Union Contracts, Bad Investment Force State to Suggest Emergency Manager for Allen Park
Promises to unionized government workers and debt payments due on a failed movie studio have prompted a state review team to recommend an emergency manager for the city of Allen Park.
The six-member panel noted that those items, along with budgeted expenditures for police and fire service account for 82 percent of the city's entire budget. The report also made note of minimum staffing requirements in the police and firefighter contracts, suggesting those alone "will render the financial situation in Allen Park difficult to resolve."
Gov. Rick Snyder has 30 days to review the report and decide whether to appoint an emergency manager, but he will be acting under the state’s former law, Public Act 72, because the state Board of Canvassers this week approved a petition to place removal of the state's current law, Public Act 4, on the November ballot. Public Act 4 gives emergency managers power to set aside union contracts as a means of getting municipal expenses under control. If Public Act 4 is upheld, the governor can redo the appointment process.
In its preliminary findings, the review team determined that Allen Park overestimated its budget balance by $1.8 million for the most recent fiscal year. The city did not submit an adequate plan to resolve its fiscal problems.
The city also has long-term problems with its legacy costs. It has underfunded its pension obligations by $24 million and prefunding its retiree health care plan would cost taxpayers more than $120 million.
Another drain on the city’s general fund balance has been the debt service on the failed movie studio property, known as the Southfield Lease Property. The city's ending fund balance went from $4.9 million in 2009, before the property was purchased, to a $278,000 loss this year.
To deal with its cash flow shortage, the city got a $2 million tax-anticipation note in May. Payment is due in October. The city has also not been paying vendors. The review team found unpaid invoices exceeding $1 million.
The review team also questioned the purchase price of the movie property. It said it was not readily apparent why the then-mayor and city administrator agreed to buy the property for $10.8 million more than the amount they said was its value to resolve a property tax dispute. The U.S. Securities and Exchange Commission is conducting an inquiry into the matter and Allen Park has hired outside council to deal with the investigation.
Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.