Detroit mayor seeks borrowing, state needs audit

CHICAGO (Reuters) – Detroit Mayor Kwame Kilpatrick wants
short-term borrowing to pay his cash-strapped city’s bills, but
the state treasury first needs to see a fiscal 2005 budget
audit, a Michigan official said on Wednesday.

Terry Stanton, a Michigan treasury spokesman, said Detroit
had filed an application for a cash-flow borrowing with the
state, but the state’s treasury department cannot process that
application until the city submits the audit.

The audit for the fiscal year that ended June 30, 2005, was
due by January 31, he added.

Kilpatrick asked the city council to approve a $130 million
borrowing to make a pension fund payment and to pay bills, the
Detroit News reported Wednesday. The paper cited a Detroit
finance department report that said without the borrowing, the
city would run out of cash by June.

Neither Detroit’s interim finance director nor the mayor’s
communications office could immediately be reached for comment.

James Wiemken, a ratings analyst at Standard & Poor’s
Ratings Services, said Detroit has been doing annual cash-flow
borrowings and that the move was not necessarily a sign of
fiscal stress.

He added that $50 million of revenue anticipation notes the
city sold last June come due in April and that state aid
payments to Detroit were set aside to pay off the debt.

“We’re waiting to see what the mayor’s budget looks like
and we expect to review the credit in conjunction with the
details of the budget,” Wiemken said.

S&P rates Detroit’s unlimited tax general obligation bonds
“BBB” with a negative outlook.

In his state of the city address last week, Kilpatrick
warned of necessary, but painful cuts as the budget was hit
with burgeoning pension obligations and a weak economy. He was
scheduled to submit his fiscal 2007 budget to the council on
April 12.

The city council’s fiscal analyst estimates that the city’s
deficit could reach $262 million.

The Detroit auditor general’s office was concerned the
city’s ongoing fiscal problems would lead to insolvency.

Stanton said Gov. Jennifer Granholm’s administration was
confident the mayor and city council will work together on
Detroit’s problems.

“We believe the city has the ability to handle its
financial situation,” he said.