1986 Operating Results

Despite having adopted a balanced operating budget ordered by Judge Dunn, Ecorse did not take the necessary actions to address its excessive spending patterns throughout the 1986 fiscal year. The revised audited financial statements for the year ended June 30, 1986 reflecting General Fund amended budget and actual operations follows (in thousands):

Budget

Actual

REVENUES

Property taxes

$3,903

$4,057

State shared revenues

$1,442

$1,516

Federal Revenue Sharing

$209

$412

All other

$1,909

$866

$7,463

$6,851

EXPENDITURES

General government

$1,687

$2,154

Public safety

$3,562

$3,695

Public works

$1,491

$1,558

All other

$723

$795

$7,463

$8,202

Expenditures over revenues

($1,351)

OTHER FINANCING SOURCES - Judgment

bond proceeds

$2,648

$1,297

Fund deficit at July 1, 1985

($3,271)

($3,271)

FUND DEFICIT AT JUNE 30, 1986

($3,271)

($1,974)

Comments regarding the 1986 General Fund budget to actual comparison follow:

  • Included within the ‘all other revenue’ amounts are $1,109,404 and $79,122 for amended budget and actual operations identified under the "miscellaneous" line item. The short-fall of actual revenue is so severe as to suggest that this account may have been used, in part, to balance the operating budget.

  • The ‘general government expenditure’ amounts include $334,503 of retiree health and life benefits for which the budget was zero.

  • The ‘public safety’ amounts include Police and Fire Pension Plan contribution (budget – $550,000; actual – $1,194,478). The budget was substantially underfunded and did not contemplate the $408,000 pension contribution component being paid.

  • Had Ecorse not issued the judgment bonds, the General Fund deficit of $3,270,903 at June 30, 1985 would have grown to $4,567,904 by June 30, 1986. The judgment bond proceeds were not reflected in the budget.

Statutory Requirements

The Uniform Budgeting and Accounting Act, which is enforced by the State Department of Treasury, states:

Section 16 (1) – "Unless another method for adopting a budget is provided by a charter provision in effect on April 1, 1980, the legislative body of each local unit shall pass a general appropriations act for all funds except trust or agency, intragovernmental service, enterprise, public improvement or building and site,...".

The effect of the above provision in the State statutes is to require that local units adopt annual operating budgets for the General, Special Revenue and Debt Service Funds. Ecorse failed to adopt an annual operating budget for its Special Revenue and Debt Service Funds. No actions to correct this statutory deficiency were taken by the Court, Department of Treasury or State Attorney General. The deficiency was not identified in most of the audited financial statements throughout the early to mid-1980s or the Financial Recovery Plan.

The required amendments to the General Fund's budget in accordance with State statutes were also not addressed by the Department of Treasury or Attorney General. The General Fund revenues were consistently over-budgeted and expenditures under-budgeted in an effort to reflect a "balanced budget" throughout the early to mid-1980s. However, the Uniform Budgeting and Accounting Act states:

Section 17 – "...If, during a fiscal year, it appears ... that the actual and probable revenues from taxes and other sources ... are less than the estimated revenues ... the chief administrative officer or fiscal officer shall present to the legislative body recommendations which, if adopted, would prevent expenditures from exceeding available revenues...".

Section 18 (i) – "A member of the legislative body, chief administrative officer, fiscal officer ... of the local unit shall not create a debt or incur a financial obligation on behalf of the local unit unless the debt or obligation is permitted by law."

Section 20 – "Violations of sections 17 to 19 by the chief administrative officer, the fiscal officer, ... or member of the legislative body ... shall be filed with the state treasurer and reported by the state treasurer to the attorney general ... The attorney general shall review the report and initiate appropriate action against the chief administrative officer, fiscal officer, ... or member of the legislative body. ...the attorney general or prosecuting attorney may institute a civil action in a court ... for the recovery of funds of a local unit ...".

The State statutes further reflect Ecorse's requirement to prepare and approve a deficit elimination plan to correct the deficit in the General Fund. The Department of Treasury is required to review and approve that plan. No such plan was prepared. The only effort expended to identify the causes and potential solutions of Ecorse's fiscal distress was the Financial Recovery Plan.

Deficit at the Inception of Receivership

In accordance with State statutes and Ecorse's Charter, the General Fund operating budget for the 1987 fiscal year should have been approved prior to July 1, 1986. The Court Order issued by Judge Dunn further reinforced this requirement. Despite these requirements, however, the Mayor and Council were unable to prepare and adopt a General Fund operating budget prior to the start of the 1987 fiscal year. Throughout the summer and fall of 1986, the Mayor and Council struggled with the budget document.

By late November 1986, the preliminary operating results for the fiscal year ended June 30, 1986 became known. With the exception of the effect of the judgment bond proceeds, the General Fund deficit had increased by $1.3 million. Cash flow pressures were also increasing due to the mounting deficits.

While the actual deficit at December 31, 1986 remains a mystery, quick and decisive actions were required to ensure that Ecorse residents received the minimum services required by State statutes to ensure public safety and health.