Review team finds Wayne County under financial emergency

DETROIT – A review team which examined Wayne County's finances announced Tuesday the entity is operating under a financial emergency.

Gov. Rick Snyder by law has 10 days to consider the review team's report and reach a determination on the county's financial condition.

The review team was appointed July 2. Its report says numerous conditions led it to determine a financial emergency exists in Wayne County. The following conditions are included:

  • The county's last four annual financial audits revealed notable variances between General Fund revenues and expenditures as initially budgeted, as amended, and as actually realized. In addition, County officials underestimated actual expenditures in three of the fiscal years by amounts ranging from $16.7 million to $23.7 million.
  • County officials engaged in unbudgeted expenditures in violation of Public Act 2 of 1968, the Uniform Budgeting and Accounting Act.
  • Although there was agreement among county officials that existing detention facilities are inadequate, there is no consensus about whether to complete construction on a new jail or to renovate existing facilities.
  • According to the county executive's recovery plan, unfunded healthcare-related liabilities were estimated to be $1.3 billion as of the last actuarial valuation with funding set aside for this purpose of less than one percent of liabilities. Healthcare-related liabilities represent 40 percent of the county's long-term financial obligations.

Wayne County has about 1.7 million residents and is mired under a $52 million structural deficit. Property tax revenue in the county has declined by more than $156 million since 2007, while total expenditures increased by more than $50 million, according to the preliminary review.

Earlier this month, the Local Emergency Financial Assistance Loan Board determined probable financial stress esists in the county.

Read back: Wayne County in 'probable financial stress'

County Executive Warren Evans in June asked the state to declare a financial emergency. Evans said he wants to enter into a consent agreement with the state that will allow the county to continue negotiations with its stakeholders. A consent agreement also would provide for remedial measures to address a financial emergency and may use state financial management and technical assistance to help alleviate it.

"The report the State of Michigan Financial Review Team sent to Gov. Rick Snyder validates the work done by my administration to reveal the true financial status of Wayne County. Our $52 million structural deficit in Wayne County is real and unless we solve it now, it will continue to grow year after year.  While we have already taken several significant steps forward to stop the debt from accumulating, there is still much work to be done," Evans said. "As we move further along in the process to secure Wayne County's future, I want to be clear that we have a plan that allows us to solve our own problems and we have a responsibility to use the tools available to us to get it done."

Evans spokesman Lloyd Jackson said in an email that the decision "is part of a process that will allow a financial review team to go deeper into the dire state of Wayne County's finances. This administration will continue to work hard and be transparent through each phase of this process, working with the County Commission as we remain committed to our financial recovery plan and wait for a final decision from the state."

If a financial emergency is found to exist, county officials could select one of four options to fix it: a consent agreement with the state, the appointment of an emergency manager, a neutral evaluation or Chapter 9 bankruptcy.

The state appointed bankruptcy attorney Kevyn Orr as Detroit's emergency manager in 2013. That July, Orr made Detroit the largest U.S. city to file for bankruptcy. The city emerged from Chapter 9 in December 2014, shedding or restructuring $7 billion in debt.

Members of the Wayne County review team:

Clarence Stone, director of legal affairs, Michigan State Housing Development Authority (State Treasurer's designee); Jeffrey Bankowski, chief internal auditor, State Budget Office within the Michigan Department of Technology, Management, and Budget (DTMB Director's designee); Tom Davis, deputy director at Senate Majority Policy Office (nominee of Senate Majority Leader); Sharon Madison, owner, Madison Madison International (nominee of the Speaker of the House of Representatives); and Frederick Headen, legal advisor, Department of Treasury.