According to a report set to be officially released Monday by Detroit emergency financial manager Kevyn Orr, Detroit’s General Fund is in the negative and will remain so because the city is generating no revenue.
The long anticipated report will spell out the dire terms that the city is in financially as Orr works to get it back on a road to financial recovery.
“General Fund net cash flows are expected to remain negative due to the historical drop in revenues and increasing legacy liabilities absent significant structural changes. While the City is projecting to maintain a positive cash balance through December 2013, this is only as a result of the significant amount of payment deferrals and amounts borrowed from, and owed to, other funds, which is clearly not sustainable in the long run. Structural change 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 achieve its forecast,” according to the report coming out 45 days after Orr took over as emergency manager of Detroit.
The report shows that the city’s General Fund has relied on “deferring necessary payments and cash pooling to manage working capital needs.”
As of April 26, 2013, the General Fund had outstanding deferral and amounts of up to $226 million.
“This means that, to fund its day to day operations, the city’s General Fund has deferred expenditures and disbursements and relied on other funds’ cash since it does not generate sufficient cash flow of its own and does not have adequate cash reserves. Without these deferrals and working capital strategies, the City would have $226 million less cash available for its operations. These tactics are effectively borrowings and are in themselves debt obligations of the City that must be repaid,” the report noted.
However, Detroit is expected to maintain a positive cash balance on paper through end of the year because of “the significant amount of payment deferrals and amounts borrowed from and owed to other funds, which is clearly not sustainable in the long run.”
Orr’s report says, “structural change must occur to address the city’s deficit and cash burn. Further there are a number of risks to the cash forecast that could negatively impact the city’s ability to achieve its forecast.”