This is DV's annual review of Detroit. Read Distressed Detroit on July 12, 2008 where I looked at the city's 2006 CAFR. On August 21, 2009 Moody's PFG (U.S Public Finance Group) downgraded $781 million General Obligation debt further into junk ($491 million GO unlimited Debt to Ba3 from Ba2 and $290 million GO limited debt to B1 from Ba3). Go here for the ratings scale. These June 30, 2007 numbers are prehistoric! On June 30, 2007 things were just getting started; the credit crisis, global recession, GM and Chrysler bankruptcies, 28.9% Detroit unemployment rate, -25% YoY housing prices (Detroit/Las Vegas were the only cities that saw housing price declines in July) and a corrupt local Government. It is all catching up now.
"Charles Beckham, Bing's chief administrative officer, said the city is operating with a $60-million to $80-million cash shortage -- one that could implode come October -- on top of the $275-million to $300-million overall deficit." (Freep, Aug 25)
Review of City of Detroit 2007 CAFR (PDF or ci.detroit.mi.us)
- General Fund Rev-Exp with transfers $15 million (slide 4)
- Total Government Funds Rev-Exp w/ transfers -$16 million (5)
- Total Government Fund Balance Down 65% ($456M to $157M) from 2003 (6)
- Using RANs and TANs for short term cash flow needs ($129.3 Million) (3)
- Net Cash & Investments $153M - Short Loan Payables $129M = Net Cash $23.7M (Moody's) (2,3)
- Net Cash: '01 = 38M, '02 = 59M, '03 = 121.6M, '04 = 101M, '05 = 59.4M, '06 = 30.3M
- Total General Fund Deficit -91M, improved 14% from -107M (still a deficit since '05) (1)
- From General Fund $70M transferred to Transportation, $67M to Debt Service Fund
- Swap agreement amended but termination would owe $400M to counterparties (p.22)
- Principal property tax payers in 2007: Chrysler, Detroit Edison, GM, MGM Grand, American Axle
(1) General Fund Reserved and Unreserved Balance Trend
(2) General Fund Assets FY 2007
(3) General Fund Liabilities FY 2007
(4) General Fund Rev-Ex FY 2007
(5) Total Governmental Fund Balance Trend (Rev-Ex)
(6) Total Gov Fund Balance: Transfers In/Out, Ending Balance Trend
Recent Articles:
Bing: Detroit must redefine leadership (Detroit News)
Tough economic times pressure Detroit to sell its assets (Michigan Messenger)
Detroit's financial crisis comes to a head as city tries to solve the $300 million question (Mlive)
Detroit deficit has some fearing city can't stay afloat (Examiner)
48 vacant buildings blight downtown Detroit (DetroitNews)
Critics blast Bing for passing blame in Detroit's financial mess (Detroit News)
Detroit on brink of financial ruin (Freep.com)
Moody's Investors Service lowers Detroit's bond status to below junk (CrainsDetroit)
Moody's Lowers Detroit (further into junk) (Bond Buyer)
Mayor lays off 205 city of Detroit workers, bus service unaffected (CrainsDetroit, Channel 4 Video)
Bing aide: Detroit's cash shortage could implode (Freep.com)
Bing's aides try to avoid layoffs for Detroit bus drivers (Freep.com)
Who's the biggest loser in a municipal bankruptcy? (Freep.com)
Bankruptcy mulled for Detroit schools amid scandal (Reuters)
Detroit needs tough medicine, not bankruptcy (TheDeal)
Bing: It's time for the city to face reality (Freep.com)
Now looking into the future, will Interstate Traveler Corp. of Detroit build the MagLev rail to save Detroit's tax base, vacant industrial space, employment and this Country?
"East Lansing -- Private investors have stepped forward with enough money to build a prototype for a futuristic elevated rail system that would race along freeway routes between Lansing, Ann Arbor and Detroit, according to experts who testified at a hearing on the proposal Monday. State Rep. Bill Rogers, R-Brighton, who heads a task force looking into whether the state should grant easements for the rail line along Interstate 96, U.S. 23 and I-94, said the system is possible -- provided there's private funding to meet the $2.3 billion price tag."
"The "MagLev" rail line would incorporate hydrogen and solar technology, and magnetic forces would help propel train cars along stainless steel tubes. Interstate Traveler Co. LLC, the Detroit company that developed the MagLev system, said a prototype could be built within a year. (Interstatetraveler.us)" Detroit News
In my opinion that's $2.3B well spent. The Amtrak is horrible. Also this wasn't the first time Detroit was downgraded to junk. Read this article: A Downgraded Detroit Cries Foul: New York Times 1992. Is a secular double bottom reversal coming for the D?
