Detroit ended its second-straight fiscal year with a balanced budget since emerging from bankruptcy 2-1/2 years ago, moving the city closer to exiting oversight by the state of Michigan, according to an audit released on Wednesday.
The comprehensive annual financial report showed Detroit ended fiscal 2016 on June 30 of last year with a surplus of $62.9 million.
“This audit confirms that the administration is making good on its promise to manage Detroit’s finances responsibly,” Mayor Mike Duggan said in a statement. “With deficit-free budgets two years in a row, we have put the city on the path to exit Financial Review Commission oversight.”
Detroit ended what was then the biggest-ever U.S. municipal bankruptcy in December 2014 after shedding about $7 billion of its $18 billion of debt and obligations. Puerto Rico's move to restructure $74 billion of debt earlier this month surpassed Detroit's case.
If Detroit ends the current fiscal year with balanced finances, the city will be able to shed active oversight by the commission, which meets monthly to approve city financial matters, including budgets and contracts. A $51 million surplus is projected for fiscal 2017.
A Michigan official in April said oversight for the state's biggest city could end early next year.
Richard Ciccarone, the head of Merritt Research Services, which provides research and data related to municipal bonds, said while Detroit's fiscal picture is brighter in the short-term, big liabilities for pensions loom. The city's ability to increase revenue may be hampered by taxes that are already high compared with the size of the tax base, he added.
"We're a long way from calling it a victory," Ciccarone said.
The fiscal 2016 surplus was part of the city's $143 million accumulated unassigned fund balances, which was up $72.1 million from fiscal 2015 due mainly to deferred debt service payments under the city's bankruptcy exit plan, according to the audit.
Detroit tapped $50 million from the balances in the current fiscal year to begin accumulating $377 million into a trust fund by the end of fiscal 2023 to help cover higher-than-expected pension payments starting in fiscal 2024, the mayor's office said.
Another $50 million was allocated for fiscal 2018 blight removal and capital improvements, reducing the available balance to $43 million.
"This cushion will allow the city to manage risks associated with potential changes in the economy or federal funding," the mayor's office said in a statement.
(Reporting by Karen Pierog in Chicago; Editing by Matthew Lewis)