It should come as no surprise that Gov. Snyder has confirmed that the City of Lincoln Park is officially in a financial emergency, having a current structural deficit of $89,903, which officials have projected will grow to approximately $1 million by next year. Factors leading to the crisis are not unique to the city — declining tax revenues and burgeoning legacy costs simply overwhelmed the municipality. They will be joining the neighboring communities of Allen Park, Ecorse, and River Rouge — all determined by the state to be in fiscal crisis, along with Detroit. It total, 17 public bodies are functioning under provisions of the emergency manager law, with 15 of them in Southeast Michigan.
But Lincoln Park’s story differs in one important aspect.
Previous payroll budget cuts adversely impacted the city’s institutional memory and its retirement fund revenues, which ultimately nudged the city to the edge of the financial precipice. Ten years ago, city officials tried to do the right thing, but instead, they inadvertently accelerated the crisis.
In a fiscal belt-tightening move back in 2004, Lincoln Park offered early retirement to its employees, but they didn’t anticipate the resulting human resource exodus. Mid-level management bailed. From the financial Review Team report:
The spiraling deficit was further exacerbated by sharp declines in property tax revenues over that period. Property taxes accounted for 60 percent of the city’s General Fund, but over the past five years that revenue stream decreased by 31.6 percent, going from $793 million to $543 million. In 2013, Lincoln Park was forced to borrow $2.5 million from its Water and Sewer Fund just to keep up with annual Pension Fund payments.
The city had additionally stopped making required debt service payments to SunTrust Bank, who responded with litigation. In December, an agreement was reached to settle that debt — to be paid for by a two-year special assessment of $58 per parcel. That came one month after another property tax increase of $37.21.
Lincoln Park has seven days in which to decide among the four options offered under Public Act 436, the emergency manager law. They may request a consent agreement, an emergency manager, Chapter 9 bankruptcy, or a neutral evaluation. The likely outcome will be a consent agreement. A municipality with their projected deficit does not necessarily warrant emergency management or bankruptcy.
The Lincoln Park situation is comparable to the cities of Inkster and River Rouge — both having “opted” for a consent agreement. They were joined yesterday by tiny Royal Oak Township. Inkster entered into their agreement with a deficit of nearly $3 million, River Rouge at a fraction under $1.7 million and Royal Oak Township with just over $300,000 in red ink. Typically, only the big boys get emergency managers, although Hamtramck and Allen Park have bucked that trend and taken on a dictator. If Lincoln Park officials find they cannot produce a workable consent agreement, they too may sacrifice democratic home rule for financial expediency. Ultimately, the decision lies with Lansing.