By ZEINAB NAJM
HEIGHTS — The City Council held a virtual study session Feb. 23 seeking answers on past overcharges of levies that took places over the years.
Councilman Zouher Abdel-Hak gave a brief background on the bond passed by residents in September 1997 for $27 million which contained Wayne County bonds for the combined sewer overflow and other basis, he said. The interest rate paid was set at 9 percent.
He went on to explain that in 2003, the city received the $3.6 million refund from a bond which was issued in 1994. Since that time, the administration over the next 12 to 13 years overcharged the residents on that bond, Abdel-Hak said.
“Even they have money to pay the obligation during the years from 2004 to 2015, they still levied between 1.25 mills to 2.65 mills which is illegal because the voters in 1997 passed 2.5 mills but at some years there was a charges of 2.65 mills for that bond which was illegal to overcharge what the voters basically voted for.”
He read section four of Michigan’s Act 34 of 2001 which says, “If there is surplus money on hand for the payment of principal or interest at the time of making an annual tax levy, and provision has not been made in the authorizing resolution for the disposition of that money, the annual levy for principal or interest shall be adjusted to reflect available funds.”
Abdel-Hak said that the previous administration, city council and whoever was involved in preparing the budget over the years including the mayor and his staff, the treasurer and different controllers did not follow the law.
“They basically levied taxes on the residents even through they had money which can pay for two or three years in advance and save the percent interest, but they failed to do this,” he said.
With the city’s upcoming $25.7 million bond, Abdel-Hak said he is going to ask the controller, the mayor, the treasurer and the city council to make sure something similar doesn’t happen again and all the funds related to specific job specific projects are put in separate accounts so there is no intermingling of funds.
He also went through the general ledger from 1999 to 2019 where he “found out lots of the phases of the CSO project was paid in 2009 and nothing was paid until later on in 2015, 2016 and 2017,” Abdel-Hak said.
“So, money was put in the general budget and we could’ve paid some of those projects between 2009 and 2015, but we failed to do so, but on the contrary, we levied 1.25 mills for 2011 to 2015 which accumulated close to $6 million in over-levy,” he said.
Plante Moran Partner and CPA Martin Olejnik provided information to the council as well as answered questions they had on the bond levies.
Abdel-Hak’s questions for Olejnik centered on “why the over-levy wasn’t brought forcefully to the administration, why the city council failed to do its job and why the treasurer and the controller and the mayor and his assistant failed basically to reduce the levies in those years and not to keep that money and tell us that we have surplus.”
“To answer the question why they did it, I can’t really answer, I can’t get in their mindset or anything. I can tell you what happened and how much money is left,” Olejnik responded.
Abdel-Hak also asked Olejnik what the city council, Plante Moran, the mayor, the treasurer and the controller can do in the future to make sure something similar doesn’t happen again and money is disposed of in the proper ways.
At the start of the 2015 fiscal year, there was an over-levy of $6.8 million, and during that year the city still levied another $1.3 million, so that added to over-levy, Olejnik said.
He explained that at the same time the city had principal and interest payments of $1.3 million so at the end of year there was $6.8 million restricted for this use. At the start of the 2016 fiscal year, the city did not levy any more for the CSO bonds.
For 2016 and 2017 there was no levy done, and in total during those years there was $2.5 million in payment, so by the end of 2017, there was $4.32 million remaining in the restricted fund balance.
“Over the next couple years, in 2018, 2019, and 2020 you could see there was miscellaneous small CSO borrowings that were remaining for total of $452,000,” Olejnik said.
He went on to say that at the end of June 2020, the city had $3.86 million remaining.
“The levy that the city is issuing this year for the $25.7 million bonds — the city is going to issue the bonds, but immediately this $3.8 million will be used to pay down for those bonds,” Olejnik said. “So, this money is no longer going to be restricted after this payment’s being made because the city is going to utilize this for that payment.”
As for addressing preventing the same issue from happening and how the over-levy happened to begin with, Olejnik said that Plante Moran did alert city council to the over-levy and about the restricted balance through their post audit letters.
“So, as your auditors we will always alert the council to an over-levy and always highlight things that are becoming unusual or maybe that you might have an issue later down the road,” Olejnik said. “There’s going to be restricted funds used for certain purposes, but we’re always going to be able to communicate with you any unusual circumstances.
“It is the controller’s office that ends up calculating how much is needed, but it also comes into the budgets, needs to be approved by the mayor’s office, by the council, so there’s many checks and balances.
“How could this happen over the years before?” Olejnik said. “It’s hard to say. I’m surprised there was not a lot of action taken to reduce the balance earlier but I also know if we look at the years this occurred it was right after the recession and during the recession so the taxable values kept on changing. The city wanted to make sure that it had enough money to pay the CSO bonds.
“If the taxable value decreases, the millage doesn’t just make up the ground and all of a sudden you don’t have enough money to pay for the principal payments, so there could’ve been a mindset that you know what we want to make sure we’re levying enough to have revenue to make up these principal and interest payments.”
Olejnik did say that the over-levy “clearly got out of hand” and that $6.8 million is a significant dollar amount, but at the same time the city was going through a recession where property values were “plummeting left and right.”
“If you assess 2 mills but now your property values go down by half you literally decreased your revenue by half so there was a lot of estimation and so on and you really didn’t have the final answers until the year kind of went by and the economy started recovering,” he said. “That’s when you saw how much your taxable values were at.”
Olejnik said the $6.8 million over-levy represented approximately $295 in total per household in the city with approximately 23,000 households. That translates to about approximately $29 per household annually over a 10-year period.
“However in the future is that now you don’t have to levy this amount or raise it from water and sewer rates for the bonds coming up,” he said.
For information on the CSO bond go to www.ci.dearborn-heights.mi.us.
(Zeinab Najm can be reached at [email protected].)