Property taxes, skipped pension payments boost Detroit's cashflow

Reuters

Oct 16 (Reuters) - Detroit's revenue dropped by 9 percent inthe first quarter of fiscal 2014 compared with the same periodin fiscal 2013, but an influx of property taxes and skippedpension contributions boosted the city's cashflow, according toa report released on Wednesday. In his quarterly report to Michigan officials, Kevyn Orr,Detroit's state-appointed emergency manager, said the city endedthe quarter on Sept. 30 with a cash balance of $128.5 millionthat exceeded projections by $56.7 million.

But the former corporate bankruptcy attorney who has beenrunning the city since March said Detroit's financial condition"continues to be dire" as it works its way through U.S.Bankruptcy Court, where its eligibility to remain there will bethe subject of a trial next week.

The first quarter is typically a flush time for Detroit'sgeneral fund due to summer property tax collections, the reportsaid. Orr also made the decision to skip $44 million in forecastpayments to its two public pension funds, while continuing tomake payments on outstanding bonds and interest-rate swapagreements that he considers to be secured debt, as well as forretiree healthcare and for certain "important vendors."

City revenue for the quarter, including property, income andgambling taxes, totaled $220.2 million, a drop of about $22million from fiscal 2013's first quarter. Expenses also fell byabout $11 million as the city's headcount dropped toapproximately 9,322 workers at the quarter's end from 10,325 inthe same period last year, according to the report.

With Detroit sinking under more than $18 billion of debt andother obligations, Orr on July 18 filed the biggest Chapter 9municipal bankruptcy in U.S. history.

Prior to the filing, Orr determined that about $11.9 billionof the debt, including pensions, retiree healthcare and somevoter-approved general obligation (GO) debt, was unsecured andproposed paying it off with pennies on the dollar. Since June,Detroit has defaulted on $1.45 billion of insured pension debtand more than $600 million of GO bonds.

For fiscal 2014's second quarter, the report projects thecity's cashflow will reverse course and be in the red, reducingthe cash balance to $46.8 million. That projection assumes thatDetroit's will not consummate its plan to obtain debtor inpossession financing.

Orr announced on Friday a commitment from Barclays Plc toprovide a financing of up to $350 million, subject to approvalby the federal bankruptcy court. The deal would allow Detroit toend its interest-rate swap agreements at a discount and provideabout $120 million to improve city services and infrastructure.

Rates

View Comments (1)