By ANDREA POTEET
Sunday Times Newspapers
ALLEN PARK – Unless action is taken quickly, the city’s deficit will continue to grow by $350,000 a month, the city’s financial manager firm said Tuesday.
“You need to be doing something yesterday,” Plante & Moran Governmental Accounting Services Director Carl Johnson told the city council during a presentation of the city’s finances at its regular meeting.
If the estimated $1 million operating and $3.2 million cumulative deficits continue to grow, Johnson said, the city will run out of money in its current fiscal year by February or March.
A similar situation happened at the end of last fiscal year, which ended June 30, when the city borrowed $1 million from its water and sewer fund to keep its general fund afloat, a move Johnson said is not allowed by the state. He said the loan should have been repaid within 30 days, but estimated it should be repaid by the end of this month.
The city had an operating shortfall of $1.8 million last year and the city-owned former movie studio property on Southfield lost $1.5 million, which reduced the “rainy day” fund balance from $5.5 million to $3.7 million for that fiscal year, which ended July 30.
Johnson also cited declining property values, which dropped by 6 percent last year, resulting in a loss of $750,000. Adding in the $40,000 Gov. Rick Snyder slashed from revenue sharing to the city, the $3.2 million shortfall from last year could bring the deficit to $4.2 million.
“The alarm should have gone off at the end of June 30, 2010, that you basically had 18 months to make significant adjustments to your operating budget, otherwise you will be in a deficit,” Johnson said.
Johnson cited two milages, one for public safety, for 3.5 mills, and one to fund the former studio property, which together could bring in a total of about $3.5 million, as possible short-term solutions, but said reductions in staffing and concessions from unions must continue, as property values and other revenues are set to further decline.
The debt-reduction levy, for the studio property, could be up to the amount of the annual debt service for the property, with the amount of mills approved by the council each year.
“I can’t underemphasize the importance of those passing,” Johnson said, “but structural changes must continue.”
Johnson added that there are “hundreds” of ways the city could reverse its financial situation, but in the six weeks Plante & Moran has acted as interim financial manager, no one has asked him to present them.
“There are lots of options you have, none of them good, but you can in fact do it if you want to,” he said.
Mayor Felice Lalli said he intends to schedule a meeting with Johnson to further discuss financial options later this month.