News Story

Detroit Sees Budget Shortfall In Five Years

City’s CFO says budget deficits are coming

Thirteen years after the city of Detroit filed for bankruptcy, officials there are projecting an operating budget shortfall by 2027.

That’s according to an analysis of the city’s 2023 budget, published May 3 by the Citizens Research Council of Michigan.

The Citizens Research Council analysis states, “The city’s long-term budget forecast shows that projections of on-going revenues will not be sufficient to meet spending pressures in the near future. This forecast, based on a number of assumptions, presents a small, but growing, operating budget shortfall beginning in FY2027.”

The city of Detroit reported having 10,525 full-time employees in 2012, which was two years before it filed for bankruptcy. The city emerged from bankruptcy in 2015 with 6,187 FTEs, a 41% reduction in the full-time workforce.

Since then Detroit has been steadily growing its payroll, with 8,935 FTEs on the books in 2021, according to the city’s 2021 audited budget.

The payroll expansion has occurred even as Detroit's population continues to fall. There were 713,777 Detroit residents in 2010, a figure that dropped to 639,111 in 2020, according to the U.S. Census.

“While this spending has been important and necessary for the city’s growth it may prove to be unsustainable in the long run because the city will not have the revenue baseline to support the additional infrastructure, services, and personnel,” the Citizens Research Council report states.

As part of the bankruptcy agreement, the city of Detroit did not have to make contributions to its two pension funds, but it will have to resume making those payments in 2024, according to the Citizens Research Council. Those pension payments were made by the state of Michigan and private organizations. That nine-year pause ends in 2024.

“The City approved its balanced four-year financial plan for FY23 through FY26 last month,” said Deputy CFO and Budget Director Steve Watson. “As part of that process, the City also completes a ten-year forecast to plan for the future, given baseline trends and projected legacy pension liabilities. With our conservative forecast assumptions, the City’s expenditures begin to outpace revenues in FY27. To mitigate that potential outcome, the City will continue to exercise spending restraint, achieve new efficiencies, and grow its economy and revenue base. The reason we do these forecasts is so we can adjust as necessary to ensure the city produces a balanced budget every year, as we have done since exiting active state financial oversight. We expect the FY27 budget to be no different. Also, through the most recent budget, the City is also increasing its Rainy Day Fund and Retiree Protection Fund reserves to provide further fiscal stability.”

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.