Financial and Operating Plan Kevyn D. Orr Emergency Manager

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1 Financial and Operating Plan Kevyn D. Orr Emergency Manager June 10, 2013

2 Detroit spends more than it takes in it is insolvent. It has borrowed hundreds of millions of dollars and has deferred just as much in obligations in order to support City operations. This path is not sustainable. 1

3 Over the past several decades, the City s population has declined over 60% 2,000 1,800 1,850 1,670 1,600 1,511 1,400 (Population in 000 s) 1,200 1, ,203 1, JUN-50 JUN-60 JUN-70 JUN-80 JUN-90 JUN-00 JUN-10 DEC-12 Note: December 2012 population estimate based on SEMCOG s December 2012 Report on Population and Household Estimates. 2

4 While unemployment has improved recently, it is still significantly higher than historical levels 25% 23.4% 20% 18.3% 16.0% 15% 14.0% 13.6% 12.0% 10% 7.0% 6.3% 5% 0% JUN-98 JUN-00 JUN-02 JUN-04 JUN-06 JUN-08 JUN-10 JUN-12 3

5 As a result, income tax revenue has declined almost 40% since 2000 $400 $350 $362 $378 $324 $300 $291 $284 $276 $250 $217 $233 $200 $150 $100 JUN-98 JUN-00 JUN-02 JUN-04 JUN-06 JUN-08 JUN-10 JUN-12 4

6 and overall City revenue has declined approximately 20% since 2008 $1,500 $1,393 General Fund Revenue $1,457 $1,200 $75 $383 $1,281 $365 $250 $336 $1,232 $340 $1,111 $900 $600 $250 $73 $180 $267 $72 $173 $264 $65 $183 $239 $65 $177 $319 $173 $57 $181 $300 $276 $241 $217 $228 $233 $- $155 $164 $143 $183 $ A 2009A 2010A 2011A 2012A Property taxes Municipal income tax Wagering taxes Other taxes State Revenue Sharing Other revenue Financing proceeds 5

7 At the same time, the City of Detroit continues to incur expenditures in excess of revenue even despite recent cost-cutting measures $1,500 $1,400 $1,393 NOTE: FY 2013 is preliminary estimate which is illustrative only, unaudited, and subject to material change. $1,457 $1,446 $1,405 Revenues/Expenditures $1,300 $1,281 $1,279 $1,289 $1,200 $1,232 $1,233 $1,155 $1,100 $1,111 $1,077 $1,000 $ A 2009A 2010A 2011A 2012A 2013P Total Revenues Total Expenditures Proceeds from debt issuances 6

8 The City s accumulated deficit has grown significantly since 2007 $(700) $(600) General Fund Accumulated Deficit NOTE: FY 2013 is preliminary estimate which is illustrative only, unaudited, and subject to material change. FY 2013 excludes any impact of refinancing transaction.` $(624) $(577) $(500) $(250) $(400) $(300) $(332) $(406) $(250) $(447) $(250) $(250) $(200) $(142) $(327) $(374) $(100) $(89) $(156) $(197) $- 2007A 2008A 2009A 2010A 2011A 2012A 2013P With FSB* Wihout FSB* * Fiscal Stabilization Bonds ( FSB ) were issued in FY 2010, which caused a one-time deficit reduction, but increased debt by $250 million 7

9 and the City s current cash flow outlook is very dire $100.0 Short-term cash flow forecast (1) $75.0 $50.0 $ ($25.0) ($50.0) $66 $62 $39 $24 $4 $8 $1 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 $(20) $(27) $(50) ($75.0) ($100.0) ($125.0) $(117) $(97) ($150.0) Cash balance Cash balance net of deferrals (1) End of month balances, net of accumulated property tax distributions owed to other taxing authorities. 8

10 Since his appointment on March 25, 2013, the Emergency Manager has focused on developing a comprehensive restructuring plan to ensure that the City of Detroit is able to: Provide or procure governmental services necessary and essential to the public health, safety and welfare of its citizens Assure the fiscal accountability and stability of the City Promote private investment in the City and revitalization of the community in a sustainable fashion 9

11 Public Safety spending represented 46% of FY 2012 expenditures FY 2012 General Fund Expenses Other Operating $240 19% Other Departments $290 24% Public Safety $569 46% Debt Service $133 11% (1) (1) Debt service excludes UTGO debt service and enterprise portion of pension obligation certificates, which are reported separately 10

12 While the General Fund will experience some short-term debt service relief, principal payments will begin to increase again in 2018 General Fund Debt Principal $120 $100 $111 $106 $23 $30 $106 $108 $96 $102 $102 $107 $112 $101 $103 $80 $60 $42 $38 $33 $37 $2 $2 $36 $33 $41 $2 $45 $46 $2 $2 $48 $3 $51 $3 $53 $56 $40 $4 $4 $34 $35 $34 $35 $37 $3 $3 $23 $21 $20 $41 $43 $31 $32 $5 $5 $5 $5 $6 $6 $6 $13 $14 $15 $15 $17 $16 $16 $ LTGO 2012 Refinancing UTGO DSA -UTGO Other POC 11

13 In recent years, tens of millions of dollars of pension funding and other payments have been deferred FY 2013 Required Contributions (General Fund) ($ in millions) Contribution Made $31 Contribution Not Made $103 NOTE: FY 2013 figures above is a preliminary estimate which is illustrative only, unaudited, and subject to material change. 12

14 The City is currently evaluating options to adjust its funded debt obligations to better fit its projected cash flow profile, which may include a range of alternatives that could include, among other things: Rescheduling principal amortization without reduction in principal Permanently reducing the principal amount of debt outstanding Reducing interest rates, as appropriate, to achieve targeted cost savings or compensate for lost/extended principal Issuing new debt to provide certain cash recoveries to creditors 13

15 Other Post-Employment Benefits (OPEB) Unfunded Liability $7,000 ILLUSTRATIVE ONLY $6,000 $5,718 $5,000 $4,824 $4,971 $4,971 $4,000 $3,000 $2,000 $1,000 $- 2008A 2009A 2010A 2011A 2012P NOTE: FY 2012 column is illustrative only; latest actuarial OPEB valuation was performed as of June 30, 2011 (FY 2011) 14

16 POC s (including Swaps) represent the largest component of interest payments General Fund Debt Interest $160 $140 $120 $100 $80 $60 $40 $20 $140 $137 $45 $45 $39 $38 $8 $8 $21 $19 $4 $6 $130 $125 $119 $115 $109 $45 $104 $45 $99 $45 $93 $45 $88 $45 $44 $44 $43 $36 $42 $35 $33 $31 $29 $8 $27 $8 $26 $8 $24 $8 $21 $17 $15 $7 $13 $7 $12 $7 $10 $6 $8 $7 $6 $6 $6 $7 $5 $5 $4 $5 $5 $3 $4 $4 $- $23 $21 $18 $16 $14 $14 $13 $12 $12 $11 $ LTGO 2012 Refinancing UTGO DSA -UTGO Other POC POC Swap 15

17 Limited-Tax General Obligation (LTGO) Debt Service (including FY 2013 Refinancing) $80 $70 $60 $27 $27 $50 $40 $24 $22 $30 $20 $19 $18 $17 $16 $15 $14 $20 $41 $43 $35 $37 $10 $18 $19 $20 $21 $22 $22 $23 $ Principal Interest 16

18 Unlimited-Tax General Obligation (UTGO) Debt Service $80 $70 $60 $29 $50 $40 $27 $25 $23 $21 $19 $17 $15 $13 $30 $11 $10 $20 $42 $38 $38 $35 $37 $37 $37 $38 $39 $10 $26 $24 $ Principal Interest 17

19 General Fund Expenditures $(1,500) $(1,446) $(1,405) $(1,200) $(578) $(490) $(1,279) $(1,289) $(1,233) $(442) $(398) $(397) $(900) $(600) $(126) $(173) $(227) $(221) $(134) $(222) $(141) $(228) $(144) $(226) $(61) $(49) $(43) $(99) $(64) $(300) $(454) $(472) $(437) $(423) $(403) $- 2008A 2009A 2010A 2011A 2012A Salaries, wages and overtime Pension Benefits Debt service & POCs Other expenditures 18

20 The City must develop an operating budget that allows it not only to operate on sound financial footing, but to restore the City to a vibrant, thriving and safe metropolis that can attract residents and new business. That path will require painful sacrifices from all interested parties. It is a necessary path to save an iconic American city. 19

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