Detroit mayoral candidate accuses state of inflating city's debt

Feb 27, 2013

Lisa Howze
Lisa Howze

A Detroit mayoral candidate says a state financial review team vastly overstates the city’s debt burden—and their motives are political.

Lisa Howze, a former state representative and an accountant, says her own calculations show the city’s debt load is just a little over $2 billion.

In its report outlining Detroit’s financial emergency, the state review team put the number at closer to $15 billion. Their report is now in Governor Snyder’s hands as he decides whether to appoint an emergency manager for the city.

“It painted a very grim picture about the city’s financial outlook, and our ability to manage that debt,” Howze said, suggesting the report aimed to justify Snyder appointing an emergency manager.

Randy Lane is a certified public accountant who worked on Detroit’s Comprehensive Annual Financial Report. The review team drew extensively from that document in its report.

Lane agrees with Howze’s analysis of Detroit’s debt, alleging that the state number is based on its “own set of accounting rules.”

“We’re mixing apples, with oranges, sometimes with pears,” Lane said.

“Once you start going down that path, one appropriately would question, what’s the agenda? Why do we need to make the city of Detroit’s financial position look worse than their audited financial statements?”

The process by which Howze and her team whittled the state’s debt number down by almost $13 billion is pretty complicated.

The single biggest chunk of bonded debt—about $6 billion of the almost $15 billion calculated in the state report—actually belongs to the Detroit Water and Sewerage Department.

The DWSD is a separate entity. It’s also a revenue-generating agency with its own enterprise fund, and Howze maintains it makes more than enough to cover its own debts.

The review team cites another big long-term liability for Detroit: $5.7 billion for so-called other post-employment benefits—basically, retiree health care costs.

Howze and Lane insist that number puts a spread-out future cost on the books all at once, and suggest the real number for today’s purposes should be about $800 million.

Howze did acknowledge those benefits are a long-term financial drain, but says that can be fixed.

Add another $1.4 billion Howze’s team counts as a “plus” on the city’s balance sheet and can cover liabilities, and with that, the city’s debt has been whittled down to $2 billion.

Another presumed Detroit mayoral candidate, Wayne County Sheriff Benny Napoleon, issued a statement Wednesday largely agreeing with Howze.

"We have been in the process of verifying similar findings over the past few days, but it clearly appears that the city's long-term debt obligations have been immensely inflated," Napoleon said.

"The governor and treasurer owe the city of Detroit and the rest of the world an immediate and thorough explanation as to how they justify these discrepancies,” he added.

The state, however, does not agree with Howze’s analysis.

“The review team report speaks for itself and is very clear on the city's long-term liabilities,” State Treasury spokesman Terry Stanton said in an email.

A 2011 report from the Citizens Research Council of Michigan projected debt numbers more in line with the state’s than Howze’s.

But Howze insists the state is selling “myths” about Detroit’s debt burden to make an emergency manager seem like the only solution.

“It does not place us in a crisis mode that justifies a state takeover of local government,” Howze said. “Debt is not something we fear. Debt is something we manage.”

Howze did suggest the state could be a better “partner” to Detroit, helping the city collect revenues it’s owed, as well as helping to renegotiate its debt.