‘Pay it now, or pay it later’

By Charles Sercombe
The city’s financial health is looking pretty bad.
How bad?
Bad enough that it’s likely that, one way or another, property owners are going to be forced to pay more taxes.
That’s a scenario City Manager Kathy Angerer laid out for The Review last week, and the upshot of what she presented to the city council during a budget work session on Tuesday evening.
The financial forecast that Angerer was referencing was an independent financial audit performed by the public accounting firm Plante Moran.
Hamtramck’s rocky finances are nothing new. Angerer has been sounding the alarm for over a year.
Last year, voters were asked to increase the city’s millage for the cost of pensions for retired firefighters and police officers.
The city currently charges a half mill property tax that produces $100,000 a year for this obligation. That is only a fraction of the city’s $2.2 million yearly cost for police and fire pensions, and that amount continues to go up and up.
Voters soundly rejected a ballot proposal to allow the city to collect up to 10.5 mills, which would have generated enough money to cover those costs.
Angerer recently asked the city council to go back to voters and propose the millage increase once again, but the council rejected that request.
Currently, the city is dipping into what’s left of its budget surplus to cover its expenses, but that source will dry up in a year or two.
“We’re at the tipping point,” Angerer told The Review.
The city’s problem is that it spends more money than it receives from its various revenue streams.
The largest portion of revenue, $6.8 million, comes from property taxes. The total yearly revenue collection amounts to about $16 million a year.
While the city’s financial future was already gloomy, it got hit by yet another setback: COVID.
The pandemic has driven down property tax collections as more and more people lost their jobs or had their work hours reduced during the past year, which led to homeowners failing to pay their taxes.
The pandemic also curtailed the writing of traffic tickets and code enforcement.
Angerer said that’s because city employees and contractors were told to reduce their interaction with the public in order to safeguard their health.
That resulted in a drop of $300,000 a year from fines and fees.
Another huge drop in revenues was the result of reduced income tax collection, which went from $3.1 million last year to $831,000 this year – again thanks to COVID.
And on top of everything else, the city’s pension obligation for all city retirees – not just the police and fire pensioners — increased by $2.7 million, to a total of $7.5 million for the year – roughly half of the city’s total budget for the year.
There’s more bad news coming: Wayne County officials have informed the city that they will be transforming prisoners out of the Hamtramck jail to a new one that will be opened in Detroit in two years.
That will mean a loss of $1 million a year from that jail.
“Losing that will be a major upheaval,” Angerer said.
And there is a slew of new costs facing the city: insurance went up $65,000; ambulance service was once free but is now going to be $140,000 a year; the city dropped its phone service with AT&T a few years ago, before Angerer became city manager, but failed to pay a $143,000 bill.
The list goes on and on.
So, how does this affect property owners?
If the city misses a pension payment, which is paid to and managed by MERS (the Municipal Employees’ Retirement System), there will likely be an immediate lawsuit.
What would happen next is that a judge would order a millage on the property tax rolls to cover that cost.
That’s just what happened in the City of Melvindale. In that case, a judge ordered 10 mills onto property taxes for the next 10 years.
A similar court-ordered judgment was predicted for Hamtramck.
“Pay it now, or pay it later,” said Brian Camiller, a partner with Plante Moran, who helped with the audit presentation to the city council Tuesday evening.
“If you do nothing now, this judgment levy will be worse,” Camiller added. “You can’t escape paying.”
Posted March 5, 2021