. We are eliminating funding for 851 positions, bringing
our total of funded positions below the 20,000 mark. But not all of the positions being
eliminated are vacant. This budget calls for a total of 193 layoffs, with 80 coming in the
Recreation Department and 60 in DPW.
None of the layoffs involve uniformed police officers, fire fighters or EMS
technicians. In fact, this budget has funds for new classes for each agency to maintain
critical public safety staffing levels.
This budget process has reinforced my belief that we have to be more creative in
our approach to city government. We cannot just do business as usual when times are
good, cut back when times are bad, add back old services when times get good again,
then cut again in a never ending cycle.
For instance, in his last budget, a lack of funds forced Mayor Coleman A. Young
to close eight recreation centers. When times got good a couple of years later, those
centers were reopened. Now, we have to close the six centers I just identified. We need
to plan better to maintain a more stable level of service for our citizens that meets their
real needs.
That is why we are taking a series of steps to begin redesigning city government
as we know it, beginning with the establishment of a Program Management Office. This
office, which will operate under the direction of Chief Financial Officer Sean Werdlow,
will undertake a very thorough examination of every part of city government. It will look
for places where we have redundancies in the system and will look at what roles make
sense for government in the early part of the 21st Century. Its assignment is to identify
ways in which we can re-engineer city government.
This city still spans the same geographic area it did in 1950. We have lost a
million people since then, but we still have to light just as many streets, patrol just as
large a geographic area, cut grass in as many parks and run buses on as many routes as
we did back then. We have to do it better and more efficiently.
In the last couple of years, many departments were living with remnants of the
surplus situation of the previous 10 years. We were able over the past two years to get
down to minimum requirements for their operations. There is no padding in there any
more. The truth is we have cut each department to the bare bone.
We have to re-engineer city government to meet the realities we face in terms of
reduced revenues and a reduced population at the beginning of the 21st Century. That is
the charge of the Program Management Office.
That's why I ask Council to reconsider my proposal from last year to re-assign
Consumer Affairs Department functions to other agencies within City government. I
modified last year's proposal in light of Council suggestions, and the benefit of another
year of study, and I ask you to approve it now.
To avoid more drastic cuts in the present and give the Program Management
Office time to begin its work, we are financing, on a one-time basis, $73 million in risk
management payments that we expect to make next year under our self-insurance
program.
Rather than purchasing liability insurance from a commercial carrier, the city of
Detroit established a self-insurance fund in 1995 to cover anticipated liability expenses,
just as many other large entities do. Self-insurance funds routinely are a part of the
General Fund budget.
In going to the bond markets, we are, in effect, pushing out over multiple years
the losses we expect to incur in 2003-2004, paying them out over a four or five year
period.
I want to emphasize this is a one-shot approach to this problem, designed to
minimize the layoffs we have to make now and giving us the time to get our house in
order through the Program Management Office.
These bonds buy us the time to thoroughly review each and every department and
determine where we need to be and where we don’t need to be as a city. They will allow
us to save as many jobs as possible to maintain basic services while we conduct this
intensive review.
Another significant step we are taking to acquire necessary revenue is the
proposal now before your Honorable Body to accelerate and contract out the collection of
delinquent income taxes and property taxes. If we want to collect these delinquent
accounts in a timely manner, we must bring in outside resources to do that. I urge you to
give quick approval to this contract so that we can begin collecting these overdue debts.
This budget anticipates this contract will net us $24 million in the coming fiscal
year. Failure of this honorable body to approve this contract will result in significant
additional layoffs of City employees. We have run out of alternatives.
In addition, we have discovered we can access $10 million that was accumulating
in the debt service reserve established when the Greater Detroit Resource Recovery
Authority was sold in 1991. The $10 million represents interest that has built up on the
$25 million principal that was placed in the fund in 1991 and has remained untouched.
As we confront our financial limitations, another area that requires very serious
attention is identifying and securing federal, state and foundation grants. Detroit ranks
behind smaller cities in total grant dollars we receive. We lack a coherent citywide
approach to external funding sources. We can do much better.
To improve our performance in securing grants of all kinds, I am establishing a
Grants Acquisition Unit that will work with all city agencies to identify, pursue and
secure grant opportunities at the state and federal level as well as with foundations. The
unit will report to Chief Administrative Officer Derrick Miller. It will coordinate
requests for grants with city departments and agencies, identify opportunities to improve
city services and leverage local dollars with grants from public and private sources.
We also need to focus more attention on tourism and its potential for adding jobs
in Detroit. Tourism is now the second largest industry in Michigan after the automobile
industry. Yet this city has never had a department whose purpose was to maximize our
tourism potential, even though we have many very attractive venues and events that draw
people.
Major events such as the North American International Auto Show, the 2006
Super Bowl, the music concerts and festivals that take place downtown and in Chene
Park and Eastern Market’s annual flower sale all mean hundreds of thousands of visitors
for Detroit. Those visitors mean jobs that can help rebuild a thriving city.
To better maximize our potential tourism dollars I am creating a Department of
Cultural Affairs and Tourism to consolidate under one roof all city agencies and activities
that attract visitors to Detroit.
This department will include the Civic Center, which up to now has been a
separate department; and Hart Plaza, Chene Park and Eastern Market, which up to now
have been a part of the Recreation Department. These properties will be managed like
enterprises – maximizing their attractiveness in terms of patronage and revenue and
seeking out operating efficiencies and management improvements.
I also am folding the Department of Cultural Affairs into this department.
This department will work closely with Larry Alexander and the Metropolitan
Detroit Convention and Visitors Bureau to maximize opportunities that exist to bring new
tourist dollars to our city. It also will head up a new Destination Downtown Steering
Committee comprised of the heads of the Detroit Institute of Arts, Detroit Historical
Museum, Detroit Zoo, Museum of African American History and the Detroit Public
Library to promote the city as a tourist destination.
Finally, I am creating a Department of Administrative Hearings that will
streamline code enforcement within the city related to quality of life issues such as
zoning violations and illegal dumping. This new department is part of this
administration’s renewed commitment to implementing council’s intent when you
adopted a municipal civil infraction ordinance in 1997.
The Building and Safety Engineering staff and Department of Environmental
Affairs staff have begun enforcing their respective portions of the code during this fiscal
year.
I am also proposing a new state of the art property maintenance code that would
give the city more enforcement powers to require property owners to maintain their
property in the city.
It will allow us to focus our efforts on those who are so disrespectful of the
condition of their land and property that they have a cancerous effect on surrounding
properties. We aren’t going to just clean up this city once a year. We are going to keep
people from creating a mess in the first place. And we are going to go after those who
refuse to do their part to keep this city clean.
Creating this department will mean we have:
1. The ability to prosecute unlimited numbers of code violations, unlike the 36th
District court’s current limitations on how many cases it can process;
2. A much less cumbersome process, as the rules of evidence and procedure in
an administrative hearing are relaxed;
3. The ability to order fines and fees that are collectible through garnishments
and liens if necessary; and
4. A forum for adjudicating offenses that is sensitive to the gravity of the
offenses and their contribution to the escalating blight that plagues the city of
Detroit and its citizenry.
I believe this department will make a significant improvement in the quality of
life for all Detroiters. Chicago has had great success with a similar approach and we
hope to emulate their success. We mean business.
I have concentrated this budget message on the serious financial challenges that
we face as a city and the steps we are taking both in the short term and long term to deal
with them. Clearly, the situation before us is a serious one.
But I do not want to leave you with the impression that the future is grim or that I
am pessimistic about Detroit’s future. This is a tough city that has weathered any number
of difficult problems through its more than 300 years. I am convinced that our greatest
days still lie ahead.
Even with our resources as constrained as they are, there are significant new
initiatives within this budget.
For instance, on Belle Isle we are moving forward with the proposed Belle Isle
Nature Zoo, which is a part of the Belle Isle Master Plan. This budget includes $1
million in bonds to establish this exciting new facility.
The nature zoo will provide a year round, safe, modern educational attraction for
Detroit’s school children featuring nature trails and Michigan wildlife such as moose,
bear, wolves, cougars and osprey. Just as our Main Zoo draws people from all over, I
believe the Nature Zoo can become an attraction for tourists.
This budget implements the pledge I made in my State of the City address to cut
the grass in all of our parks this summer on a 10-day rotation. That’s much more
frequent than anyone can remember. Specific crews are being assigned to each park for
the entire summer, so each employee will know at the beginning of the season which
parks he or she is responsible for.
This budget contains funds for new classes of police, fire and EMS recruits to
keep staffing at a level required to adequately protect public safety.
This budget includes funds to begin installation of a new, more reliable and more
efficient emergency communications system on the 800 Megahertz band. The new
system will be used for all public safety communications by city agencies, including
Police, Fire, Water and Sewerage, the Department of Public Works and Planning and
Development. It will allow personnel from these agencies to communicate both within
the agency and between agencies in a much more effective and reliable way, something
that is especially critical in any emergency situation.
This budget includes $7.8 million in bonds for the Public Lighting Department to
upgrade main and residential street lighting and other needed improvements.
This budget includes funds for two new Emergency Medical Services “Echo
Units.” These units will double the size of a program we implemented this year in which
an early response unit with trained EMS technicians responds to a call to assess the
situation to see if a fully equipped EMS unit is required.
As you know, some 40 percent of EMS runs end up being non-emergency in their
nature. The early response Echo Unit allows trained technicians to assess the situation to
see if a full transport unit is needed. The result is more efficient use of our EMS units
and better care for those truly life-threatening situations.
This budget includes $9.1 million in bonds for needed improvements to the
People Mover System, which will become even more important as businesses and people
come downtown in increasing numbers.
This budget is a tight, carefully drawn budget. But it is not a “gloom and doom”
budget.
There are a lot of good things happening in Detroit.
For instance, right now more than 4,000 new housing units – units designed for all
income levels – either are under construction or in the pipeline waiting to start
construction. For a city that went through a long period when it seemed no new housing
was being built, this is a major accomplishment.
Our confidence in the future also is reflected in four bond proposals that
Detroiters will vote on during the Special Election coming up April 29.
Proposal H will authorize $6 million for needed work at the Museum of African
American History.
Proposal N will authorize $25 million as part of the City’s commitment to the
plan for the revitalization of our east riverfront that was announced in December.
Proposal M will authorize $55 million for improvements to Cobo Hall and the
People Mover that will enhance our ability to continue to grow our tourist industry.
Proposal S will raise $45 million for public safety improvements including a new
public safety mall in southwest Detroit, a new First Precinct on the near east side and new
fire facilities.
I urge all Detroiters to vote “yes” on April 29 to approve all four of these very
important bond proposals that will help assure our continued growth as a city.
I believe we have a bright future for some of the reasons I have just outlined and
many others that I could outline with more time. I believe the steps I have outlined in
this budget, steps to better manage our limited resources while working to find ways to
do what we do even more efficiently, will help us realize that future.
Each of you has received individual copies of this budget in your offices. Others
who are interested in learning more can do so by logging onto the City of Detroit website
at www.ci.detroit.mi.us.
We must be realists as we lock in place our spending plan for fiscal 2003-2004.
The weakened national economy and a 50-year outflow of jobs and people have produced
very serious challenges for us. But they are challenges we can meet.
We also must understand that a series of decisions in Lansing, decisions that were
out of our control, have seriously reduced the resources available to us. For instance, if
our income tax were not being forced down and if we had not lost nearly $25 million in
revenue sharing funds, we would have an additional $100 million to hire more police,
upgrade a variety of city services and provide our workers with the raises we wish we
could provide them.
But we have to play the cards we have been dealt.
You will now begin your review of this budget. Members of this administration
are ready to answer your questions and provide you with the information you need to
fully understand where we are and how we have arrived at this point.
I look forward to a final budget that serves this city well and that gets us started
on a re-engineering of city government that fits the needs of Detroiters in the 21st
Century.
Thank you.
Respectfully submitted
Kwame M. Kilpatrick, Mayor