Financial and Operating Plan - City of Detroit - May 12, 2013

7/30/2019 Financial and Operating Plan - City of Detroit - May 12, 2013

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2WoodwardAvenueDetroit,MI48226

www.detroitmi.gov

CityofDetroit

OfficeofEmergencyManager

KevynD.Orr

FinancialandOperatingPlan

May12,2013


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TABLEOFCONTENTS

1. Introduction Page1a. Introduction

b. SummaryofthecurrentfinancialconditionoftheCityofDetroit

c. KeyactionstakenbytheEmergencyManagertodate

2. StrategicConsiderations Page6

a. Publicsafetyinitiatives

b. Transportationinitiatives

c. Publiclightinginitiatives

d. Blight/neighborhoodstrategy/landuse/demolitioninitiatives

e. Recreationinitiatives

f. Assetevaluation

3. OperationalConsiderations Page12

a. Departmentoperationalinitiatives

b. Laborinitiatives

4. Preliminaryviewsonrestructuringplan Page19

a. Introduction

b. CityofDetroitfinancialcondition

c. Short-termliquidity

d. Long-termoutlook

5. Appendices Page39

a. Summaryofdraftfiscalyear2013-2014budget

b. Short-termcashflowforecast


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DISCLAIMER

THEEMERGENCYMANAGERFORTHECITYOFDETROIT(THE"EMERGENCYMANAGER")

PREPAREDTHISFINANCIALANDOPERATINGPLAN(THIS"PLAN")INACCORDANCEWITHSECTION11

OFPUBLICACT436OF2013("PA436").THISPLANISPRESENTEDINAFORMDEVELOPEDIN

CONSULTATIONWITHTHESTATETREASURERANDTHEEMERGENCYMANAGER'SADVISORSANDISBASEDON(ANDLIMITEDBY)THEINFORMATIONAVAILABLETOTHEEMERGENCYMANAGERASOF

THEDATEOFTHISPLAN.SUBSTANTIALADDITIONALDATAISBEINGGATHEREDORDEVELOPED,AND

CRITICALFINANCIALANDOPERATIONALANALYSESCONTINUE.THISADDITIONALINFORMATIONAND

ANALYSIS,ASWELLASCHANGESINCIRCUMSTANCES,AREEXPECTEDTOHAVEASIGNIFICANTIMPACT

ONTHEEMERGENCYMANAGER'SRESTRUCTURINGPLAN.THUS,THISPLANISAPRELIMINARY

REPORTBASEDONTHEEMERGENCYMANAGER'SWORKTODATEANDREMAINSSUBJECTTO

MATERIALCHANGEASTHISWORKPROGRESSES.

ASCONTEMPLATEDBYSECTION11(2)OFPA436,THISPLANWILLBEREGULARLY

REEXAMINEDBYTHEEMERGENCYMANAGERANDTHESTATETREASURERANDMAYBEMODIFIED

FROMTIMETOTIMEBYTHEEMERGENCYMANAGERONNOTICETOTHESTATETREASURER.

WITHOUTLIMITINGTHEFOREGOING,IFTHEEMERGENCYMANAGERMODIFIESHISREVENUE

ESTIMATES,THEPLANWILLBEMODIFIEDTOCONFORMTOTHEREVISEDREVENUEESTIMATES.

THISPLANISBASEDONNUMEROUSPROJECTIONSANDASSUMPTIONSCONCERNINGFUTURE

UNCERTAINEVENTS.THESEPROJECTIONSANDASSUMPTIONSINCLUDE,AMONGOTHERS,

ESTIMATESOFTAXANDOTHERREVENUESANDFUTUREBUSINESSANDECONOMICCONDITIONSIN

THECITY,ALLOFWHICHAREBEYONDTHECONTROLOFTHECITY.THISPLANLIKEWISEISPREMISED

ONTHEFAVORABLEOUTCOMEOFCERTAINRESTRUCTURINGINITIATIVESANDNEGOTIATIONS,SOME

OFWHICHMAYBESUBJECTTOLEGALCHALLENGES,THEOUTCOMEOFWHICHISUNCERTAIN.THIS

PLANALSOREQUIRESTHECITYTOOBTAINACCESSTOCERTAINPROCEEDSOFFINANCINGSAND

OTHERGRANTSANDTHIRDPARTYASSISTANCE.THERECANBENOASSURANCETHATTHEPROJECTED

OUTCOMESWILLOCCUR.FORALLOFTHESEREASONS,THEEMERGENCYMANAGER'S

RESTRUCTURINGPLANMAYNEEDTOBEMODIFIEDFROMTHETERMSPRESENTEDHEREIN,ANDSUCH

DIFFERENCESCOULDBEMATERIAL.


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1. INTRODUCTIONa. Introduction

TheEmergencyManager submits this Financial andOperating Plan (this "Plan") to theState

Treasurerasrequiredbysection11(2)ofPublicAct436of2012("PA436").Consistentwithsection11(1)ofPA436,theobjectivesofthisPlanaretoensurethattheCityofDetroit(the

"City")isabletoprovideorprocuregovernmentalservicesessentialtothepublichealth,safety

andwelfareof itscitizens andtoassure thefiscalaccountability andstabilityof theCity. In

doing so, it is imperative that a stable financial foundation for the City be established in a

mannerthatalsopromotesprivateinvestmentintheCityandrevitalizationofthecommunityin

asustainablefashion.

Asprovidedinsection11(3)ofPA436,thisPlanispresentedinaformdevelopedinconsultation

withtheStateTreasurer.Inpreparingthisreport,theEmergencyManagernecessarilyreliedon

information available or developed in the initial weeks of his engagement. After his

appointmentapproximately sixweeks agoas theemergency financialmanagerunder former

PublicAct72,theEmergencyManagercommencedanintensiveperiodofoutreachandstudyof

the significant reform work performed to date. Specifically, the Emergency Manager relied

substantially on: (i) the roadmap to reform embodied in the Financial Stability Agreement

between the City and the State, dated April 4, 2012 (the "Consent Agreement"); (ii) the

important reform initiatives begun under the leadership and stewardship of Mayor Bings

administration;and(iii)theinputreceivedfromCityCouncil,communityleaders,civicleaders,

businessleaders,Statepartners,surroundingcountyleadersandotherkeystakeholders.

AsaresultofthesignificanteffortscommencedbyMayorBingandtheCityspartnersinState

governmentregardingcomprehensiveCityreformoverthepastyear,theEmergencyManager

has a solid foundation fromwhich tobuilda comprehensive restructuring plan for the City.

Substantialadditionaldataarebeinggatheredandorganized,andvariouscriticalfinancialand

operationalanalysesremaininprocessasofthedateofthisPlan.Accordingly,thisPlanisa

preliminary reportbased on theEmergencyManager's work todate and remains subject to

materialchangeinallrespectsashisworkprogresses. SeeDisclaimeratp. ii.TheEmergency

Managerbelievesthatfinalizationof acomprehensiverestructuringplanwillcontinuetobea

collaborative effort among interested stakeholders. As contemplatedby section11(2) of PA

436,thisPlanshallberegularlyreexaminedbytheEmergencyManagerandtheStateTreasurer

andmaybemodifiedfromtimetotimebytheEmergencyManagerafternoticetotheState

Treasurer. Without limiting the foregoing, if the Emergency Managermodifies his revenue

estimates,thisPlanwillbemodifiedtoconformtotherevisedrevenueestimates.

ThecalculationoftheCitystotaldebtobligationsassetforthhereinmaybemarginallygreater

thantheamountspreviouslyaddressedpublicly.Notably,thereisalsoariskthatthetotaldebt

willincreaseafterfurtherexaminationofrelevantdata.And,whileitisexpectedthatrevenues

willremainatcurrentlevelsforthenearterm,thereisthepossibilitythatrevenuesmaydecline


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due to a number of factors, including changing demographics, tax reform and assessment

rationalizations.Accordingly,thiscurrentsnapshotoftheCitysfinancialhealthmightchangeas

the Emergency manager continues to collect and analyze additional data. What is clear,

however,isthatcontinuingalongthecurrentpathisanill-advisedandunacceptablecourseof

actioniftheCityistobeputonthepathtoasustainablefuture.

Finally, the Emergency Manager anticipates conducting a public informational meetingwith

respecttothisPlanasrequiredbysection11(4)ofPA436withinthenext30days.Priortothat

time,itislikelythattheEmergencyManagerwilldiscussthisPlaninvariouspublicvenuesto

furtherilluminatetheseinitialobservations.

b. SummaryofthecurrentfinancialconditionoftheCityAccumulatedDeficit

TheCityhasfacedstrongeconomicheadwindsduringthepastseveraldecadesandcontinuesto

face difficult economic conditions and deteriorating demographics, including decliningpopulation,highunemployment,significantreductioninStaterevenuesharinganddecreasesin

incomeandpropertytaxes.

Excludingproceedsfromdebtissuances,theCity'sexpenditureshaveexceededrevenuesfrom

fiscal year 2008 to fiscal year 2012 byanaverage of$100million annually. These financial

shortfalls havebeen addressedwith long-term debt issuances (e.g.,$75million infiscal year

2008, $250million in fiscal year 2010 and $137million infiscal year2013) and bydeferring

paymentsofcertainCityobligations,suchascontributionstotheCitystwopensionfunds.

Theaccumulatedunrestricteddeficitwas$326.6millionat theendof fiscalyear2012. Fiscal

year2013(yearendingJune30,2013)iscurrentlyprojectedtoaddapproximately$60millionto

theaccumulated unrestricted deficitbalance (excluding the impact of the$137million debt

issuance).

CashFlowsandLiquidity

TheCityhadnegativecashflowsof$115.5millioninfiscalyear2012(yearendedJune30,2012)

andborrowedatotalof$80millionfromBankofAmericainMarch2012(ofwhich$50million

wasdrawnbytheGeneralFund)toavoidrunningoutofcash.TheCityisprojectingnegative

cashflowsofapproximately$90millioninfiscalyear2013andwouldrunoutofcashbyyear-

endifnotfor(i)thedeferralofpaymentsforCityobligations,includingpensioncontributions,and(ii)thereceiptofproceedsfromtheescrowaccountestablishedaspartofthe$137million

August 2012 bond refinancing transaction, disbursements from which are controlled by the

State.

AsofApril26,2013,theCityhadactualcashonhandof$64millionbuthadcurrentobligations

of$226milliontootherfundsandentitiesintheformofloans,propertytaxdistributions,and

deferredpensioncontributionsandotherpayments.Therefore,theCitysnetcashpositionwas


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actuallynegative$162millionasofApril26,2013.TheCityhasbeendeferring,andwillneedto

continuetodefer,paymentsonitscurrentobligationsinordertoavoidrunningoutofcash

TotalCityObligationsandCreditRatings

TheCityhasobligationstotalingatleast$15billion,includingGeneralFunddebt($1.1billion),

enterprise fund debt ($6.0 billion), Pension Obligation Certificates ("POCs") and related

derivative instruments ($1.8 billion), other post-employment benefit ("OPEB") obligations,

includingretireemedicalcosts(currentlyestimatedatapproximately$5.7billionasofJune30,

2012)andotherobligations($0.4billion).Inaddition,theCity'spensionsareunderfundedbyat

least $0.6billion,and perhapssignificantlymore once appropriateactuarial assumptionsand

currentdataareconsidered.

Forfiscalyear 2013, theGeneral Fund isexpected tomakepaymentsofapproximately $230

million related to general obligation debt and POC obligations, $31 million for pension

contributions (and will defer another $108 million in pension payments) and approximately

$200millionforhealthcarebenefits,ofwhichmorethantwothirdsrelatestoretireebenefits.

Duringfiscalyear2013,inordertomakecurrentannualrequiredcontributionsandrepayprior

year deferred pension contributions, the General Fund would have had tomake aggregate

pension contributions of approximately $139million, which together with healthcarebenefit

payments (approximately $200million), total approximately $339million (33% of fiscal year

2013revenues,excludingtheimpactofdebtissuance).Annualpaymentsonaccountofthese

legacyliabilitiesareexpectedtoincreaseinthefutureifnoactionistakentomitigatethem.

The City's credit ratings (S&P B/B; Fitch CCC/CC; and Moody's Caa1/Caa2) have been

deterioratingrapidlyand areathistorical lows, reflectingthedistressedfinancial conditionof

the City. These low credit ratings inhibit the City's ability toborrow. The City has sufferedmultiplecreditdowngradesinrecentyears,resulting increditratingsthatare lowerthanany

othermajorUSCityandbelowinvestmentgrade(i.e.,junkstatus). Further,duetolegaldebt

limits,theCityhaseffectivelyexhausteditsabilitytoborrow.

c. KeyactionstakenbytheEmergencyManagertodateTheEmergencyManagerwasappointedbytheLocalEmergencyFinancialAssistanceLoanBoard

astheemergencyfinancialmanagerunderPublicAct72of1990onMarch14,2013,andthis

appointmentbecame effective asofMarch25, 2013. OnMarch28, 2013, PA436 replaced

Public Act72, and theEmergencyManagerbecame theemergencymanagerunder thenew

statute.

Since his appointment, the Emergency Manager, among other things, has: (i) met with

interestedparties,governmentofficialsandprofessionaladvisorstogatherinformationabout

theCity'srestructuringneedsandpriorities;(ii)participatedininterviewsandpressconferences

withlocal,regionalandnationalnewsoutletstoprovideinformationtothepublicandpromote

transparency;(iii)establishedtheEmergencyManager'sofficeandhiredlimitedsupportstaff;


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(iv)issued certain critical orders related to the operation of the City under the Emergency

Manager'soversight;(v)initiatedacomprehensivereviewofpublicservices,particularlypublic

safetyandlighting;and(vi)takeninitialstepstodevelophiscomprehensiverestructuringplan

for the City. Certain of theseactivities are described ingreater detail below. Althoughthe

EmergencyManagerhasbeenworkinginthisroleforbarelysixweeksandmuchremainstobe

done,substantialandmeaningfulprogresshasbeenmade.

Asnoted inSection1(a) above, theEmergencyManagerhassoughtandcontinues tocollect

informationabouttheCity'scurrentoperations,cashflow,financialobligations,causesof the

CitysproblemsandideasforthefutureofDetroit.Specifically,theEmergencyManagerhas

reliedsubstantiallyon,amongotherthings,(i)theroadmaptoreformembodiedintheConsent

Agreement; (ii) the important reform initiativesbegunbyMayorBing; and (iii) as described

furtherbelow,theinputreceivedfromCityCouncil,communityleaders,civicleaders,business

leaders,Statepartners,surroundingcountyleadersandotherkeystakeholders.Asaresultof

thesignificantefforts commencedbyMayorBingandtheCityspartnersinStategovernment

regarding comprehensive City reform over the past year, the Emergency Manager has afoundationfromwhichtobuildacomprehensiverestructuringplanfortheCity.

An important part of theEmergencyManagers initialeffortswas gathering information and

input froma widevariety ofperspectives bymeetingwith numerous individualsandgroups,

including:

MayorBingandmembersofhisstaff; AllCityCouncilmembers; MembersoftheFinancialAdvisoryBoard; GovernorSnyderandmembersofhisstaff; TreasurerDillonandmembersofhisstaff; DirectorsofvariousCityDepartments; Unionmembersandleaders; TheCity'sPensionBoards; MembersoftheStateLegislature; OtherLocal,StateandFederalelectedofficials; Leadersofnumerouscivic,privateandcharitableorganizationsintheregion;and Citizens and citizen groups, including groups protesting the Emergency Manager's

appointment.

Thesemeetings have been productive and have helped the Emergency Manager develop a

betterunderstandingofissuesfacingtheCity, theviewsof variousstakeholdersandpotential

solutionstotheCity'sproblems thatmaybe incorporated into acomprehensive restructuring


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plan. To the extent possible and as permitted by law, theEmergency Manager anticipates

building and maintaining cooperative working relationships with each of these groups, and

otherinterestedparties,ashedevelopsandimplementshisplantoaddresstheCity'sfinancial

andoperationalneeds.

TheEmergencyManageralsohasestablisheda regularschedule ofmeetings with theCity'srestructuringadvisors.TheEmergencyManagerhasdirectedtheseadvisorstoreviewtheCity's

operationsandfinancialobligationstohelphimdevelopthetermsofacomprehensiveplanto

addressthepressingpublicsafetyneedsoftheCityanditsresidents,improvethequalityoflife

forallDetroiters,provideforandencouragenecessaryreinvestmentintheCity,restructurethe

City's short- and long-term debt, return the City tosound financial footing and improve the

effectivenessandefficiencyoftheCity'soperations.Theseadvisorsarecontinuingtheiractive

review,begununderthedirectionofMayorBingconsistentwiththeConsentAgreement,ofall

aspectsoftheCity'sfinancesandoperationstoassisttheEmergencyManagerindeveloping,as

quicklyaspossible,asustainableandcomprehensiverestructuringplantomeetthesegoals.

BecausetheEmergencyManagerpositionisnew,theofficeoftheEmergencyManagerhadto

becreatedfromscratch. TheEmergencyManagerrecentlyhashiredaChiefof Staffandtwo

otherstaffmemberstohelpcoordinatetheEmergencyManager'sactivitiesandtoserveasan

additionalinterfacewithcitizensoftheCity.Further,topromotetransparencyandopennessin

therestructuringprocess,theEmergencyManagerhasprovidedinformationabouthisgoalsand

activities in various media interviews and public speaking engagements. The Emergency

Manager also has establisheda page on the City ofDetroit'swebsite toprovide free public

access to theEmergencyManager's orders,press releases, applicableMichigan statutes and

other information related to the activities of the Emergency Manager and the City's

restructuringefforts.

TheEmergencyManagerhasalsokepttheMayorandtheCityCouncilinformedofhisinitiatives.

TheEmergencyManagerbelievesthattheMayorandCityCouncilcanplayaroleinthecomplex

process of revitalizing the City. Consequently, at this time, the salaries and benefits of the

MayorandCityCouncilmembershavebeenmaintained.SeeEmergencyManagerOrderNo.1.

TheEmergencyManageralsohasissuedanorderpermittingtheMayorandtheCityCouncilto

continuetheirnormalcourseworkatthistime,subjecttotheEmergencyManager'sfinalreview

and approvalof all decisions made. See EmergencyManagerOrder No. 3. The Emergency

Manager has issued other orders designed toprovide for the smooth operation of the City

underhisultimateoversight. TheEmergencyManagercontinues toreviewtheoperationsof

the City and expects that additional procedures will be established over time to address

operationalissuesduringhistenure.

Even as a comprehensive restructuring plan isbeingdeveloped,public healthandsafetyhas

remainedatoppriorityoftheEmergencyManager.ImprovingthequalityoflifeofDetroitersis

essentialtoanystabilizationandrevitalizationoftheCity.Moreover,asdescribedinthisPlan,

promoting reinvestment in theCity to improveDetroit citizens qualityof life is an essential


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touchstoneofanyrestructuringplan. TheEmergencyManagerhastaken severalimmediate

stepsdesignedtoimprovepublichealthandsafetyintheshortterm.Theseactionsincludethe

following:

TheCitycommenced,andtheEmergencyManagerhascontinued,acriticalreviewofpolice, fire, ambulance and other emergency medical and safety related services todevelopa comprehensiveplanto upgradeoutdated orpoorlymaintained emergency

vehicles,equipmentandfacilities.TheEmergencyManageralsotooknecessarystepsto

ensurethattheCitysnewcommandcenterisoperatinginatimelyfashion.

TheEmergencyManagerhasissuedanorderacceptingthedonationofnewvehiclesforthepolice,fireandemergencyresponseteamsbyprivatesectordonors.

TheCityhasbeeninterviewingcandidatesandexpectstoannouncetheappointmentofanewpolicechieffortheCityimminently.

Building on the work already completed byMayor Bing and others, the EmergencyManager has engaged indiscussions toestablish and implement a plan to fix street

lights and address the City's power grid as promptly as possible. Several initiatives

relatingtothesemattersareinprocess.

TheEmergencyManagerhasinitiatedacomprehensivereviewoftheCity'sapplicationforandadministrationofgrants.Thegoalofthisreviewistoensurethatthemaximum

amountof resourcesareobtainedfromprivate,stateandfederalfundingsourcesand

thatgrantsreceivedreachthosetheyareintendedtobenefitandareappliedefficiently

toaddresscriticalpublichealth,safetyandqualityoflifeneeds.

TheEmergencyManagerrecognizesthatthesearejustthefirststepsonalongroad.

2. STRATEGICCONSIDERATIONSa. PublicSafetyinitiatives

i. PoliceDepartmentThe Detroit Police Department ("DPD") currently has approximately 2,970 employees

(2,540swornmembersand430civilianmembers). DPDcurrentlyisoperatingundertwo

federalconsentdecreesthatstemfromlawsuitsbroughtbytheU.S.DepartmentofJustice

in 2003. DPD has made significantprogress in addressing the issues identified in these

consentdecrees.Nevertheless,someworkremains.Forexample,overthelastfiveyears,

DPDhashadfivedifferentpolicechiefs,allwithvaryingapproachestorehabilitatingDPD's

operations.Asaresult,DPD'sefficiency(officerspercapita,responsetimes),effectiveness

(caseclosurerate,crimereduction)andemployeemoraleareextremelylow.

BasedonrecentreviewsofDPDandinputfromtheMichiganStatePoliceandotherlaw

enforcementagencies,itisclearthatimprovementsinDPD'soperationsandperformance


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could be achieved through the strategic redeployment of resources, civilianization of

administrative functions,other labor efficienciesand revenueenhancements. Additional

investmentininformationtechnology("IT"),infrastructure,equipment,fleet,facilitiesand

personnel (bothnewrecruitsandexperiencedhires)willberequired,asthesekeyinputs

have been neglected for many years. The Emergency Manager's comprehensive

restructuringplanwillincludethiscrucialinvestment.

TheEmergencyManagerrecentlyenteredintoanoutsourcingcontractwiththeMichigan

Department of Corrections ("MDOC") to consolidate all DPD pre-arraignment jail

operationsintoonecentralizedjail.TheCityhasinterviewedcandidatesandintendstohire

anewPoliceChiefimminently.Inaddition,theEmergencyManagerisretainingathird-

party police expert to develop a strategic restructuring plan for DPD. The Emergency

Manageranticipates implementing significantstructural,operationaland costchangesto

DPDtoimprovepublicsafetyacrossDetroitandtoimproveoperationsandmoralewithin

DPD.

ii. FireDepartment/EmergencyMedicalServicesThe Detroit Fire Department ("DFD") is comprised of ten divisions, including the Fire

Fighting Division and Emergency Medical Services (EMS) Division. DFD currently has

approximately1,173employees,including812intheFireFightingDivisionand249inthe

EMSDivision.DFDmaintainsandoperates52facilitiesthroughouttheCity.Duetocurrent

staffingandequipmentconstraints,upto12facilitiescouldbelargelyinoperationalonany

givenday.

DFD currently is undergoing a comprehensive review of its operations, policies and

procedures.Inadditiontoreviewingday-to-dayoperationsformoreefficientutilizationof

personnelandotherresources,stationconfigurationsandtechnologyapplications,DFDis

reviewing options for shared services and contract services. Basedon recent analyses,

improvementsinDFDcouldbeachievedthroughthestrategicredeploymentofresources,

civilianization of administrative functions, other labor efficiencies and revenue

enhancements.InvestmentsinITinfrastructure,apparatusmaintenanceandnewrecruits

willberequiredtoachieveimprovements.

The Emergency Manager intends to retain a third-party expert in this field to assist in

developing a strategic restructuring plan forDFD. The EmergencyManager anticipates

implementingsignificantstructuralandcostchangestoDFDtoimprovepublicsafetyacrossDetroit.

b. TransportationinitiativesTheDetroitDepartmentofTransportation("DDOT")providespublictransitservicesprimarilyfor

thecitizensofDetroit. DDOTprimarilyprovides serviceswithinCity limits,but alsoprovides

transportation to and from neighboring communities. DDOT's operations also include the


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DetroitTransportationCorporation,whichoperates theDetroit PeopleMover (the DPM),a

lightrailelevatedtrainthatprovidespublictransportationinDowntownDetroit.

DDOThistoricallyhasrequiredanannualGeneralFundsubsidyrangingfrom$75millionto$85

million,ofwhichapproximately$5millionto$6millionisattributabletotheDPM.Asaresultof

restructuringactivitiesin2012,whichincludedhiringaconsultingfirm,reducingfleetsizeandmakingserviceadjustments,theCitywasabletosignificantlyreducetheGeneralFundsubsidy

toDDOTbyapproximately$15millionwithlittleimpactonridership.

In2011,theCitydidnotdeliverreliable,scheduledbusservice.Sincethattime,theCityhas

been studyingmethods to reform and improve operations and service to Detroit's citizens.

Certainschedulechangesweremadein2012toalleviatecertainimmediateserviceproblems.

Aspart of Phase IIof theDDOT restructuringprocess, theCity and itsadvisorscurrently are

investigatingadditionalshort-termandlong-termefficienciesthatwouldimprovebusservices

andfurtherreducetherequiredGeneralFundsubsidyforDDOT'soperations.

c. PublicLightinginitiativesThePublicLightingDepartment("PLD")currentlyownsandoperatestheCity'selectricitygrid.

PLD serves over 200 commercial electric customers and a majority of the City's 88,000

streetlights.PLD'sprimaryobjectivesaretoprovidesafeandreliablepowertoitscustomers

andtore-establishareliablelightingfootprintencompassingDetroit'smainthoroughfaresand

population centers. Both the streetlights and the grid are in need of significant capital

investment to provide reliable lighting and electricity to Detroit's citizens and businesses.

Currentthird-partyestimates forrequiredcapitalexpendituresequateto approximately$160

millionforlightingimprovementsandbetween$250millionto$500millionforelectricity(grid)

improvements.Toaddresstheneedforbothimprovedserviceandmajorcapitalinvestmentin

thegridandstreetlights, theCityhasdeveloped,andiscontinuingtorefine,a comprehensive

plantooverhaulthedepartmentanditsassets.Afive-to-sevenyearplanwillresultinanew

streetlightinfrastructureandthetransitionoftheCity'selectricitygridtoathirdpartyoperator.

Specifically,theplancallsfortheCitytotransferoperationandmaintenanceofitsstreetlightsto

anewlyformedpublic lightingauthority("PLA")withtheabilityto issuedebt. Proceeds from

thedebt issuancewillbeusedtooverhaul thecurrentstreet lighting infrastructure. During

early2013,majorlegislationwastoenableexecutionoftheCity'splan.Inparticular,SenateBill

970 and House Bill 5705 provided a funding mechanism for the PLA, and House Bill 5688

authorizedDetroitto establish thePLA. ThePLA's articles of incorporationwere adopted in

February2013.

Intheshort-term,theCityplanstoaddresslong-standinglightingoutagecomplaintsbyworking

withathirdpartytoreplacebulbsandfixwiringrelatedissuestoaddresscitizenconcernsand

improvepublicsafety.Inthelong-term,thePLA'sprimarygoalwillbetoreconfigurethestreet

lightingfootprintandparedownthecurrentnumberofstreetlightsfromapproximately88,000

toapproximately46,000. ThenewlightingfootprintwillcatertoDetroit'scurrentpopulation


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centersandprovidereliableserviceandaddedsafetywhereitisneededmost.Theprojected

three-yearoverhaulprojectwillconsistofaphasedreplacementofapproximately15,000lights

peryearcommencinginmid-fiscalyear2014andaconversionoftheelectricalfeedontoathird

partygrid.ThestreetlightswillcontinuetobeassetsoftheCitywiththeassetoverhauland

continuingoperationsfundedbythePLA.

TheEmergencyManagerbelievesthatitisinthebestinterestofthecitizensofDetroitforthe

Citytoexitthepowersupplybusiness.Asof2010,whentheCityceasedgeneratingaportionof

the electricity it sold, the grid has solely operated as a resale mechanism for its 200-plus

customers.ThecurrentstateoftheCity'selectricitygridhasbeencharacterizedasunreliable,

aswellas a liability totheCity and its citizens. Additionally,basedon the levelof required

maintenance coupled with labor costs, the grid continues to operate at a loss. The City

estimatesthata$250millionto$500millioncapitalimprovementsprogramwouldberequired

tomodernize the system funds that the City simply does not have and cannot generate.

Accordingly, theEmergencyManagerseeks both to limit theCity'sexposure to theliabilities

associatedwith anaginggridand providea solutionto ensure reliablepower to the CityofDetroit.Forthisreason,theCity'selectricitycustomerswillbetransitionedtoathirdparty,and

thegridwillbecloseddownpursuanttoaphasedplan.

Thetransitionprocesswillbegininfiscalyear2014,andcontinueoverfivetosevenyears,witha

transferofallcustomers(includingtheCity)to thirdparty-ownedmeters, resultingin theCity

exitingtheelectricityre-salebusiness.Electricitycustomerswillbecomecustomersofthethird

party.Duringthetransitionperiod,PLDwillslowlywind-downitsoperationsandmaintenance

staffinproportionwiththeclosingsectionsoftheCity-operatedelectricitygrid.

d. Abandonedproperty,blightandlanduseinitiativesBlightisoneoftheCity'smostpervasiveandpressingproblems.Itisbothapublicsafetyanda

publichealthissuefortheCity.Inits139squaremiles,theCityincludesatleast60,000parcels

of vacant land (constituting approximately 15% of all parcels in the City) and approximately

78,000 vacant structures, of which 38,000 are estimated to be in potentially dangerous

condition.

Thissurpluslandpresentsenormoussocio-economicchallengesandaffectspublichealth,crime

rates,economicdevelopmentandpropertyvalues.AllCityservicesarelessefficient,andunder-

resourced, because these servicesmust be provided over a large geographic area with low

population density. Indeed, blight adds to the strain on the Citys public safety resources.Despite significant population decreases and the widespread abandonment of properties

throughout the metroarea, the City still provides services to a geographic area larger than

Boston,ManhattanandSanFranciscocombined.Fallinglevelsofeconomicactivityalsofeed

intoasmallerratepayerbasetosupportCityservices,includingwater,sewerandelectricity.

Inlightoftheforegoing,theCityhasbeendevelopingstrategiesforaddressingthesurplusland,

using threeneighborhoodcategories(steady, transitionalanddistressed),asthereareunique


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challenges for each. Addressing these issues requires increased collaboration across

jurisdictions, including theStateofMichigan,WayneCounty, theCityofDetroit,DetroitPublic

Schools, DetroitHousingCommission andnon-governmental andcommunity-basedagencies.

The initiatives underwaywillbe incorporated into theEmergencyManager's comprehensive

restructuring plan. By addressing the problems presented by surplus land and blight, the

EmergencyManagerbelievesthattheCitycanstabilizethetaxbaseandpropertyvalues;more

efficiently and effectively deliver City services; improve health, safety and quality of life for

Detroiters;andfosterincreasedlandutilizationwithintheCity.

TheCitycontinuestoevaluate,optionsforthedemolitionofvacantstructuresandremovalof

brushonvacantland. Meaningfulsuccesswillrequire adequate funding;policydevelopment

coordination among governmental, non-governmental and community-based agencies; and

aggressiveenforcementofblightanddangerousbuildinglawsandordinances.Successalsowill

require that the City succeed in sorting through title issues with respect to abandoned

properties. Pilot programs addressing demolition of vacant structures andblight havebeen

testedandcontinuetoberefinedtoensurefiscallysoundandeffectiveresults.Itislikelythatregulatoryandstatutoryreformrelatedto,amongotherthings,thedemolitionprocess,willbe

requiredtoenhancethespeedandeffectivenessofremediationthattheproblemdemands.

e. RecreationinitiativesTheCity'sdecliningrevenuesandassociatedbudgetcutssignificantlyimpactedtheRecreation

Departmentintermsofservicedelivery,facilitiesmaintenanceandcapitalimprovements.The

Cityrecognizeda$16.2millionGeneralFundnettaxcostforRecreationDepartmentactivitiesin

fiscalyear2012.Fundingshortagesthreatentheabilitytodeliverkeyrecreationalserviceson

whichtheCity'scitizenshavecometodepend,manyofwhichbenefittheCitysyouth,including

summerprograms,daycamps,pool/parkoperations,sportsleaguesandseniorprograms.Over

theyears,severalrecreationcentershaveclosedand,withoutasignificantchangeto theway

recreational services are provided, the City may be forced to close additional recreational

centers,whichcouldaffectover200,000users.

ThecurrentphaseoftheCity'srecreationplanfocusesontheCity's17openrecreationcenters

withthegoalof: (i)enhancingthelevelof servicethatthecentersprovidetoDetroitcitizens

and(ii)reducingtheirdependenceonCitysubsidiesfortheirmaintenanceandoperation.The

current plan includes placing the centers in an independent trust (the Trust) that will be

fundedbyacombinationofCitydollars,grantsandtargetedfund-raisingproceeds. TheTrust

construct will allow the City to reduce its next tax cost while turning daily operations and

programmingovertoexperiencedentitiescapableofprovidingimprovedrecreationservicesto

thecitizensofDetroit.ThisplanprovidesapathtoenhancerecreationofferingsintheCityand

toensurethattheCitywillnothavetocloseadditionalfacilities.

TheTrustwilloverseeandmanagetheCity'srecreationcenters,includingcapitalimprovements,

and will, in turn, be governed by an independent body consisting of a board of directors


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appointedbyCityofficials. TheCitywillfundtheTrustwithafixedcontributiononanannual

basis(thusdefiningandminimizingitslong-termcosts),andtheTrustwillberesponsiblefor

securingadditionalfundingfromexternalcontributionstosupplementfee-basedprogramming

providedbythirdpartyoperators.Theseinitiativesareexpectedtobeincorporatedintothe

EmergencyManager'scomprehensiverestructuringplan

f. AssetevaluationThe Emergency Manager currently is evaluating the City's assets to determine the most

advantageouscourseofactiontopreserveormaximizethevalueofsuchassetsforthelong-

termbenefitoftheCity.TheCitywillevaluatealloptions,includingpreservingthestatusquo,

enteringintopartnershipswithotherpublicentities,outsourcingofoperationsandtransferring

non-core assets to other private or public entities in sale, lease or other transactions. No

decisions have beenmade regarding any particular asset, and the Emergency Manager will

continuetoevaluateoptionsforinclusioninhiscomprehensiverestructuringplan.

g. DetroitWaterandSewerageDepartmentTheDetroitWaterandSewerageDepartment("DWSD")isoneofthelargestmunicipalwater

andsewerage departments in thenationand provideswaterandwastewaterservices tothe

Cityandmanysuburbancommunitiesinaneight-countyarea,covering1,079squaremiles.The

water system serves approximately 4 million people, and the sewer system serves

approximately3millionpeople.

In1977, theUnitedStatesEnvironmentalProtectionAgencysuedtheCityandtheDWSDand

allegedthattheCitywasviolatingtheCleanWaterAct("CWA").ThecasewascaptionedUnited

StatesofAmericav.CityofDetroit, etal.,No.77-71100(E.D.Mich.)(theEPALitigation),andremainedpendingandtheDWSDoperatedunderfederaloversightformorethan35years

(untilMarch27,2013)owingto"arecurringcycle"ofcompliancefailureswithregardtothe

CWAandNational Pollutant DischargeEliminationSystem("NPDES") permitsrequiredbythe

MichiganDepartmentof EnvironmentalQuality("MDEQ"). InJuly2011,theDWSDagreedto

undertakeremedialmeasuresinanAdministrativeConsentOrder("ACO")negotiatedwiththe

MDEQ. The ACO established a compliance program with regard to areas of persistent

dysfunction (e.g., maintenance; inadequate capital expenditures and related planning;

inadequatestaffing;restrictiveprocurementpolicies).

DeterminingthattheACO,byitself,couldnotguaranteetheDWSD'slong-termcompliancewith

CWAandNPDESstandards,theUnitedStatesDistrictCourtfortheEasternDistrictofMichigan

(theDistrictCourt)ordereda"RootCauseCommittee"comprisedofCity/DWSDofficialsto

submitaplanaddressingthe"rootcauses"oftheDWSD'snoncompliancewithapplicablelaw.

TheRootCauseCommitteedraftedandtheDistrictCourtadopteda"PlanofAction,"which

proposed to restructure the DWSD to address systemic dysfunction within the DWSD and

achievelong-termcompliancewithfederalandstatestandards.AreportsubmittedbytheRoot

CauseCommitteeinMarch2013recommendedthattherebeanautonomousauthoritycreated


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tooverseeDWSDsoperationsthatwouldmakerecurringpaymentstotheCityfortheuseand

operationoftheCityswaterandsewerassets.

TheCitys financial issues, theDWSDs internal dysfunctionandan inability to raise rates for

DWSD customers have resulted in significant historical under-spending on critical capital

expenditures thatmust beaddressed in the near and intermediate term. DWSDs July 2012Capital ImprovementProgram totals approximately $1.5 billion over thenext five years and

beyond, with approximately $270.2 million budgeted for water and sewer projects for the

currentfiscalyear.

ByanorderdatedMarch27,2013,theDistrictCourtdismissedtheEPALitigationandstated

thatitwassatisfiedthatthecourt'sordersandtheACO"havebeensubstantiallyimplemented."

Closing the casewas appropriate, the court said, "because the existing [ACO] is a sufficient

mechanismtoaddressany futureissuesregardingcompliancewiththeDWSD'sNPDESpermit

andthe[CWA].

The Emergency Manager currently is evaluating the recommendations in the Root Cause

Committees report and other operational and financial issues involving DWSD. Substantial

analysis is required not only of the proposed transaction recommended by the Root Cause

Committeereport,butofthepriorordersenteredbytheDistrictCourtintheEPALitigation,the

currentandfutureintersectionoftheDWSDanditscurrentandformerpersonnelwiththoseof

theCityandtherelatedtreatmentoflegacyandotherrelateddebtobligationsrelatedthereto.

Further, a planto address thedeferred capital projectsmust bedeveloped. TheEmergency

Manager will continue to evaluate all options for DWSD for inclusion in his comprehensive

restructuringplan.

3. OPERATIONALCONSIDERATIONSa. Departmentoperationalinitiatives

TheCityisintheprocessofperformingin-depthdepartmentreviewstoevaluateandimprove

efficiencyandproductivityandreduce redundancy. Thedepartment reviewprocessprimarily

focusesonthefollowing:

Developing anunderstanding of currentrevenuegeneration activities and identifyingandimplementingpossiblerevenueenhancementinitiatives;

Preparing process flow charts, including of internal controls, and developingrecommendationsforimprovedprocessesandcontrols;

Identifyingandimplementingshort-termandlong-termcostefficiencies; Performing various benchmarking studies against comparable cities and working to

identifybestpractices;


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Identifyingareasofdeficientservicesandpossiblealternativeservicedeliverymethodstoimprovethoseservices;

Evaluatingdepartmentlaborrequirementsgivencurrentprocesses; InventoryingandidentifyingcurrentITsystemsanddevelopingaplantoimprovethe

EnterpriseResourcePlanning(ERP)andrelatedsystemsandallowingtheCitytouse

technologicalimprovementstoprovidebetterservicesatalowercost;

Establishingamorerigorousgrantsmanagementandsourcingprocess; DevelopingacapitalplanthatmeetstheCity'scurrentandfuturerequirements;and Preparingarestructuringcostplan.

Building upon this work, the Emergency Manager plans to utilize the following "guiding

principles"inhisplantorestructuretheCity'sdepartments:

Improveservicedeliverytoresidentsandbusinesses; Stabilizeandenhancerevenues; Establishmoreefficientprocesses,takingadvantageoftechnologieswherepossible; Eliminateredundancies;and Operatecomparabletobenchmarkcitiesusingbestpractices.

b. Laborinitiativesi. Bargainingunitoverview/CBAconsolidation

TheCityisorwasapartyto48collectivebargainingagreements(CBAs)andhasmade

great stridesunder theConsentAgreement, in reducing costs imposedby itsnumerous

activeandexpiredCBAsbetweentheCityandvariouslabororganizationsrepresentingCity

employees,many ofwhichhad been amended by interestarbitrationawards issued by

arbitratorsappointedpursuanttoPublicAct312.UndertheConsentAgreement,theCity

hasunilaterallyimplementedCity Employment Terms ("CETs"),whichwere approvedby

theFinancial AdvisoryBoard (the "FAB") appointed by theGovernor, theTreasurer, the

MayorandCityCouncilunderformerPublicAct4(nowrepealed).Currently,asubstantial

percentage of the City's employees are not governed by current CBAs, and many are

workingunderCETtermsandconditionsofemploymentand/orthosetermsandconditions

implementedorestablishedthroughstatutoryinterestarbitrations.Theprevalenceofso

manyCETsand interest arbitrationawardsis symptomaticof thehistoricallycontentious

relationshipbetweentheCityandorganizedlabor.

PA 436 suspends the City's statutory duty to bargain under the Public Employment

Relations Act (the "PERA") (2012 Mich. Pub. Acts 436, 8(11)). Nevertheless, the City

currentlyisengagedincollectivebargainingwithseverallabororganizationsrepresenting


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City employees. For example, the City currently is bargaining with transportation

employees coveredby Section13(c) of the Federal UrbanMass Transit Act, 49 U.S.C.

5333(B)("UMTA"). PursuanttoSection13(c)of theUMTA,in1991,theCityenteredinto

certain labor agreements with transportation unions and affirmed its commitment to

engageincollectivebargainingwithtransportationunionstoreceivefederalfundingforits

urban transportation system. Bya letter datedApril 12, 2013, the U.S. Department of

Labor, Office of Labor-Management Standards ("OLMS") requested assurances fromthe

CitythatPA436doesnotaffecttheCity'sabilitytocomplywithitscollectivebargaining

obligationsunderSection13(c)oftheUMTA.ToalleviateanypotentialissueswithOLMS,

the City recently notified its transportation unions (representing approximately 1,000

employees) that itwillcontinue toengage incollectivebargainingasrequiredbySection

13(c). Thesenegotiationsarelikelyto continueunlessanduntiltheEmergencyManager

determinesanothercourse.

In this vein, although the City informed non-transportation unions representing its

employeesthatthedutytoengageinbargaininghasbeensuspendedbyPublicAct436,severalunionshavemadedemandsfornegotiationswiththeCity.Inaddition,atleastfive

labor organizations representing uniformed employees (police and firefighters) have

requested interest arbitrationunder PublicAct312. TheCity hasnotified theMichigan

EmployeeRelationsCommission("MERC"),aswellastheunionsandarbitratorsinthese

cases, that thesePublicAct 312 interest arbitrationproceedingsshouldbe postponedor

dismissedpursuanttoPA436.Todate,neithertheMERCnorthearbitratorshaveagreed

todoso,andtheseinterestarbitrationproceedingsremainpending.

As the foregoing demonstrates, the City requires a comprehensive labor strategy for

managing these union relationships. The City and its advisors are developing such astrategyasacriticalpartofthisPlan.Section12(1)(l)ofPA436authorizestheEmergency

Managerto "[a]ctas thesoleagentof thelocalgovernmentin collectivebargainingwith

employees or representatives and approve any contract or agreement." Further, after

complyingwithcertainproceduralrequirements,section12(1)(k)ofPA436authorizesthe

EmergencyManager to "reject,modify or terminate"CBAs. Accordingly, as part of any

restructuringplan,theEmergencyManagerwillbeempoweredtoseekconcessionsfrom

organizedlabor.

This power will be exercised, if necessary or desirable, with the knowledge and

understanding that many City employees already have absorbed wage and benefit

reductions pursuant to the now-repealed Public Act 4. Unilaterally implemented CETs

imposed numerous concessions on City employees, including freezing, reducing or

eliminatingactiveemployeebenefits,reducingoreliminatingpensionandretireemedical

benefits and reducing wages by 10%. The CETs also negated seniority protections in

variousCBAsbyexpandingmanagementrights,modifyingmethodsandprocessesbywhich

work is performed, changing shifts, hours of operation and overtime procedures; and

revisingoreliminatingjobclassifications.InadditiontoconcessionsimposedbytheCETs,


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in some cases and as noted above, concessions have been granted through statutory

interestarbitrationprocesses.

Theselaborcostconcessionshavenotbeenuniformlyappliedtoallbargainingunits,and

some City employees have not been affected by these measures. The Emergency

Manager's comprehensive labor strategywill bedevelopedwith a view towardensuringthatanyconcessionsareequitablydistributedacrossallbargainingunits(aswellasacross

unrepresented employees) and that the impact of these concessions on employees are

mitigated to the extent possible. Under section 12(1)(k) of PA 436, the Emergency

Managermust"meet andconfer"with unions representing affected employees prior to

exercising hisprerogatives, andpriority in these discussionsmaybegiven toemployees

whohavenotyetbeenrequiredtoacceptconcessions. Inaddition,theCitywillevaluate

whetherchangesto CETs or contractsmaybe required to facilitateoperationalchanges

called for by this Plan and whether such changes may be implemented in a way that

enhancesboththequalityoflifeforCityemployeesandtheirproductivity.

ii. CompensationDuring the last 3 years, the City has implementedcompensation reductions to its work

forceintheformofbudget-requiredfurloughdays("BRF"),wagereductionsandreductions

in otherwage related items, such as vacation days, sick days, longevity payments and

overtimerules.TheCityimplementedBRFsequivalentto10%ofwages(onefurloughday

everyotherweek)tonon-uniformemployeesinSeptember2009.InAugust2012,aspart

oftheCETimplementation,BRFswereeliminatedfornon-uniformemployeesandreplaced

withapermanent10%wagereduction.

The CETs also imposed a 10% wage reduction on Detroit Police Officer Association

("DPOA")members inAugust 2012. DPOA challenged the CETs aspart of anAct 312

arbitrationprocess;adecisioninthatarbitrationreducesthe10%wagereductionto5%

effectiveJanuary2014.

TheCETs,implementedonallunionswithcontractsexpiredonorbeforeJune30,2012,

alsoincludedcompensationreductions,asfollows:

Freezingsickleavebanks andeliminatingreservesickleaveaccrual; Eliminatingsicktimecashpayoutsforfutureearnedtime; Eliminatingtheabilitytoreinstatefurloughdays; Eliminatingthe$3-per-dayallowancefordailycarusage; Eliminatingfourtosixannualbonusvacationdays;and Reducingvacationaccrualto160hoursfrom320hours.

ThefollowingadditionalCETchangeswereimplementedonDPOAmembers:


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Limitingpaidtimeforcourtiflessthantwohours; Eliminatingeducationalreimbursement; Requiring 80 hours to be worked in the prior work period to be eligible for

overtime;

Changingpaymentofholidayearnings; Suspendingthe2%wagedifferentialwhileonpromotionalroster; Eliminatingtheoptiontoreceivepayforcourtandreturningtobankingthefirst60

hoursofcourttime;

Eliminatingbonusvacationdays;and Delayingseparationpayments.

Asnotedabove,aspartofhisrestructuringplan,theEmergencyManagerisempoweredto

seekfurtherconcessions fromorganizedlabor,ifnecessaryordesirable. TheEmergencyManagerwillevaluatewhetherandwhatfurthermodificationsmayberequiredinlightof

thesignificantconcessionsalreadyachieved.

iii. MedicalbenefitsreformTheCityprovides healthbenefitplans toover 28,500activeand retiredemployees,and

their dependents. Approximately 10,000 active employees receive benefits, and

approximately18,500 retirees receivebenefits. Most recipientsareuniformedpoliceor

fire employees or retirees. The City maintains over 20 benefit plans and utilizes ten

vendorstoprovidebenefits.TheCityhascontractedwithADPtoprovidebenefitsystems

andsupportbeginninginmid-fiscalyear2014.ADP'sassistancewillhelptheCityimprove

benefitsadministrationbecausethecurrentbenefitgroupwithintheCityisunderstaffed,

andbenefitsystemsarearchaic.

Absentchanges,theannualnetcashspendfortheCitytoprovidehealthcarebenefitstoits

employees and retirees for the next fiscal year is expected to be approximately $263

million(ofwhichnearly$200millionispaidbytheGeneralFund),brokendownasfollows:

Active

Pre-Medicare

Retiree

Medicare

Retiree

Total

ExpectedFYE2014

Cash(inmillions)

$87

$71

$105

$263

The City's currentOPEBobligation (e.g., for retireemedical costs) is estimated tobe in

excessof$5.7billionbasedonthemostrecentactuarialvaluationperformed(asof June

30,2011).TheentireOPEBobligationisunfunded.


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As part of his comprehensive restructuring plan, the EmergencyManager will evaluate

options to reduce or eliminate certain healthcare costs for both active and retired

employees.

iv. PensionreformTheCityprovidestwodefinedbenefitpensionplansfor itsemployeesandretirees the

Detroit General Retirement System ("DGRS") and the Police & Fire Retirement System

("PFRS"). Both plans can be characterized as "mature" based on the ratio of active

employees to retirees and beneficiaries. For DGRS, active employees represented

approximately 39% of total plan participants as of June 30, 2011, compared to

approximately 51% of total plan participants as of June 30, 2004. As a result, annual

allowances (paymentstoretireesandbeneficiaries)havegrownto approximately70%of

payrollfortheyearendedJune30,2011,comparedtoapproximately35%ofpayrollforthe

yearendedJune30,2004.AsimilarsituationexistswithPFRS,althoughtheratioofactive

employees to retirees and beneficiaries started to decline earlier. For PFRS, activeemployees representedapproximately31%of totalplanparticipantsasof June30, 2011

comparedto approximately38%of totalplan participants asof June 30, 2004. Annual

allowancesforPFRShavegrowntoapproximately114%ofpayrollfortheyearendedJune

30,2011comparedtoapproximately79%ofpayrollfortheyearendedJune30,2004.

AccordingtotheJune30,2011valuationreportspreparedbythepensionfunds'actuary,

the actuarial funding levels for DGRS and PFRS were approximately 83% and 100%,

respectively.TheCityiscurrentlyevaluatingthesereportsandthereasonablenessofthe

assumptions underlying them, as well as certain disconcerting pastpractices associated

withbothpensionfundsthathaveadverselyaffectedfundinglevels.Theactuarialvalueof

assetsinthefundingcalculationsincludethevalueofassetscontributedtotheplansfrom

theissuanceofPOCsin2005ofapproximately$740millionforDGRSand$631millionfor

PFRS,but actuarial liabilitiesdo not reflect the obligations to holders ofthePOCs. The

differencebetweentheactuarialvalueofassetsandactuarialaccruedliabilitiesrepresents

theUnfundedActuarialAccruedLiability("UAAL").BothplansamortizetheUAALovera

thirty-yearperiodforpurposesofcalculatingannualemployercontributionstotheplans.

Theamortization of theUAAL does notoccurevenlyover thethirty-year period; rather,

paymentsareheavilyweightedtowardtheendoftheperiod,whichintroducessignificant

fundingrisktotheplans.Theemployercomputedcontributionsforanygivenyeartake

intoaccountthenormalcostoftheplan(i.e.,thecostofnewbenefitsaccruedfortheyear)

aswellasthatyear'samortizationoftheUAAL.FortheplanyearendedJune30,2011,

employercomputedcontributionsasapercentageofpayrollwereapproximately23%for

bothplans.

The actuarial value of plan assets differs from the market value of plan assets as of a

measurement date based on the policy adopted by both plans to smooth differences

betweenactualreturnsonassetsandassumedratesofreturnonassetsoveraseven-year


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period.AsofJune30,2011,themarketvaluesofplanassetsweresignificantlylowerthan

actuarialvaluesofplanassetsforDGRSandPFRSbyapproximately$660millionand$425

million,respectively.Unlessfutureactualratesofreturnexceedassumedratesofreturn,

the recognitionof these losseswill cause employer computedcontributions to increase

significantly,bothindollaramountsandasapercentageofpayroll.

Recently,individualsassociatedwithbothplanshavebeenindictedbyfederalauthorities

for alleged criminal activities involving the plans over the past several years. The

EmergencyManagerisconsideringhislegaloptionsinlightoftheseevents.

AsrequiredbyPA436,ataskforcehasrecentlybeenformedtoanalyzethepensionplans.

Areas of inquiry include reviewing the reasonableness of the assumptions underlying

actuarial valuationcalculationsandthe impactof changeson requiredcontributions asa

resultof changestothoseassumptions; calculatingthevalueofplanassetsand liabilities

undernewstandardsrequiredbytheGovernmentalAccountingStandardsBoard("GASB")

that will be required beginning in 2014; conducting a participant audit to obtain

reasonableassurancesthatbenefitsarebeingaccruedandpaymentsarebeingcalculated

accurately;andevaluatingthegovernancestructureofeachplantoensurebestpractices

areutilized.Asaresultofthisanalysisandaspartofhiscomprehensiverestructuringplan,

theEmergencyManagermaysuggestmodificationstotheplanstoensuretheplansare

structurallysound.

v. StaffingrecruitingandretentionBased on thedepartment reviewworkperformed todate anddiscussed in Section3(a)

above,mostCitydepartmentsandfunctionsareunderstaffedgivencurrentprocesses.Itis

likely that efficiency improvements willsignificantly reduceneeded staffing levels in the

long term. Forexample, with awell-functioning fully integratedERPsystemandbetter

financial and operational processes taking advantage of improved technologies, overall

employeeheadcountultimatelymaybe lowerin thefuturethanitis today.However,to

stabilize currentoperationsandtoeffectuatea significantrestructuringeffort, additional

laborresourceslikelywillberequiredintheshort-term.

The Emergency Manager is working on developing "best practices" to recruit talented

individualstoassistwiththeseefforts.Inaddition,theEmergencyManagerisworkingto

identifyandimplementinitiativestoretaintheCity'scurrenthigh-performingindividuals.

Thiseffortwillinvolvethe re-implementationofa City-wideemployeeevaluationsystemandre-evaluationoftheCityscompensationstructure.

vi. WorkerscompensationliabilitystrategyTheCityincurssignificantworkerscompensationclaims.TheCityhaspaidapproximately

$15millioninworkerscompensationclaimsannuallyineachofthelasttwofiscalyears.

TheEmergencyManagerisworkingtoidentifyhowtoreducethenumberandamountof


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workers compensation claims through implementing proactive safety and training

programsandmitigationstrategiesonceaclaimhasbeenreportedand/oroccurred.

4. PRELIMINARYVIEWSONRESTRUCTURINGPLANa.

Introduction

i. FocusonpublicsafetyandreinvestmentintheCityItisanticipatedthattherestructuringoftheCitywillfocusonthreeprimaryareasessential

for the City's successful rehabilitation: (a) improving public safety and promoting

reinvestmentintheCity;(b)evaluatingandrestructuringtheCity'slongtermliabilities;and

(c)evaluatingandstreamliningtheCity'soperations.

EnhancingpublicsafetyistheEmergencyManger'sparamountconcern.Currentlevelsof

municipal services of all types to residents and businesses within City limits, including

publicsafetyservices,areinadequate.Withhighcrimeratesandpoorpublicservicesinmanyareas,thehealth,safetyandqualityoflifeofDetroitershassufferedmaterially.Tax

revenueshavedecreasedovertimeasthepopulationoftheCityhasdwindledtolessthan

halfofitspostwarpeakandthe localeconomyhassuffered,withunemploymenttripling

since2000.Toconserveitslimited(anddiminishing)resources,theCityhasengagedin

cost cutting measures, many of which are discussed above, and has deferred capital

investments (including, butnot limited to, lightingmaintenance andupgrades in critical

equipmentfortheCity'ssafetyforces)overanextendedperiodoftime.Lookingforward,

onekeytothesuccessofDetroit'srestructuringwillbetoreversethesetrendsandsecure

sufficientfundingstreamstosecurereinvestmentintheCityanddirectlyimprovethelives

ofDetroiters,aswellasattractnewresidentsandbusinesses.Asdiscussedabove,someoftheseinitiativeshavebeenstarted.

City cost-cuttinghas resulted insubstantiallydecreasedfunding forkeydepartmentsand

thedeferralofcriticalinvestmentsthatdirectlyimpactpublichealthandsafety.TheCity

nowfacesahostofproblemsduetothislackofinvestment:anagingfleetofvehiclesand

public safety equipment, failing infrastructure (suchas roads,bridges, parks, thelighting

grid and streetlights), outdated computer and reporting systems and substantial blight,

amongotherproblems.Similarly,keyCityservicesincludingthosecriticaltopublichealth

andsafetyoperateatalessthanoptimallevel.Responsetimesforpolice,fireandother

emergencyservicesaretoolong,andtheCityhasstruggledtoprovidebasicservicestotheentire139-square-milemetroarea.

ThisPlanprovidesthatanimmediatefocusoftheCity'seffortswillbetoimproveallof

theseareasbyredeployingresourcesstrategically,adoptingefficiencieswherepossibleand

investingtoimprovethequalityoflifeintheshorttermanddrivesavingsinthefuture.For

example, as noted in Section 2 above, efforts are underway to address public lighting

deficienciesbyrestructuringthewaylightingisprovidedwithintheCityanddevelopinga


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plantoperformbasicbutoverduemaintenance(suchasreplacinglightbulbsandrepairing

lightfixtures)inthecurrentpopulationcenters.Investmentinpolice,fireandemergency

infrastructureisalsoaprioritybothintheareasofnewequipmentonthestreetsand

withrespect tosystemsandinfrastructureto supporttheworkof public safetyofficers.

Publictransportationisbeingevaluatedtofocusonkeytransportationcorridors,improve

servicesandbeginupgradingsystemsandequipment. TheEmergencyManagerwillalso

evaluatethepotentialforregionalsolutionstocertainoftheseissues.

This Plan calls for the intensification of the recent effort to address blight through a

coordinatedprogramofforeclosures,demolition,public/privatepartnershipsandtargeted

investmentstorevitalizecertainborderlineorfalteringneighborhoods.Toachievesuccess,

this effortwillrequiregreatercooperationandcoordinationofseveralstate, countyand

local agencies and,ultimately,may requiremodificationsto theregulatory framework to

expeditetheCity'sabilitytoaddressandresolveblight.Removingblightpaysbigdividends

byreducing firesandemergencies andattendantcosts,eliminatingpublicnuisancesand

relatedsafetyrisks,stabilizingneighborhoods,decreasingcrime,increasingpropertyvaluesandimprovingthequalityoflife.

UndertheEmergencyManager'sleadership,theCitywillcontinuetoworkwiththeStateto

address these important issues. The State's statement of support for many of these

initiatives is documented in the Consent Agreement. See, e.g., Consent Agreement at

AnnexE.

ii. AddressingtheCity'sliabilitiesTopromotereinvestmentandrevitalization,theCitymustestablishitselfonfirmfinancial

footing.TheCitycurrentlyfacesshort-andlong-termdebtandotherfinancialobligations

that are not sustainable. The City has liabilitiesof approximately $9.4 billion in special

revenue bonds, state revolving loans, pension certificates of participation (i.e., POCs),

mark-to-market swap liabilities, unlimited and limited tax general obligation bonds and

variousotherfundedCitydebts.Debtservicepaymentsplaceasignificantstrainonthe

City's budget. In addition, as described in Section 3 above, the City faces substantial

unfundedOPEBobligationsforretireemedicalexpenses,mostrecentlyestimatedat$5.7

billion,andhundredsofmillionsofdollars(perhapsbillionsbasedonmorerecentactuarial

calculations with more conservative assumptions) in pension funding requirements.

Recently, tens ofmillions of dollars of pension funding and other paymentshave been

deferredtomanageasevereliquiditycrisisattheCity.Evenwiththesedeferrals,theCity

hasoperatedatasignificantandincreasingdeficit.ItisexpectedthattheCitywillendthis

fiscal year with approximately $125million in accumulated deferred obligations and a

precariouslylowcashposition.

The strain of servicing these liabilities, particularly as revenues have decreased, has

requireddeepacross-the-boardcutstovitalCitydepartments,investmentsandprograms.


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Restructuring the City's liabilities in a fair and equitable manner across all relevant

stakeholders is necessary for the City's operational and financial survival. In fact, it is

overdue.Importantly,therestructuringofthisdebtisnotsimplyameanstohelptheCity

serviceitsexistingobligations.Therestructuringofthisdebtmustbeviewedinthelarger

context of returning the City to overall financial health and future sustainability. The

restructuringoftheCitysdebtandotherliabilitiesisessentialtoprovidetheCitywitha

strongbalancesheetandthefinancialfoundationto raisenewcapital,attractnewpublic

and private investors and make the necessary reinvestments in the City. Without a

significantrestructuringofitsdebt,theCitywillbeunabletobreakthecycleofdamaging

cutbacksinessentialmunicipalservicesandinvestments.Moreover,withoutasignificant

restructuring of its debt, the City will be unable to dedicate sufficient revenues to the

critical taskofreinvesting inneeded improvementstopublicsafetyandqualityof life for

Cityresidentsandbusinesses.ArestructuringiscrucialfortheCitytogrow.

This Plan recognizes that interest rates, amortization, outstanding principal amounts,

securityinterests,legacyliabilitiesandallotheraspectsofshort-andlong-termdebtmustbe evaluated as part of the Citys comprehensive restructuring. Significant and

fundamentaldebtreliefmustbeobtainedtoallowtheCity'srevitalizationtocontinueand

succeed.

iii. RationalizingtheCity'soperationsIn support of the overall success of the City's revitalization, this Plan contemplates an

operationalrestructuringtoimprovetheefficiency,effectivenessandcoordinationofthe

City government. The City's operations have become dysfunctional and wasteful after

years of budgetary restrictions, mismanagement, crippling operational practices and, in

somecases,indifferenceorcorruption.Outdatedpolicies,workpractices,proceduresand

systemsmustbe improvedconsistentwithbestpracticesof21stcenturygovernment. A

well run Citywill promote cost savings and better customer service and will encourage

privateinvestmentandareturnofresidents.

EffortstooptimizetheoperationsoftheCitywereagreedtobyMayorBing.Forexample,

theConsentAgreementincludedalistof21categoriesofanOperationalReformProgram,

andotheroperationalinitiatives.See,e.g.,ConsentAgreementatAnnexBandAnnexE.As

astartingpointforthisPlan,theEmergencyManagerhasassumedthattheOperational

ReformProgramoutlinedintheConsentAgreementwillcontinuetoserveasausefulguide

foroptimizingtheCity'soperations.

AsdiscussedinSection3(a)above,theCity,withthehelpofitsadvisors,hasbeenworking

department-by-department review to implement a comprehensive operational reform

program. Certaindepartmentsmaybeconsolidatedto improveefficiency,oversightand

accountability. Some operations might be conducted more efficiently through outside

contractors, and opportunities to privatize certain functions will be pursued where


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Page22

appropriate.Systemsandprocedureswillbeevaluatedforimprovementinkeyareas,such

astaxcollectionandgrantsmanagement,toenhanceproductivity,monitoringandresults.

Purchasing and contracting rules are undergoing a critical review tominimize wasteful

spending.Payrollandotherfunctionsarebeingmodernizedandconsolidated.

Insomecases,changestotheCityCharterandtheCityCode,orotherlegislativeinitiatives,may be needed to support needed operational enhancements and reduce unnecessary

bureaucracy. Operational improvements under this Plan also require labor reform.

Unproductive employment terms and other aspects of the City's CBAs and other labor

agreementsattimeshaveunderminedtheCity'seffortstooperateasefficientlyaspossible

andinaccordwithcontemporarymunicipalstandards.ThisPlancallsforlaboragreements

tobereviewedand,ifnecessary,revised,onlyaftertakingintoconsiderationthesignificant

modificationsthathavealreadybeenimplementedvoluntarily,viaconcessions,andbythe

CETs,tosupporttheCity'sinitiativestoimproveoperationalefficiency.Someelementsof

thislaborreformareidentifiedonAnnexDtotheConsentAgreement.Ascontemplatedby

thisPlan,theEmergencyManagerwillcontinuetopursuenecessaryordesirablechangestolaborpracticestoimproveCityoperations,andhewillcontinuetoconsultwithaffected

partieswhiledoing so.Ofcourse, thesechangeswillbepursuedafterconsultationwith,

andinputfrom,affectedstakeholders.

b. CityofDetroitfinancialconditioni. Historicaldemographictrends

Overthepastseveraldecades,theCityhasfacedstrongeconomicheadwinds.Population

hasdeclinedbyapproximately60%since1950.

Note:December2012populationestimatebasedonSEMCOGsDecember2012ReportonPopulationandHouseholdEstimates

685714

9511,028

1,203

1,511

1,670

1,850

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Dec-12JUN-10JUN-00JUN-90JUN-80JUN-70JUN-60JUN-50

Thousands

Populationhasdeclined~60%since1950


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Whileunemploymenthasimprovedduringthelasttwoyears,ithasincreasedbyapproximately200%

since2000.

Statesharedrevenueshavedeclinedapproximately$160millionsincepeakingin2002.

18.3%

23.4%

16.0%

13.6%14.0%

12.0%

6.3%7.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

JUN-12JUN-10JUN-08JUN-06JUN-04JUN-02JUN-00JUN-98

Whileunemploymenthasimprovedinthelasttwoyears,

itisstillup~200%since2000

$173

$263

$249

$279$286

$334$333$330

$150

$170

$190

$210

$230

$250

$270

$290

$310

$330

$350


Millions

Statesharedrevenuehasdeclined~$160million

sincepeakingin2002


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Incometaxrevenuehasdeclined40%since2000.

ii. HistoricalrevenuesandexpendituresThe Citys revenues have been declining year-over-year. Expenses, too, have been

declining,butataratethatisnotkeepingpacewiththedeclineinrevenues.

$233

$217

$276$284

$291

$324

$378$362

$100

$150

$200

$250

$300

$350

$400


Millions

Incometaxrevenuehasdeclined~40%since2000


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$155 $164 $143$183

$148

$276 $241$217

$228$233

$180$173

$183

$177$181

$73$72

$65

$65$57

$250$267

$264$239

$173

$383$365

$336$340

$319

$75$250

$-

$300

$600

$900

$1,200

$1,500

2008A 2009A 2010A 2011A 2012A

$inmillions

Revenues

Propertytaxes Municipalincometax Wageringtaxes Othertaxes StateRevenueSharing Otherrevenue Financingproceeds

$1,393

$1,281

$1,457

$1,232

$1,111


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The City of Detroit continues to incur expenditures in excess of revenues despite cost

reductionsandproceedsfromlong-termdebtissuances.Inotherwords,Detroitspends

morethanittakesinitisclearlyinsolventonacashflowbasis.

$(454) $(472) $(437) $(423) $(403)

$(61) $(49)

$(43) $(99)

$(64)

$(227) $(221)

$(222)

$(228)

$(226)

$(126)$(173)

$(134)

$(141)

$(144)

$(578) $(490)

$(442)$(398)

$(397)

$(1,500)

$(1,200)

$(900)

$(600)

$(300)

$-

2008A 2009A 2010A 2011A 2012A

$inmillions

Expenses

Salaries,wagesandovertime Pension Benefits Debtservice&POCs Otherexpenditures

$(1,446)$(1,405)

$(1,279) $(1,289)

$(1,233)


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TheCityhasattemptedtoaddressthesedeficitsbycuttingcostsinmostareasofspending

(headcount, wages and benefits, maintenance and capital improvements, etc.) and by

issuing increasing andalarmingamountsof debt (e.g., Fiscal Stability Bonds). As noted

above,thedrasticcost-cuttingactionstakenovertheyearshaveseverely impactedmost

CityservicedepartmentsanddeferredcriticalinvestmentneededbytheCityresultingin:

Decreasing levels of core services to Detroiters (public safety, transportation,recreation,etc.);

Agingfleetsofvehiclesandequipmentandlackofinvestmentininfrastructure; Highly manual processes and inefficiencies in every day functions within City

government;

Obsolescenceincomputersystemsandrelatedreportingsystems;and Deferral of pension system contributions, which exacerbates the pension plans'

underfundedstatus.

$900

$1,000

$1,100

$1,200

$1,300

$1,400

$1,500

2008A 2009A 2010A 2011A 2012A 2013P

Revenues/Expenditures

TotalRevenues TotalExpenditures

`

`

`

Proceedsfromdebtissuance

`

`

`

`


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iii. HistoricaldeficitTheCity'saccumulateddeficithasgrownsignificantlyduringthelastseveralyears.

*FiscalStabilizationBonds("FSB")wereissuedinFY2010,whichcausedaone-timedeficitreduction.

PublicSafety

$569

46%

DebtService

$133

11%

Other

Departments

$290

24%

Other

Operating$240

19%

FY2012ActualExpenses(GeneralFund)($inmillions)

($377)

($250)

($ - )

($100)

($200)

($300)

($400)

($500)

($600)

($700)

Actual

FY2007

Actual

FY2008

Actual

FY2009

Actual

FY2010

Actual

FY2011

Actual

FY2012

Estimated

FY2013

GeneralFundDeficit

WithFSB* WithoutFSB*


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iv. Deferralsandamountsowedtootherfunds/entitiesOverthepastseveralyears,theGeneralFundhasreliedondeferringnecessarypayments

andcashpoolingtomanageworkingcapitalneeds.AsofApril26,2013,theGeneralFund

hadoutstandingdeferralsandamountsduetoother fundsandentitiesof approximately

$226million.Thismeansthat,to funditsday-to-dayoperations,theCity'sGeneralFundhasdeferredexpendituresanddisbursementsandreliedonotherfundscashsinceitdoes

notgenerate sufficient cashflow of itsownanddoesnot haveadequate cash reserves.

Withoutthesedeferralsandworkingcapitalstrategies,theCitywouldhave$226million

lesscashavailableforitsoperations.Thesetacticsareeffectivelyborrowingsandarein

themselvesdebtobligationsoftheCitythatmustberepaid.

Thefollowingchartillustratesthedeferralsofpensioncontributionsforthecurrentfiscal

year.

c. Short-termliquidityi. Short-termliquidityoutlook

GeneralFundnetcashflowsareexpectedtoremainnegativeduetothehistoricaldropin

revenuesandincreasing legacyliabilitiesabsentsignificant structuralchanges. While the

Contribution

Made

$31

Contribution

NotMade

$103

FY2013RequiredContributions

(GeneralFund)($inmillions)


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CityisprojectingtomaintainapositivecashbalancethroughDecember2013,thisisonlyas

aresultofthesignificantamountofpaymentdeferralsandamountsborrowedfrom,and

owedto,otherfunds,whichisclearlynotsustainableinthelongrun.Structuralchange

must occur to address the City's operating deficit and cash burn. Further, there are a

number of risks to the cash forecast that could negatively impact the City's ability to

achieveitsforecast.

ii. CashflowrisksRisksassociatedwiththecashflowforecastinclude:

TimingandamountofdelinquentpropertytaxcollectionsfromWayneCounty; Timingandamountofrefinancingproceedsreceipts; TheeffectofpendingPublicAct312arbitrationproceedings;

LegalchallengestoCETsorothercostsavinginitiatives;

Timing and amount of required pension contributions and other deferredexpenditures;

Potentialtighteningoftermsbyvendors;and Spikesinmedicalclaimsduetoincreasedactivity.

iii. CountermeasuresAsanongoingefforttomanagecashflowthroughFY2013,theCityorganizedacommittee

toidentifyandaggressivelypursuerevenueenhancementandcost-cuttingopportunities.

Short-term (one-time)opportunities includecollection of pastdue receivables, payment

deferrals,expenserecoveriesanddrawdownofescrowfunds.Approximately$50million

of short-term countermeasures have been achieved through April 2013. Long-term

(permanent) opportunities include wage and benefit modifications, further headcount

reductions through layoff and attrition, vendor management and fee increases.

Approximately$10millionoflong-termcountermeasureshavebeenachievedthroughApril

2013.

Assetforthinsomedetailabove,thesemeasuresareinsufficienttoeliminatecashdeficits,

andtheycontributetothefurtherdeteriorationoftheCity'sabilitytoprovideservicesto

its citizens, residents and its business community. These one-off fixes have short-termbenefitsbutdonotaddresstheCitysstructuraldeficitthetruegapbetweentheCitys

revenuestreamanditscurrentanddeferreddebtobligations.Thispathisnotsustainable.

MoresubstantialmeasuresarerequiredtorestoretheCitytoavibrant,thriving,safeand

fiscallysoundmetropolisthatcanattractresidentsandnewbusiness.


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d. Long-termoutlooki. Expendituretrends

Therestructuring initiativescontemplatedbythisPlanwillnecessarilyhaveanimpacton

GeneralFundoperatingexpenses,suchasprofessionalandcontractualservices,materialsandsuppliesandpurchasedservices,payrollandbenefits.Someof thosecategorieswill

increase, and somewilldecrease as restructuring initiatives are implemented. Without

givingeffecttoanyrestructuringinitiatives,debtservicewilldecreaseinFY2017duetothe

scheduledmaturitiesoflimitedtaxgeneralobligation("LTGO")bonds;however,fundswill

berequiredtoretirethosesecurities.Inthenearterm,debtserviceremainsatthesame

level.VarioustranchesofLTGObondswillmature,whichwillbeoffsetbyincreasestothe

principalportionofPOCdebtserviceinaccordancewithscheduledamortization.


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DebtServicePayments(Principal)

ScheduledprincipalpaymentsonexistingGeneralFunddebtareprojectedtodeclineafter

2014 and then, beginning in 2018, increase gradually through 2021. The increase is

primarilyduetoescalatingscheduledPOCdebtservice,whichwillmorethandoublefrom

$23.1millioninfiscalyear2013to$56millioninfiscalyear2023.

$41.0

$43.4

$30.6 $32.1

$13.3 $14.0 $14.7 $15.4$16.6 $15.7 $16.4

4.34.5

4.7 5.05.2 5.4

5.7 5.9 6.2

41.7 38.2

35.9 32.8

34.5 35.134.4

35.536.5

23.4 20.8

1.92.0

2.12.2 2.4

2.62.8

3.03.2

23.1

29.6

33.3 37.0

41.0

45.3 45.7

48.1

50.6

53.2 56.0

$-

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

$inmillions

DebtPrincipal

L TGO 2 01 2Re fin an cin g U TGO DSA - U TGO P OC

$105.8$111.3

$105.9$108.3

$95.6

$101.5 $102.3

$106.9

$112.1

$101.2 $102.6


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DebtServicePayments(Interest)

POCs(includingswaps)remainthelargestcomponentofinterestpayments.Approximately

80%oftotalPOCpaymentsarecoveredbytheGeneralFund.

ii. CapitalexpenditurerequirementsAsdiscussedabove,overthepastdecade,theCityhasmademinimalcapitalinvestmentsin

facilities,fleets,equipmentandITsystems.Asaresult,theCity'sinfrastructureandpublic

safetyfleetareagedanddecrepit,which,inturn,increasestheCity'soperatingandrepair

costs and decreases its productivity. The City and its advisors are reviewing all capital

assetstoascertaintheobviouslynecessarycapitalinvestmentnecessarytobringfacilities,

fleetsandITsystemsuptominimumutilityandfunctionalstandards.

Giventhecurrentstateofitsagingandoutdatedinfrastructure,theCitywillneedtomake

significantinvestmentstoupgradecapitalassetssothatitcanprovidenecessaryservicesto

its citizens and residents. Moreover, the Citywill have tobudget for increased annual

capitalexpendituresinthefuturetoproperlymaintainandrenewitscapitalassets.

23.0 20.817.6 16.1 14.5 13.8 13.1 12.3 11.6 10.8 9.9

4.2 6.16.1

5.95.6 5.4 5.2 5.0 4.7 4.4 4.1

20.9 18.7

16.815.0

13.311.5

9.88.0

6.24.4

3.2

8.08.0

7.97.8

7.77.6

7.47.3

7.16.9

6.6

38.737.7

36.3

34.8

33.031.0

28.827.3

25.5

23.621.4

45.145.1

45.1

45.1

45.1

45.1

45.1

44.4

43.6

42.9

42.3

-

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

$inmillions

DebtInterest

L TGO 2 01 2Re fi nan ci ng UTG O D SA - UTG O P OC P OC S wap

$139.9$136.5

$129.9

$124.7

$119.3

$114.5

$109.4

$104.3

$98.7

$92.9

$87.5


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iii. Totalshortandlong-termliabilities

___________________________________

1. Source:June30,2012CityofDetroitCAFRunlessotherwisenoted.ProformafordebtissuanceinAugust2012butnotforanydebtpaydownssubsequenttoJune30,2012.

2. ExcludesliabilitiesassociatedwithCityofDetroitComponentUnits(e.g.,DowntownDevelopmentAuthority,DetroitPublicLibrary).

3. Includessomenon-GeneralFundgovernmentalactivitiesliabilities.4. Swapsmark-to-marketpercounterpartyreportingasofMarch28,2013.5. Includesaccruedcompensatedabsences,accruedworkerscompensation,claimsandjudgments,accrued

pollutionremediation,advancesfromotherfundsandcapitalleasepayables.Excludeson-balancesheet

OPEBliabilityandcurrentliabilities.

6. DistributionsacrossfundsrepresentsestimatedproratashareofunfundedpensionliabilityperCAFR.UAALvaluemaychangesignificantlydependingonactuarialassumptions.

7. DistributionsacrossfundsrepresentsestimatedproratashareofunfundedOPEBliabilityperCAFR.Excludes$1MMofNon-MajorProprietaryfundOPEBliability.UAALvaluemaychangesignificantly

dependingonactuarialassumptions.

GeneralFundDebt

The City has four primary categories of debt-related obligations that directly and

significantly impact General Fund cash flows. These obligations, which currently total

approximately$2.9billion,include:

UnlimitedTaxObligationbonds($511millionoutstanding); LimitedTaxGeneralObligationbonds($576millionoutstanding);

LiabilitiesbyFund(1)(2)

General Trans. Parking Sewage Water

Fund(3) Fund Fund Fund Fund TOTAL

UTGOBonds $511 - - - - $511

LTGOBonds 576 6 - - - 582RevenueBonds - - 10 2,884 2,556 5,451

PensionObligationCertificates 1,452 - - - - 1,452

StateRevolvingLoans - - - 508 23 531

Notes/LoansPayable 124 - - - - 124

TotalDebt $2,662 $6 $10 $3,393 $2,579 $8,651

POCSwaps(4) 377 - - - - 377

OtherLiabilities(5) 210 22 10 11 20 274

TotalBalanceSheetLiabilities $3,249 $28 $21 $ 3,404 $ 2,599 $ 9,301

PensionUAAL(6) 403 91 N/A 73 77 644

OPEBUAAL(7) 4,416 515 13 404 379 5,726

TotalUAAL $4,820 $605 $13 $477 $455 $6,370

TotalBalanceSheetLiabilities/UAAL $8,069 $634 $34 $3,880 $3,055 $15,671


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PensionObligationCertificates($1.45billionoutstanding);and Eightinterestrateswapcontractson$800millionofPensionObligationCertificates

($377millionmark-to-marketobligationasofMarch28,2013).

Fiscalyear2013GeneralFunddebtservicepaymentsof$246millionfortheseobligations

representapproximately19.3%oftheGeneralFundbudget.TheGeneralFundispartiallyreimbursedbyenterprisefundsfordebtserviceonthePensionObligationCertificatesand

associatedswaps.

TheCityiscurrentlyevaluatingoptionstoadjustitsfundeddebtobligationstobetterfitits

projectedcashflowprofile,whichmay includea rangeof alternativesthatcouldinclude,

amongotherthings:

Reschedulingprincipalamortizationwithoutreductioninprincipaltoprovidenear-termdebtservicerelief;

Permanently reducing theprincipal amount ofdebt outstanding (eitherpro rataacrossallmaturityperiodsorforselectpaymentdates);

Reducing interest rates, as appropriate, to achieve targeted cost savings orcompensateforlost/extendedprincipal;or

Issuingnewdebttoprovidecertaincashrecoveriestocreditors.PaymentsundertheswapcontractsarecurrentlybeingservicedbytheGeneralFundand

arebackedbyCitycasinotaxrevenuespursuanttoa2009collateralagreement.Credit

rating downgrades inMarch 2012 triggered a termination event for the swaps, which

entitled theswapcounterpartiestodemandratablepaymentofthe terminationamount

over seven years and to divert and withhold casino revenues pending such payment.

Additionally,theGovernorsdeclarationofafinancialemergencyfortheCityonMarch1,

2013,andhisappointmentofanemergencyfinancialmanagerfortheCityonMarch14,

2013, constituted additional swap terminationevents,which may leadto a demand for

immediate paymentof thetermination payment. TheCity hasbeen indiscussionswith

swapcounterparties in aneffort to achievea consensual resolution to theswap issues;

thesediscussionswillcontinueaspartofthecomprehensiverestructuringprocess.


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$-

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

$70.0

$80.0

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

$inmillions

LTGODebtService(incl.2012Refinancing)

Principal Interest

$-

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

$70.0

$80.0

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

$inmillions

UTGODebtService(incl.DSA)

Principal Interest


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UnfundedActuarialAccruedLiabilities(UAAL)

TheCityhas significantunfundedactuarial accruedliabilities forpensionandotherpost-

employment(retiree)healthbenefits(i.e.,OPEB).ThepensionandOPEBUAALsrepresent

theestimatedcumulativefutureexpenseforfundingtheseobligationsonanannualbasis.

Forfiscalyear 2013,pensionexpense of$69millionandretiree healthexpenseof $151million will represent approximately 5.4% and 11.9% of the General Fund budget,

respectively.AsofJune30,2011,themostrecentactuarialreportsprovidedtotheCityby

thepensionfundsshowedthepensionUAALat $646million.Utilizingmorecurrentdata

and/ormoreconservativeassumptionscouldcausethatdeficiencytoriseintothebillions

ofdollars.TheOPEBUAALstoodat$5.7billionasofJune30,2011,perthe2012CAFR.

The City is in the process of reviewing the underlying actuarial assumptions for these

figures.

With the City retiree pool currently outnumbering active employees by an over-2 to 1

marginandgrowing,theCitymustaddresspensionandretireehealthcareliabilitiesaspart

ofanycomprehensiverestructuring.AsdiscussedaboveinSection3(b),theCityandits

advisorsarecurrentlyevaluatingwaystoreducetheseunfundedliabilities,whichinvolves

anevaluationofplandesignandbenefitsoffered,toidentifypotentialcostsavings.

Note: GRSUAALincludesGeneralCity,DWSD,DDOT,andLibrary.ThereductioninPFRSUAALinfiscal

year2011wasduetotheAct312awardsinApril2011andSeptember2011.

$(300.0)

$-

$300.0

$600.0

$900.0

2008 2009 2010 2011 2012

$inmillions

PensionUAAL

GRS PFRS


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DetroitWaterandSewerageDepartmentDebt

DWSDhasissuedapproximately$5.9billionofdebttofinanceitscapitalbudget.Thisdebt

includes:

$2.9billionofrevenuebondsissuedbytheSewerageFund; $2.6billionofrevenuebondsissuedbytheWaterFund;and $531millionofloansfromthestaterevolvingfund,themajorityofwhicharefrom

MichigansWaterPollutionControlRevolvingFundfortheDetroitSewerageFund.

Debt serviceontheDWSDdebt isincluded intheformula used tosetwater and sewer

rates,whicharepaidbyusersofthewaterandsewersystems.Thecurrentcreditratings

forthisdebtandthecostofcapitalcurrentlyavailabletoDWSDmaynotaccuratelyreflect

the quality of DWSDs projected revenue streams or the achievements associated with

DWSDsongoingoperationalrestructuringinitiatives.

OtherLiabilities

TheCityhasotherobligationstotalingapproximately$408million,whichinclude:

Notes/LoansPayable ($124millionoutstanding) areused by theCity to providefundsforvariouspublicimprovementprojects;

Parking Fund Bonds ($10 million

Financial and Operating Plan - City of Detroit - May 12, 2013

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Transcript of Financial and Operating Plan - City of Detroit - May 12, 2013