AP pays pensions, but ends year with deficit

Sunday Times Newspapers

ALLEN PARK – As it has done before, Tuesday’s City Council meeting saw its members choosing between breaking two state laws.

The cash-strapped council voted that night to pay $1.9 million in pension payments, due yesterday, from the city’s $3 million general fund, after halting the payments for months to pay payroll and some vendors before a $2 million tax anticipation note, borrowing against future taxes, came in last month.

Councilman Bob Keenan suggested holding off the payments, which could result in legal action against the city, but would ensure the city had cash flow until property tax bills, sent out in July, begin to come back to the city.

Carl Johnson, of financial management firm Plante and Moran, said as long as some residents pay the taxes as soon as they receive them, which has historically happened, the city will have enough money to avoid payless paydays and repay the TAN, which though it provides cash flow, does not show up on the budget as revenue and still creates a $2 million deficit.

“The biggest concern is that the tax bills go out July 1 and every single one of our tax players decides not to pay a dime until they are actually due,” Johnson said. “Then the city would be in big trouble.”

Johnson projected Tuesday that by making the pension payment, the city would end the 2011-12 fiscal year with a $2 million deficit.

Keenan summed up the situation with a question to Johnson.

“So, we either break the state law that says you end the year with a balanced budget, or we break the state law that says we have to fund the pensions,” he said.

Though councilors chose end the year with a deficit, their biggest worry — that the action is a triggering event for an emergency financial manager — is now moot, as a preliminary review team from the state treasury has already begun.

“The trigger is that they would come and do an investigation,” Johnson said. “The trigger’s already been done.”

But “big trouble” is still on the horizon, Johnson said. By paying the pension payments, the city avoids possible legal action but adds that money to its projected deficit for the 2012-13 fiscal year, a total now projected at $6.5 million.

“As we sit here today, we don’t have anything concrete that balances that,” Johnson said.