Detroit Mayor Dave Bing this morning laid out an aggressive financial plan that would increase the casino tax by up to 3%, delay pension payments and reduce the citys cost of worker health care and fringe benefits by 20% through concessions.
Detroits $155-million budget deficit will grow to $1.2 billion by 2015 if drastic steps are not taken to cut costs, Bing told City
We face challenges unlike any the city has ever seen, challenges that demand bold action and a business approach that this administration is prepared to take, Bing said of the $3.1 billion budget. We do not have the luxury of waiting for someone else to solve our problems.
• PDF: Mayor Bing's budget address
Bing said the city is in danger of the state appointing a financial manager to clean up its books, a reality he said he can prevent from happening if his five-year deficit-elimination plan is adopted. A large part of that plan includes shaving 20% off what the city spends on worker and retiree benefits. Bing warned that by 2015 fringe benefits could consume half of the citys general fund revenue. The citys 48 collective bargaining units would have to agree to reopen their contracts for negotiation.
The evidence is clear, he said. The same old budget gimmicks and the same old budget battles are not the solution. Its a different ballgame and the stakes have never been higher. Gov. Snyder signed legislation into law this year that gives the state an unprecedented ability to intervene in financially distressed cities like Detroit. The state has made it clear that any city fails to address its financial issues on its own will have an emergency financial manager appointed.
Bing is proposing a one-year increase of up to 3% to the city's portion of the gaming tax. The increase would generate $20 million in additional city revenue.
The gaming industry in Detroit already has a tax rate that is approximately 10% lower than Ohio casinos and 13% below the average tax rate for Indiana casinos, Bing said. Detroit's casinos were also insulated from much of the economic struggle that other area businesses have experienced. For instance, MGM Grand Detroit has a net operating income of more than $88 million through the third quarter of last year, making it the second most profitable of MGM's 12 casinos nationwide. Motor City's revenue in February of this year was up 6% from last year at the same time and Greektown ended 2011 with an 11% month over month gain.
The issue is bound to be opposed by Detroits three casinos and faces a tough fight for approval.
Observers noted that Bings tax proposal would require approval by three quarters of both chambers in the Legislature or voter approval of an amendment of the Michigan Constitution in effect changing the 1996 amendment that granted the city the three casinos and set tax rates.
Jake Miklojcik, a financial analyst who was on the interim board of Greektown Casino when it went through bankruptcy, said the additional taxes would put Detroits casinos at a disadvantage against casinos in nearby states that pay lower tax rates and against Native American casinos in Michigan, which pay far lower taxes.
Miklojcik, president of Michigan Consultants in Lansing, said added taxes could ultimately lead to reduced workforces at the casinos and lower income tax collections for the city.
I understand Mayor Bings got a tough job, Miklojcik said, but taxing casinos while dropping tax rates for hotels and other developments makes for an unfair competition.
Councilwoman Brenda Jones said she was reserving judgment on Bings proposal to raise casino taxes.
We know the casinos are making money, and the city is in dire condition, she said.
Jones said she understands that cuts are needed but she wants the council and residents to determine the most crucial services before doing so, and she wont support decreasing public safety services.
I dont want to see a lot of cuts of the city workforce, she said. I want to see employees trained and not have as many contracts. Sometimes those contracts cost more than what the city would pay its own workers.
Bing is also proposing that the city suspend a $65 million payment to its two pension funds. The city pays what is called an annual loss recovery payment to compensate for money lost to the market. The mayor said the city has a responsibility to fully fund the pension systems, but he would like the unions to agree to allow the city to suspend the payment one year to ease its fiscal burden.
In addition Bing wants to end the practice of paying retirees a 13th check each year, at a cost of $1 billion from 1998-2008.
Everyone must accept that times have changed, Bing said. The old days getting a good city job meant that you could put in your 20 years with the expectation that city government will take care of you for the next 40 is no longer a realistic or viable option.
Council President Pro Tem Gary Brown stated he believes it's not unrealistic that the city's workforce be cut by 1,000 employees. He said he would not be willing to vote for any tax increases until he sees significant worker reductions.
We can't get through this crisis without cutting heavily into our employee ranks, Brown said.
Bing said the city's benefit costs are 108% of payroll, meaning that for every dollar the city spends on an employee's salary it costs an additional $1.08 to pay for health care, pension and other benefit costs. Health care alone for employees and retirees cost $191 million this fiscal year, he said.
"The most important items on our fiscal agenda are pensions and medical spending," Bing said in his address. "If we do not get those costs under control, a state takeover is inevitable. I understand that current and former city employees are sensitive to this discussion. Over the years administration after administration avoided this conversation but we no longer have that option."
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