Review Team Finds Financial Emergencies in Royal Oak Twp. & Highland Park

Review Team Finds Financial Emergencies in Royal Oak Twp. & Highland Park
(State of Michigan Press Release, Jan. 25, 2014)
Two separate, independent Financial Review Teams, appointed December 2, 2013 to examine the finances of Royal Oak Township and the City of Highland Park respectively, under Public Act 436 of 2012 (Local Financial Stability and Choice Act) have concluded that a local government financial emergency exists in each of the municipalities. Governor Rick Snyder now has 10 days to consider both review team reports and reach a determination on the financial condition of the two local units.
Each of the Review Teams held several meetings to consider the respective municipality’s finances and conduct interviews with elected officials, department heads, and other individuals with knowledge and information relevant to the respective reviews. Each team also conducted a Public Information Meeting with local residents, as required by PA 436.
The Royal Oak Township Review Team’s report indicates that numerous conditions led to the determination that a financial emergency exists in the township, including but not limited to:
~ The combined year-end balance in the township’s governmental funds (i.e., General, Police, Fire, Recreation, and Non-Major Governmental) decreased from $200,324 as of December 30, 2011 to a negative $298,983 as of December 30, 2012. This one-year negative net change of $499,307 resulted from an operating deficit (i.e., expenditures in excess of revenues) of the same amount.
~Financial audit reports for the Township for its last three fiscal years reflect variances between General Fund (GF) revenues and expenditures, as budgeted and amended, versus GF revenues and expenditures actually realized. Actual GF revenues were less than had been budgeted for two of the three fiscal years (2010 and 2011), however, in neither fiscal year did Township officials amend the budget to reflect that less revenue was being realized.
~Township officials failed to adopt a budget for the current fiscal year, as required by law, before the fiscal year began on January 1, 2014. Township officials have twice failed to adopt a lawfully-enacted budget in 2014, as a result of failing to act by resolution, as required by law, and failing to satisfy statutory, public notice requirements. To date, questions remain as to whether the township lawfully may incur, or pay, financial obligations.
~Township officials have been unable, on a consistent basis, to timely meet contractual obligations for fire services (provided by the City of Ferndale) or for police services (provided by the Oakland County Sheriff’s Department). The Oakland County Sheriff’s Department terminated services to the Township in November of 2013, due to nonpayment for services rendered.
Members of the Royal Oak Township Review Team were:
Suzanne Schafer, administrator, Local Audit and Finance Division (State Treasurer’s designee); Doug Ringler, director, Department of Technology, Management and Budget’s Office of Internal Audit Services (DTMB Director’s designee); Mark Wollenweber, city manager, Grosse Pointe Shores (nominee of Senate Majority Leader); Dennis Cowan, partner with Plunkett Cooney (nominee of the Speaker of the House of Representatives); and, Frederick Headen, legal advisor for the Department of Treasury.
The City of Highland Park Review Team’s report indicates that numerous conditions led to the determination that a financial emergency exists in the township, including but not limited to:
~According to the city’s 2013 fiscal year financial audit, the ending balance in the Water and Sewer Fund increased from a negative $5.5 million as June 30, 2012, to a negative $12.5 million as of June 30, 2013. This 125.6 percent increase in the negative fund balance was attributable to a $7.7 million operating loss during the 2013 fiscal year which was offset slightly by a transfer of $771,279 from the city’s General Fund.
~City officials consistently have been unable to issue timely and accurate bills to residential and commercial users of water and sewer services. City officials have permitted this situation to persist despite an increasing deficit condition in the City’s Water and Sewer Fund, noted above.
~City officials engaged in expenditures in violation of Sections 17 through 20 of Public Act 2 of 1968, the Uniform Budgeting and Accounting Act. For the City’s 2012 fiscal year, there were unbudgeted expenditures in several funds. For example, the Federal Grants Fund had unbudgeted expenditures of $3.5 million and the General Fund had $491,161 in unbudgeted expenditures in the form of a transfer to the Water and Sewer Fund to supplement operations.
~As of October 31, 2013, the City owed approximately $19.5 million in total accounts payable to various venders. This total included an estimated $18.2 million owed to the City of Detroit for water and sewer services; $311,380 owed to DTE Energy; $142,265 owed to Wayne County for property assessing; $125,370 owed to Wayne County for prisoner maintenance; $105,667 owed to the City of Hamtramck for municipal income tax collection and administration; and $101,284 owed to the State of Michigan for principal and interest upon outstanding emergency loans.
Members of the Highland Park Review Team were:
Ed Koryzno, administrator, Office of Fiscal Responsibility (State Treasurer’s designee); Doug Ringler, director, Department of Technology, Management and Budget’s Office of Internal Audit Services (DTMB Director’s designee); Robert Burgess, former automotive executive (nominee of Senate Majority Leader); Chris Roosen, global sales manager, Woco Tech USA (nominee of the Speaker of the House of Representatives); and, Frederick Headen, legal advisor for the Department of Treasury.
For more information about Local Financial Stability and Choice Act, visit the Local Government Fiscal Health page on the Department of Treasury’s website at www.michigan.gov/treasury.

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