The city of Pontiac is in dire straights. It had an official fiscal 2005 operating shortfall of nearly $11 million dollars and it technically mitigated an expected 2006 General Fund deficit by borrowing more than $21 million last February. Moreover, financial auditors have questioned whether Pontiac can even remain a "going concern". Bold changes must be made in order for it to do so.
The Mackinac Center has been following Pontiac’s deteriorating financial condition and has warned that an emergency financial manager — with proper powers — may be necessary to right Pontiac’s sinking financial ship. It is important to stress "proper powers" because without the ability to set aside union contracts, the manager’s work easily could be stymied. For the sake of argument, assume that an EFM could set aside union contracts. Where should he or she start making structural reforms? The answer is with city police.
The first official act of an emergency financial manager in Pontiac should be to negotiate a new agreement for law enforcement services. The EFM could demand cost-cutting reforms from the Pontiac Police Department or contract with the Oakland County Sheriff’s Department for law enforcement. According to the city’s fiscal 2007 budget, police represent the second largest employment unit in the city with 149 on the payroll. A competitively bid contract would likely lower costs to the city and improve services, too.
It is important to focus on public safety for two reasons. First, more than 52 percent of the city’s fiscal 2007 general fund expenditures are gobbled up by police and fire services. It makes sense to look at areas that cost the most. Second, basic services matter. People need and want public safety and at a good price. If they don’t get it they may vote with their feet and leave the city. Between 1990 and 2000, Pontiac lost 6.7 percent of its population, and even more since then.
Competitive contracting for policing is nothing new. In fact, Oakland County provides 11 townships and the city of Rochester Hills with full policing under contract. It also provides emergency dispatch services to others.
In neighboring Macomb County, Mount Clemens gave up its 118-year-old city police force in favor of a contract with the Macomb sheriff’s department. The city expects to save $1.4 million a year as a result. According to Marilyn Dluge, the Mount Clemens finance director, that works out to a staggering 38 percent drop in the cost of providing such services in this fiscal year. The city, which approved the contract for July 2005, would have been bankrupt by year’s end had the deal not been struck, says Dluge. Pontiac needs to look for similar savings.
According to Pontiac’s fiscal 2007 adopted budget, police expenditures amount to $17 million, $16.1 million of which is paid out of the general fund. If Oakland County took over the city’s police department and saved the city just 20 percent, it would translate into more than $3.2 million in annual savings for the general fund, or nearly one-third of the city’s official fiscal 2005 $10.9 million operating shortfall. The general fund account operations are where elected officials have the most control. When the 2006 financial audit of Pontiac is complete, it is likely to show an increase in the city’s general fund deficit.
The city’s expenditures for fire suppression and medical services should also be reviewed for ways in which savings can be found. (See "Suppress Municipal Fire Costs.")
There is some good news to report out of Pontiac. The city has contracted with Plante & Moran, LLC, to act as city controller. This is a prudent decision. Without a sound accounting system, the city does not know month-to-month how much money it has to pay its bills. Also, the city may lease or even sell its golf course and the Pontiac Silverdome. The outright sale of such assets will generate one-time revenue, and in addition, place them on the property tax rolls where they generate additional income.
Reforms need to be made that take Pontiac beyond the point of simply keeping its fiscal head above water. The city can start its long road to recovery by changing the structural nature of annual spending. Competitively contracting for policing services would be a bold start.
Michael LaFaive is director of the Morey Fiscal Policy Initiative.
