IS INSOLVENCY IN DETROIT’S FUTURE?

IS INSOLVENCY IN DETROIT’S FUTURE?

Detroit emergency manager says city ‘clearly insolvent’

http://www.reuters.com/article/2013/05/13/us-usa-detroit-emergencymanager-idUSBRE94C0YD20130513

Reuters – Nick Carey and Steve Neavling – 5/13/2013

"The City of Detroit continues to incur expenditures in excess of revenues despite cost reductions and proceeds from long‐term debt issuances," Orr wrote. "In other words, Detroit spends more than it takes in - it is clearly insolvent on a cash flow basis."

Legal experts indicated the declaration of insolvency is important because the city cannot make a bankruptcy filing without an official declaration of insolvency.

Pension payments to city workers are one of the largest drains on the city's finances. Detroit will make $31 million in pension payments this year, but will defer another $108 million. The city also has $5.7 billion in unfunded retiree benefit obligations, more than previous estimates, the report found.

To catch up on pension and health benefits to retirees, the city would need to spend $339 million, about a third of its fiscal 2013 revenues, Orr estimated. Orr said a city task force was reviewing actuarial assumptions Detroit uses to estimate its obligations.

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