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Detroit mayor seeks borrowing, state needs audit

Posted on: Wednesday, 22 March 2006, 14:06 CST

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.

Source: REUTERS

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