News Story

28 Months After Bankruptcy, Detroit Misses Fiscal Report Deadline A Second Time

Missed it in 2015, missed it in 2016; missed first extension, official says this time for sure

To see how well a company is doing, investors look at the bottom line in its annual report. For a municipal government, a city’s audited annual report is where to find how it is doing financially.

A 1968 Michigan law requires local governments to publish an audited annual financial report within six months of when their fiscal year ends. The city of Detroit has a fiscal year that ends June 30, so its annual report is due by Dec. 31 of the same calendar year.

Detroit emerged from federal bankruptcy court in December 2014. Its next annual report would cover the fiscal year that ended June 30, 2015, and was due on Dec. 31, 2015. It did not meet that deadline. The city’s first post-bankruptcy report was not released until May 31, 2016, or five months late.

And now Detroit will be late again. The annual report for the fiscal year that ended June 30, 2016, was due at the end of December 2016. The city did not meet that deadline. The state gave city officials a three-month extension, or until March 31, 2017. They missed that deadline, too. The state then granted another deadline extension, or to the end of May.

Audited reports can reveal poor management practices, misfeasance and malfeasance. For example, before the Flint water crisis, officials in that cash-strapped city were raiding the water department fund, tapping the money for other purposes and misreporting the transactions in the city’s records. A 2010 financial audit uncovered the practice and revealed the water fund had a negative cash balance of $3 million, according to a financial review team sent by the state.

Most larger Michigan cities also have fiscal years that end in June, with annual audited reports due by the end of December. Almost all make the deadline.

For example, Ann Arbor officials completed their report on Nov. 4, 2016. Troy officials had their annual report ready to go on Nov. 30, 2016.

Even the troubled city of Flint, which was under a state-appointed emergency manager from 2011 to 2015, had its most recent audited annual report out by Dec. 15, 2016.

But Detroit is on a second extension for the report that was due last December. According to John Naglick, Detroit’s finance director, the new deadline is May 31, and the city is on track to meet that date.

That makes two consecutive years in which Detroit will be nearly six months late on a deadline that is prescribed by a 49-year-old law.

“Well-run governments can pull accurate and complete financial data in a timely fashion,” said James Hohman, assistant director of fiscal policy at the Mackinac Center for Public Policy. “It’s a warning sign that Detroit has not been able to produce their annual reports for roughly a year after the fiscal year ends.”