Background

Total General Fund revenues declined steadily from $7,673,643 for the fiscal year ended June 30, 1980 to $6,851,223 in the 1986 fiscal year. The principal declines in individual revenue items between 1980 and 1986 arose from property taxes ($4.8 million to $4.1 million) and Comprehensive Employment Training Act (CETA; $554,000 in 1980 to zero by 1982). The revenue declines were somewhat offset by modest increases in other revenues (including State shared revenues) and millage increases in 1986.

At the same time, expenditures steadily increased from $7,633,555 in the 1980 fiscal year to $8,202,273 in the 1986 fiscal year. Although it is apparent that actions were taken to reduce General Fund expenditures in the early 1980s, in the final analysis, the reductions in expenditures were not sufficient to offset the decline in General Fund revenues.

Just prior to the receivership, the principal General Fund revenue sources were property taxes, State shared revenues and Federal Revenue Sharing, which approximated 59%, 22% and 6% of total General Fund revenues, respectively. The remaining 13% of revenues arose from a variety of sources including: fines and forfeits, licenses, permits, investment income, and other items.

Most General Fund revenues were not controllable by the City Council. The Council was assessing almost the maximum millage rate under its Charter. The State shared revenues and Federal Revenue Sharing grants were determined by factors that could not be influenced by Ecorse in the short-term. Other revenues were highly dependent on the use of services by its residents.

Property Taxes

A nine-year, detailed history of the property tax millage rates and related State Equalized Valuation (SEV), which represents 50% of the estimated true ("fair market") value of property in Ecorse, has been included as Appendix C. A summary of Ecorse's property tax millage rates and SEV leading up to the receivership follows:

Fiscal Year Revenues

 

Ecorse Property
Rates

 

SEV
(in millions)

 

 

 

 

 

1983

 

21.75

 

$221.0

1984

 

22.75

 

$204.8

1985

 

22.75

 

$198.4

1986

 

23.40

 

$171.3

1987

 

25.93

 

$164.3

In the 1980s, property tax revenues may have comprised as much as 59% of the General Fund revenues of which the Great Lakes Division of National Steel Corporation (Great Lakes) represented approximately 60% (or more) of the total property taxes paid in Ecorse. The next five highest taxpayers represented an additional 11% of the total property taxes paid. In 1986, these six taxpayers provided approximately $2.9 million of the $6.9 million in total General Fund revenues.

The reliance on one principal taxpayer had a significant influence on Ecorse operations. Over the 15 years leading up to the receivership, Great Lakes had reduced its labor force from a high of 13,000 to 5,600 in 1985. The declines in SEV from the levels assessed in 1983 and prior to those in 1987 arose principally due to property tax assessment reductions in Great Lakes property values. Likewise, increases in SEV in later years arise from Great Lakes' plant additions, some of which involved abated property as an incentive to construct the additions.

The property tax millage rates remained relatively static throughout the early 1980s as Ecorse was perceived to be levying up to its limitation expressed in the Home Rule Charter of 20.00 mills. In connection with the issuance of the $4.0 million judgment bonds in the 1986 fiscal year (discussed subsequently), Ecorse's bond counsel recommended that Ecorse begin levying for certain general obligation bonds issued prior to the Headlee constitutional limitations.

During the late 1980s, Great Lakes increased its investment in its plant and the dependency on this one taxpayer also increased to 67% of all property taxes collected in Ecorse. General Fund expenditures associated with the Great Lakes property tax revenues was nominal and most of these revenues benefited non-corporate taxpayers. In addition to the property taxes paid to Ecorse, a similarly substantial portion of the water and sewer service charges were represented by this one resident as well.

State Shared Revenues

State shared revenues for the General Fund include amounts collected by the State and distributed to local governmental units based upon a fixed formula relating to: sales, single business, income, intangible and other taxes. These revenues are based upon the 1980 (or 1990 census for later years) multiplied by a State predetermined rate per capita.

For income and single business tax distributions, the predetermined State rate would be further influenced by the relative tax effort (principally property taxes for Ecorse). The relative tax effort would increase (or decrease) the State per capita rate when the relative tax effort exceeded (was less than) the average for the entire State.

Given that Ecorse was levying at its then maximum Charter property tax rate, the ability to influence the State shared revenues was largely out of City Council's control. The State predetermined rates were established by the State based upon their estimates of the expected collections for those revenues. Distributions to local governmental units are based upon State statutes.

The State shared revenue of the Major and Local Streets Funds is based upon gas and weight taxes collected by the State and in turn, distributed to local units based upon formulas in the State statutes. These revenues are restricted for road and street repairs and renovations.

Fluctuations between the 1980 and 1986 fiscal years for State shared revenues were not significant.

Federal Revenue Sharing / CETA

Federal Revenue Sharing, which was last received in the first quarter of the 1987 fiscal year in the amount of $74,624, approximated $419,000 annually throughout the 1980s. While some have indicated that the cause of the General Fund deficit was attributed to the loss of Federal Revenue Sharing, this is simply not true. This revenue source was received throughout the early to mid-1980s which was the same time that the General Fund deficits began. With the exception of the one quarterly payment in 1987, no Federal Revenue Sharing amounts were received during the entire receivership.

Ecorse received $554,502 in CETA (federal) grants for the 1980 fiscal year and approximately $145,000 in the 1981 fiscal year. This grant was used for general administration and served to cover General Fund expenditures. The loss of the CETA funds in the early 1980s contributed to the deficit beginning in the 1981 fiscal year.

Water and Sewer Fund Charges for Services

In the early 1980s, the Water and Sewer Fund's cash flow was so poor that it was borrowing from the General Fund to meet its operating needs. Increases in water and sewer rates were approved by the Council for the 1981, 1983 and 1984 fiscal years. The increased cash flow created by the water and sewer rate increases, permitted the repayment of the Water and Sewer Fund's interfund borrowing from the General Fund. By approximately 1984, the General Fund began borrowing from the Water and Sewer Fund to meet its operating needs.

During the 1982 fiscal year, the Detroit Water and Sewer Board (DWSD) computed its invoices for water costs based upon estimated water consumption. In 1982, the actual water consumption used by Ecorse's commercial customers declined significantly. However, these declines were not reflected in the amounts invoiced by DWSD. Further, as the sewer costs invoiced by Wayne County are based upon water consumption identified by DWSD, sewer costs did not decline in a corresponding manner as well. As of June 30, 1982, the estimated amounts of excess water and sewer costs invoiced, which were recorded by Ecorse, approximated $383,000.