As part of the State Revenue Sharing Act, Public Act 140 of 1971 (as amended), each city ending the year with a deficit must submit a Deficit Elimination Plan (DEP) to the Treasury Department detailing a plan of action to correct the condition and bring the local unit’s finances back on the right track. The local unit has 90 days in order to submit their DEP to the Treasury after the end of the fiscal year in which a deficit was found. The Act stipulates that the Treasury must approve of the plan, and that the city must follow through with the plan, or else state revenue sharing funds will be withheld from the city. (Section 21.2) The requirement for a DEP was intended as a tool for the State to keep tabs on city finances and financial management and make sure that cities were not slipping into stress and defaults. In order to qualify for state funding, cities must be held accountable for their deficits and have a realistic and actionable plan to fix them.
As the Treasury’s Financial Review Teams have gone into fiscally stressed cities to determine the need for a consent agreement or an emergency manager, they have checked to see whether or not the city was following through with its DEP, and have published the results in their final reports. Ecorse, Benton Harbor, Flint, Pontiac, and Detroit, which have each gotten labels of “Severe Fiscal Stress” or “Financial Emergency”, each share a common major indicator in that the city either did not get a DEP approved when it should have, or did not follow it once it was approved. Since the Review Team Reports in all of the cities have primarily concentrated on large, multi-year operating fund deficits, and the lack of adequate planning to confront them, the DEP, and whether or not it was submitted and approved, seems to be good indicator of future emergency management.
About a month ago I asked the State Treasury for information regarding DEP submissions. I wanted to know which cities had filed them, and whether or not the Treasury had approved them. After going through the process for a Freedom of Information Act Request, I got this letter back from the Treasury Department.
While the Treasury Department has been very courteous and helpful to me this year in my research, the response to this question is interesting considering the importance of a DEP in the Review Team reports. They sent me a list of 24 local units that had deficits in 2009, and a partial list of units that had deficits in 2010, although there was no information regarding whether or not these units submitted a DEP, or whether or not that DEP was approved. This was not a complete tabulation of results from 2010 (Benton Harbor, Crystal Falls, and Muskegon Heights are among other cities that had also deficits in 2010), and there was no data from 2011 even though we are now well into Fiscal Year 2012. The letter said that “the [Treasury] Department does not generate a compilation of local units that have deficits as part of their process” and told me to look through the individual local unit audit reports for 2011 to see if a government was running a deficit.
We know from the Review Team Reports that Pontiac and Ecorse’s DEPs in 2007 were not approved, Benton Harbor failed to file a DEP for its deficits from 2005-2007, Flint’s DEP submitted for 2008 was not being followed, and Detroit’s DEP for 2010 was not approved. Many of the Review Teams listed the DEP problems as the first or second investigation point in the final reports. Apparently, however, the Treasury does not actually keep any kind of compilation of these submissions and their own approvals and rejections. -Or at least not in the form of a “public record”. If it is the case the Treasury doesn’t keep track of which cities in Michigan are running operating deficits and submitting DEP plans, this leaves us to ponder how the State can go about withholding revenue sharing dollars from a city in accordance with Act 140, much less guard against fiscal stress and defaults. It would make much more sense to make the DEPs and their approvals and rejections very public and out in the open so that local units can be held accountable to them by citizens and the State.