The rebound in tax revenues from casinos and online gambling will give Detroit’s general fund a boost this year and in the years to come, as it tackles looming pressures on pension contributions.
The city’s estimate conference revised the general fund projections for fiscal year 2022 which began July 1 at $ 1.1 billion, from $ 995 million, mainly thanks to an increase of $ 66 million. now expected gaming revenue.
The forecast also increased the projections for fiscal years 2023 to 2026 by about $ 75 million per year from February’s estimates, mainly due to new internet gambling and sports betting options that have entered the market. in force in January.
The city also plans to close the books for fiscal 2021 with $ 999 million in revenue on hand, up from $ 848 million forecast last February.
“This increase in our revenue base is proof of a resilient economy in Detroit,” Jay Rising, the city’s chief financial officer, said in a statement. “As we implement our plan to invest federal pandemic stimulus funds to strengthen Detroit’s future and maintain fiscal responsibility for our budget, the city will strengthen its structurally balanced four-year fiscal plan.
The city’s $ 999 million in revenue for FY2021 still remains below the pre-pandemic estimate of $ 1.1 billion, but the new forecast places the FY2022 estimate of $ 1.1 billion. dollars barely above the pre-pandemic forecast for the year and the coming years to almost break even. levels.
Taxes on gambling provided the best spot for the city with $ 137 million raised in fiscal 2021, rising to $ 245 million this year, $ 261 million in fiscal 2023 , $ 264 million in fiscal 2024, $ 266 million in fiscal 2025, and $ 269 million in fiscal 2026.
The figure of $ 245 million for fiscal 2022 forecasts $ 179 million for casinos and $ 66 million for online sports betting.
State aid levels remain mostly stable and property taxes are increasing slightly. The city expects its income tax of around $ 250 million to $ 300 million a year to suffer about $ 50 million in losses over the next several years due to remote working by non-residents, a trend triggered by the COVID-19 pandemic that is likely to outlive him.
The increase in gaming revenue “will help offset the expected further cuts in city tax revenue from non-residents continuing to work remotely through hybrid work models or full-time remote work,” the city said. city in a statement. “Without the new gaming revenue, the city’s revenue forecast would still be below pre-pandemic levels.”
The city remains on track to close fiscal 2022 with a budget reserve of $ 107.3 million. Last year, he planned to raise $ 50 million to help cover the fiscal injuries of the pandemic, but reinstated it in the current budget. Officials doubled the target of 5% of spending to 10% of spending in FY2020.
“Slower-than-expected casino recovery, slower-than-expected recovery from the recession, greater than expected impact of remote work by non-residents, more lasting changes in economic activity due to changes in the workplace and behavior, future state and federal budget pressures resulting in cuts in local funding, ”and COVID-19 related setbacks also pose risks to the forecast, the report warned.
Under state law, the city holds a semi-annual, independent income conference in February and September, with the numbers guiding the city’s budget practices and its four-year budget plan.
Members who must approve the projections include Rising, Eric Bussis, an economist with the Michigan Treasury Department, and George Fulton, director emeritus of the Quantitative Economics Research Seminar or RSQE at the University of Michigan.
Federal aid has also helped the city recover from the pandemic. City council has approved Mayor Mike Duggan’s outline for the use of the city’s $ 826 million share in the American Rescue Plan Act. It allocates $ 400 million to cover budget deficits.
The remaining $ 426 million goes to a Detroit Future Fund that would fund community investments, including grants for jobs, small businesses, housing assistance, house repairs, neighborhood initiatives, community services. employment and reducing the digital divide.
The city’s economy is recovering faster than expected on the employment front, according to outlook first released in August and discussed at the conference on Wednesday. The forecasts are prepared by the City of Detroit University Economic Analysis Partnership, a collaboration of economics researchers from Wayne State University, Michigan State University, and the University of Michigan RSQE.
Earlier this year, the city received approval from the Detroit Financial Review Commission to operate independently of direct state oversight for a fourth year, but pension funding poses a potential threat to the future fiscal solvency of the city. city.
The city’s Chapter 9 restructuring plan that brought it out of bankruptcy in December 2014 requires independent estimates, a four-year financial plan, and a mandate to keep the city’s books in balance. The city operates on a budget of around $ 2.3 billion with a general fund of $ 1.1 billion.
The pressures on pensions weigh heavily. The city’s pension protection fund, known as RFP, held $ 234 million at the end of March and the city aims to increase it to $ 365 million to help the city cover around $ 202 million in contributions from retirement which will resume in 2024.
Contributions were suspended to give the city leeway after the bankruptcy and the special trust fund was put in place, but based on current projections it will only help the city until the fiscal year. 2027 when it is exhausted.
The city issued $ 80 million in general debt last October for public safety, recreation and transportation projects, marking its second standalone unsupported sale deal since coming out of bankruptcy. The city returned in February with a $ 175 million stand-alone GO issue under a $ 250 million burn elimination bond program approved by voters last November.
The city has won a series of upgrades since its Chapter 9 release, but its ratings remain speculative. Ahead of a recent $ 175 million general bond sale for late blight removal, S&P lowered the outlook for its BB-minus rating from stable to negative. Moody’s Investors Service rates the city Ba3 with a positive outlook.