City leaders at loggerheads on finances

The future looks grim
By Charles Sercombe

For the first time in years, the words “receivership” and “bankruptcy” are being used to describe Hamtramck’s financial future.

Just a year ago, things were looking rosy for the city, financially speaking. And then the economy continued to tank, forcing the state to slash revenue sharing with cities. To make matters worse, Detroit reduced the revenue sharing deal with Hamtramck from the GM Poletown plant by $1 to $2 million.

Oh wait, there’s more. Blue Cross Blue Shield increased health insurance by 20 percent. And the city’s four labor unions said no to a 5 percent salary cut.

On Tuesday evening, the City Council and city manager held yet another budget work session to figure how to balance this year’s budget. The phrase, “it’s not a pretty picture,” was repeated throughout the three-hour meeting.

Despite several budget work sessions, the council cannot not reach even a bare-majority agreement on what cuts to the budget should be made and what revenue increases could be passed. By state law, the city must adopt a balanced budget for the coming fiscal year by June 2.

No matter what, the options are just a band-aid to a city hemorrhaging money. In the best case scenario, the city will end the next fiscal year, in June 2011, $252,000 in debt, which will force the city to dip into its $2.5 million surplus, or rainy day fund.

In the worst case – and the direction the city appears to be headed in – the year will end with a $700,000 deficit, forcing city officials to further dip into the rainy day fund.

The year after that, the city will have just enough left in the rainy day fund to finish the year. After that, the abyss.

“The reality is, we are going into receivership,” said Councilmember Tom Jankowski at about mid-point in Tuesday’s meeting.

Actually, a perfect storm of financial ruin could happen as early as next January, at which time City Manager Bill Cooper said “we’re dead and right back to where Mr. Schimmel was.”

Lou Schimmel was the city’s state-appointed emergency financial manager for several years, but even he left without finishing a year with a balanced budget.

Even if a state-appointed emergency financial manager were to return, state law restricts what actions can be taken, namely union contracts cannot be broken. The city would have to be declared bankrupt before contracts could be ripped up.

All but one councilmember vocally supported increasing the city’s property tax rate by 2.3 mills to the legal limit of 20 mills and allowing voters to decide whether to adopt an extra 3 mills to offset the cost of public safety.

Those two actions could bring in $1.2 million a year – still not quite enough to cover all the expenses.

The only councilmember who seemed in favor of both taxes is Mayoral Pro Tem Catrina Stackpoole.

Councilmember Tom Jankowski was the most outspoken and said before he approves raising taxes, he wants to take on the police and fire unions. He said the city can no longer afford their salaries and benefits.

“We need to roll up our sleeves and prepare for a fight,” he said about taking on those two unions.

Public safety costs Hamtramck about $8 million out of its $18 million yearly budget.

What appears to be happening is that the city may be forced to wait for the police and fire contracts to expire next June and then either negotiate a radically different contract or contract with Detroit or Wayne County to take over police service and Detroit to also take over fire service, or perhaps run the Fire Department with volunteers – something Schimmel wanted to do.

The financial outlook for the region and state gets even grimmer. According to a recent Detroit News report, local analysts say the year 2011 will be worse for the state and that cities may be hit with deeper state revenue sharing cuts.

No matter what happens, in the not-so-distant future, the quality of life in Hamtramck is going to be very different than the one of today.