City of Detroit: A quick study guide

By Cate Long
March 15, 2012

Detroit is increasingly in the news as the mayor tussles with the governor over who will control the restructuring of the city and its finances. The media are doing a good job reporting on the politics, but I thought a quick study guide to the city’s finances might be useful. The reference document is the 2011 Comprehensive Annual Financial Statement for the City of Detroit, filed at MSRB’s EMMA system. If you are familiar with reading a public company 10-K, the CAFR will feel very familiar. If you are considering buying any of the debt of Detroit, you should study this document.

Here’s the statement of the overall economic condition of the city:

Although the City’s current economic condition is poor, the future outlook for recovery and improvement is positive. The City in 2011 had an increase in the issuance of building permits for new construction. Quicken loans and Blue Cross Blue Shield transferred a total of 4,700 employees from suburban cities to the City of Detroit in 2011.

On the constitutionally imposed limit on the city’s debt (Page 29):

The City’s legal [general obligation] debt limitation at June 30, 2011 was $1.2 billion, of which $184.9 million is available for use.

On the amount of debt outstanding (Page 29):

At the end of the current fiscal year, the City had total bonded debt of $5.6 billion outstanding. Of this amount, $1.0 billion are general obligation bonds backed by the full faith and credit of the City and $4.6 billion are revenue bonds of the City’s business enterprises.

In addition to the bonded debt, the City’s governmental activities had a total debt of $2.1 billion at June 30, 2011 for: pension obligation certificates ($1.2 billion); notes payable ($88.9 million); loans payable ($36.6 million); other postemployment benefits ($481.5 million); and other debt ($254.4 million) such as accrued pollution remediation, accrued compensated absences, workers compensation and claims and judgments. The pension obligation certificates decreased $8.9 million for the year ended June 30, 2011.

On the assets in the pension trusts (Page 56):

Net Assets Held in Trust for Pension and Other Employee Benefits $5,840,417,463

On the changes to Pension and Other Employee Benefit Trust Funds for 2011 (Page 57):

Additions $1,538,734,961

Total Deductions $996,122,011
Net Increase $542,612,950

On the funded ratios for pension plans (page 119):

87.1%

96.6%

Pension Plan detailed description (page 116)

Derivatives (page 113)

Hedging Derivatives $1,246,905,000
Investment Derivatives $1,831,745,000 + $749,880,000

Counterparties
Citigroup Financial Products, Inc. Guaranteed by Citigroup Global Markets Holdings, Inc.
JPMorgan Chase Bank, NA
Loop Financial Products Credit Support provided by Deutsche Bank AG
Morgan Stanley Capital Services, Inc.
SBS Financial Products Company, LLC guaranteed by Merrill Lynch & Co.
UBS, AG

Financial Trends – Changes in Net Assets, Last Ten Fiscal Years (page 180)

Revenue Capacity – Assessed and Actual Value of Taxable Property Last Ten Fiscal Years (page 188)

Revenue Capacity – Principal Property Tax Payers (page 192)

Debt Capacity – Ratios of Outstanding Debt by Type (page 196)

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