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Topic: Flint administration keeps residents in the dark on finance

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untanglingwebs
El Supremo

DATE:
January 31, 2017
TO: Mr. Eric Cline,
Department Manager Michigan
Department of Treasury
Local Government Financial Services Division
Fiscal Responsibility Section
FROM:
David L. Sabuda,
interim Finance Director
RE:
Budget/ Actual Revenue & Expenditure Report

December 31, 2016

Attached, please find the City of Flint’s Budget to Actual Revenue and Expenditure
Report and Cash and Investment Summary for the period ending December 31,
2016 for your review and submission to the RTAB

This financial information is provided in accordance with City of Flint Emergency Manager Order 20 Ambrose. Please note that the reporting includes the City's fiscal year end June 30, 2016 along with the December 30 2016 financial information.

The City shown in the attached reports is audited and has been filed with the State. The Single Audit is still being worked by our auditors. The Single Audit
will be submitted to the federal government on time within the month of February
2017. All 6/30/2016 operating fund balances during audit and during final posting
are in compliance with PA 2 of 1968 as amended as well as operating fund cash balances with the exception of the City's grant fund (274) The City is in the process of requesting reimbursement from the federal and state government for expenses incurred but not reimbursed within this operating fund. The City has spent advance dollars on grant projects in December 2016. This drives down the
cash reserves in the 274 Grant Fund. The 274 Grand fund reserve at 12/1/2016 was at a -$60859 and at 12/1/2016 the 274 Grant Fund cash reserve went to
-$1,02,465 or a $42,926 decrease in the 274 Grant Fund cash balance. Attachment 2

As stated earlier, the reporting also highlights the December 2016 activity for the new fiscal year. As you review the information , please know that revenues are seasonal and in some funds are ahead of monthly projections due to early fiscal year collection activities. Revenues in the General Fund and the major and local Street Fund are lagging slightly. I would expect the revenues in these funds to be 50% in the General Fund (currently 48% collected) In the Major and Local Street Funds I would expect a 40% collected rate (currently 29% collected in the Major Street Fund and 19% collected in the Local Street Fund) Collections are lagging due to revenue accruals made to fiscal year 2015/16 and receiving gas tax revenues from the State through November 2016. Expense appropriation line items at this time of year should be approximately 50% spent. Almost all operating funds have spent between 11% and 47% of appropriation for the fiscal year to date.

Water Collection

PA 268 & PA 40 of 2016:
Public Act 268 of 2016 requires that the City demonstrate a water/ sewer collection rate of 70%. Public Act 340 of 2016, extended water credits to Flint water customers through 3/31/2017. However the City must apply for credits each month from January 2017 through March 2017 in order to obtain said water credits. As of 1/25/2017 the City has a 46% overall customer collection rate. This is an overall % decrease in overall water collection looking at collections from a month to month perspective.

This 46% collection rate,
Commercial class customers have an 82% collection rate and residential class class of customers have a 46% collection rate for the month of December 2016. Please know that this is gross revenue billed to gross revenue actually collected and does not include the State credits being paid by the State. Based on current work product the State has granted a waiver to allow the credits to continue to City of Flint water customers through 1/31/2017 As stated earlier. water credits end on 3/31/2017 for water usage for all Flint water customers unless the State treasurer says otherwise and terminates credits early.

It's still the City's intent to continue to follow the current balance plus 10%program for all water customers. Water customers lose credits and get penalty and interest charged if they fail to pay or set up a payment plan. Further, we have posted businesses in regards to water shut-offs. The City will roll eligible water balances due to the July 2017 tax bill and will work with the County Treasurer to insure collection on all delinquent water turned into the County effective for the 3/2018 delinquent tax roll.

Employer Defined Benefit Pension Contributions

.7/1/2017: As a reminder, in my October 2016 report to the RTAB I stated the following:

On 10/5/2016, the City’s actuary and pension system administrator presented the
annual 12/31/2015 actuarial report to the City Council. The system administrator is the Municipal Employees Retirement System or MERS. In summary, the report discloses that three major actuarial assumptions have changed for all MERS Plan participants.

Those three changes are:
1. investment return assumption is dropping from 8% to 7.75%.

2. Mortality tables have been adjusted to reflect retirees living longer.

3. Amortization of the unfunded accrued liability was moved to a fixed period.

Under the new assumptions The City of flint's funding ratio at 12/1/2015 is 43% or $242 million in assets. Overall, the City is spending $50 million in annual benefit payments yet is only contributing $29 million annually to costs including investment earned. These factors have driven the anticipated employer contribution to $42 million per year for fiscal year July 1, 2017- June 30 2018, in lieu of a $19 million dollar contribution being made for the 2015/16 fiscal year. This is a major expenditure issue which will push the
General Fund, Rubbish Collection Fund, and the Grant Funds into a deficit position if other revenue sources or expenses cannot be adjusted for the 2017/18 fiscal year.

Current Pension Activity:
City staff has worked to move the $42 million requested contribution to approximately $36 million dollar contribution by placing retirees who were in a retiree group with no assets to their proper retiree group with assets. However, after this exercise, the City is still faced with a cash flow issue to come up with the $35 million annually.

The City has worked with MERS and the MERS Actuarial team and have come up with six actuarial funding scenarios for the defined benefit pension system. hose funding scenarios will be presented to the State Treasurer on 2/1/2017. The city will be requesting state funding assistance at this meeting on one of the six funding scenarios presented. Failure to obtain State assistance will require either drastic City operational cuts to meet the requested employer contribution or the city's defined system will run out of assets in an estimated (9) to (12) years depending on financial and retiree actions. That is all that is remarkable for this report .
Post Thu Mar 16, 2017 2:14 pm 
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untanglingwebs
El Supremo

In 2012 Flint transferred $460 million to MERS. Now the figure is $242 million in assets. Cline reported to the RTAB board that he worked with the state treasury to come up with new figures and they have a chart showing reduced annual contributions to MERS . Remember currently Flint pays out $50 million a year and pays in about $30 million. figures from Cline. Also people live longer.
Post Tue Mar 28, 2017 7:00 am 
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untanglingwebs
El Supremo

7/1/2017: As a reminder, in my October 2016 report to the RTAB I stated the following:

On 10/5/2016, the City’s actuary and pension system administrator presented the
annual 12/31/2015 actuarial report to the City Council. The system administrator is the Municipal Employees Retirement System or MERS. In summary, the report discloses that three major actuarial assumptions have changed for all MERS Plan participants.

Those three changes are:
1. investment return assumption is dropping from 8% to 7.75%.

2. Mortality tables have been adjusted to reflect retirees living longer.

3. Amortization of the unfunded accrued liability was moved to a fixed period.

Under the new assumptions The City of flint's funding ratio at 12/1/2015 is 43% or $242 million in assets. Overall, the City is spending $50 million in annual benefit payments yet is only contributing $29 million annually to costs including investment earned. These factors have driven the anticipated employer contribution to $42 million per year for fiscal year July 1, 2017- June 30 2018, in lieu of a $19 million dollar contribution being made for the 2015/16 fiscal year. This is a major expenditure issue which will push the
General Fund, Rubbish Collection Fund, and the Grant Funds into a deficit position if other revenue sources or expenses cannot be adjusted for the 2017/18 fiscal year.

Current Pension Activity:
City staff has worked to move the $42 million requested contribution to approximately $36 million dollar contribution by placing retirees who were in a retiree group with no assets to their proper retiree group with assets. However, after this exercise, the City is still faced with a cash flow issue to come up with the $35 million annually.

The City has worked with MERS and the MERS Actuarial team and have come up with six actuarial funding scenarios for the defined benefit pension system. hose funding scenarios will be presented to the State Treasurer on 2/1/2017. The city will be requesting state funding assistance at this meeting on one of the six funding scenarios presented. Failure to obtain State assistance will require either drastic City operational cuts to meet the requested employer contribution or the city's defined system will run out of assets in an estimated (9) to (12) years depending on financial and retiree actions. That is all that is remarkable for this report .

(July 1, 2017 is the date the payment to MERS is required. The new figure is $3.7 million based on changing the assumptions. Is this like lying with statistics?)
Post Tue Mar 28, 2017 7:03 am 
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untanglingwebs
El Supremo

What is GASB 68?
GASB 68 is a new rule adopted by the Governmental Accounting Standards
Board that changes the way government entities that offer defined benefit plans report pension liabilities. This change goes into effect for all annual reporting after June 15, 2014
.
What’s different under the new rule?
Currently, government entities include only the yearly contributions as an expense on their financial statements, and the long-term cost of benefits, called Unfunded Accrued Liability, is included in the notes section of the Comprehensive Annual Financial Report (CAFR). Under GASB 68, government entities will be required to include a new calculation of the long-term cost of benefits, called Net Pension Liability, as a liability on their balance sheet. The new requirement does not change the way MERS calculates how much municipalities need to contribute to cover benefits in any given year.
Why do some municipalities suddenly seem to be in financial trouble?
While the new requirement will provide an accurate picture of all future costs, it may overstate a government entity’s current financial challenges, causing confusion and overreaction.
Though a government entity’s pension numbers may seem different under the new requirement, the financial situation of the retirement plan has not actually changed.
How is MERS helping its members with the new rule?
The team at MERS is working closely with our members to provide all of the
information required to comply with new reporting rules. We will calculate many of the financial numbers our members need and make them available for annual reporting.
MERS is proud of our successful track record of helping our members improve the financial health of their retirement plans. This includes managing reporting changes like GASB 68 and turning around and rehabilitating plans that are struggling financially when they enter MERS.
For more information, visit GASB 68 on the MERS website at
www.mersofmich.com
.
Post Tue Mar 28, 2017 7:18 am 
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untanglingwebs
El Supremo

Grants have improved the financial situation of Flint. Sabuda has a Professional Services Agreement PSA) that exceeds normal PSA agreements because it was initiated by the state and not under the Flint charter.

There is now a search for a new Finance Director. The state created a multiyear budget that is in effect until after the fiscal year 2020.

Will Flint property values continue to climb even with the water crisis seeming to never end.

There are several pending lawsuits that have the possibility of costing the city lots of money is successful. The police department lawsuits seem to never end.
Post Tue Mar 28, 2017 7:23 am 
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untanglingwebs
El Supremo

Flint’s Lead Crisis Has One Big Overlooked Cause: Pensions



Flint, Michigan’s lead-contaminated water is grabbing headlines around the country, but a critical part of the city’s desperate situation is being overlooked: The role of costly public pensions.

The immediate cause of Flint’s crisis is obvious. In April 2014, Flint stopped using Detroit’s water system and start drawing water from the Flint River for the next two to three years before joining the under-construction Karegnondi Water Authority. The decision, made by Flint’s then-emergency manager Edward Kurtz, was expected to save the city about $5 million. But the river’s water corroded the city’s aging pipes, causing lead from the pipes to poison the water, leading to an ongoing disaster which could cost the city and state billions.


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Blame has been directed in many directions. The New York Times criticized Michigan Gov. Rick Snyder, who appointed Early, as well as the state’s health and environmental quality departments, which likely could have stopped the catastrophe and failed to do so.

But why was the city in such dire financial straits that it had to penny-pinch on its water supply by using the Flint River for several years? One critical reason is the beleaguered city’s immense pension burden.

Flint’s problem is fundamentally one of money. The city was the birthplace of General Motors and once had a thriving economy based on the auto industry, but those days are long gone and Flint is now known for its deep poverty (40 percent of the population is impoverished), urban blight, and high crime. As a result, Flint’s population has fallen sharply from about 200,000 in the 1960s to under 100,000 today. The economic downturn combined with a drop in population has unsurprisingly severely restricted Flint’s tax revenues.

What hasn’t been restricted much, though, are the pension demands of Flint’s former workers. Flint has about 1,900 government retirees, who outnumber actual city employees three to one. A glance at the city’s financial forecast from spring 2015 shows that, within the city’s general fund, pensions and retiree health care dominate 33 cents of ever dollar spent, with the figure expected to hit 37 percent by 2020. When all city spending (including various special funds) is put together, retirees are taking 20 percent of all spending. And of course, pensions aren’t simply a future problem, as a persistent inability to balance its budget also explains why Flint was in a declared financial emergency in the first place.

The situation would likely be worse, except the city has hiked taxes in a variety of ways to stave off fiscal collapse. It’s also tried frantically to slash retiree costs, with limited success so far. In 2012, emergency manager Michael Brown made cuts to the city’s retiree health benefits, attempting to save about $8.5 million over two years. But a lawsuit by six retirees resulted in a temporary injunction against the move in early 2013, just a few months before the decision was made to switch to the Flint River for water. A federal judge only reversed the injunction, citing the city’s desperate financial condition, in July 2014 after the switch was made.

Pensions by themselves didn’t cause Flint’s current crisis. But they played a substantial role that should not be ignored, especially by other struggling cities that could find themselves in similar situations in the future.

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Send tips to blake@dailycallernewsfoundation.org.

Read more: http://dailycaller.com/2016/01/16/flints-lead-crisis-has-one-big-overlooked-cause-pensions/#ixzz4cd80CCAe
Post Tue Mar 28, 2017 9:21 am 
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untanglingwebs
El Supremo

P.O. BOX 30728

LANSING, MICHIGAN 48909-8228

www.michigan.gov/treasury

517-373-3227 36101
RICK SNYDER GOVERNOR
STATE OF MICHIGAN
DEPARTMENT OF TREASURY LANSING
NICK A. KHOURI
STATE TREASURER
December 27, 2016
DENIAL
Municipality Code: 252040
Fiscal Year Ended: 6/30/2016
Dear Chief Administrative Officer:
Thank you for submitting a qualifying statement for
the City of Flint to the Michigan Department of Treasury on December 22, 2016
. Based upon the information provided in the qualifying statement, we have determined that the City of Flint is not in material compliance with the following criteria as identified in section 303(3) of Public Act 34 of 2001:

Subsection[j] the most recent delinquent property taxes exceed 18% of the amount levied.

Subsection [b] the municipality has issued securities in the immediately preceding five fiscal years or the current fiscal year pursuant to the Emergency Municipal
Loan Act or the Fiscal Stabilization Act.

Subsection [a] the municipality is operating under the provisions of the Local Government Fiscal Responsibility Act. Therefore, the City of Flint is not authorized to issue municipal securities under this act without
further approval from the Department. You may request reconsideration of this denial or you may request prior approval from the Department for each municipal security that you issue until you are eligible to submit your next qualifying statement.
If you have any questions, please contact the Division at 517-373-3227.
Sincerely,
Suzanne Schafer, Administrator
Local Government Financial Services Divis
Post Tue Mar 28, 2017 12:10 pm 
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