News Story

All On Its Own, Flint Was A Financial Basket Case For Years

Evidence from years gone by contradicts current effort to blame past Flint misgovernance on state

The city of Flint’s financial woes can be blamed in part on Michigan state government and the emergency managers it appointed to run the city, according to Ridgway White, CEO of the Flint-based Charles Stewart Mott Foundation.

But White’s claim appears to be contradicted by a 2011 report from a financial review team appointed by then-Gov. Rick Snyder in response to persistent financial mismanagement by the city. Flint was not under state control then, and the report painted a stark picture of a municipal government’s financial incapacity.

Here is what Mott Foundation’s CEO said, according to a recent report by Crain’s Detroit Business: “But I will say this, if you take the last 10-15 years ... we've had an emergency manager in control of the city at least half of that time — emergency manager, RTAB (Receivership Transition Advisory Board), etc. So at some point, it’s not local people that's made this decision, it’s the state as well. So there’s a joint responsibility there. We’ve had an equal amount of EFMs as we’ve had mayors in the city of Flint since 2000.”

The city of Flint operated under a limited form of state receivership from July 2002 to June 2004, in the person of an emergency manager appointed by the governor. But a scathing 2011 critique by a financial review team documented financial misfeasance beginning three years after the earlier state emergency manager had departed. These failures in governance happened under the city’s own leaders and managers, not under a state-appointed manager.

For example, the city persisted in spending more than it brought in for four consecutive years, accumulating a deficit that increased from $1.5 million in 2007 to $25.7 million in 2011. This was caused in part by elected officials adopting annual budgets based on such unrealistic assumptions that they were “effectively meaningless as a financial management tool,” according to the 2011 review.

When Michigan cities spend more than they bring in during a year, they may take short-term loans from the state in return for agreeing to undertake specific corrective actions. For example, in return for assistance in 2008, Flint had to submit a five-year deficit-elimination plan. This promised to reduce the city’s accumulated operations deficit to $9.1 million in 2010. But instead of going down, it ballooned to $14.6 million over the next two years.

Worse yet, to cover the city’s bills, Flint officials had been raiding municipal water service revenue, which was held in separate accounts. By 2011 the water system had accumulated its own deficit of $9 million. A few years after that, the water system, in an effort to reduce its costs, changed the source of its water, which led to lead in the water and a public health crisis.

The 2011 report also described evidence that Flint officials had broken the law in another way. The city’s General Fund, from which week-to-week operational expenses — including payroll — are paid, was in debt to a local street fund for $1.68 million. The report stated that under law, “local street monies may only be expended on local streets. ...”

In another footnote, the report observed that “the sum” of relevant provisions of municipal finance laws that the city was violating “is not an aspirational goal but a legal requirement.”

The review team, appointed by Snyder during his first year in office, was triggered by city officials asking the state to tide them over after another year of overspending. Specifically, on Feb. 28, 2011, they asked the state for $20 million in a stabilization loan. In return, they promised to cut payroll and staff, and also place several cost-reducing city charter amendments before voters that coming fall.

Seven months later, however, city officials told the state review team that only a fraction of the promised staff reductions had happened. They also had not submitted the proposed charter amendments to voters.

The Mott Foundation did not respond to an email seeking comment.

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.