From the Edge of Bankruptcy to a Decade of Surpluses

In 2013, Detroit became the biggest city in the country ever to file for bankruptcy. A year later, it looked like Wayne County, Mich., the city’s home county, was headed in the same direction.

The county had posted a string of annual budget deficits, with a structural deficit of about $52 million, according to Warren Evans, the Wayne County executive who was elected in 2014. Its pension fund was only about 45 percent funded, threatening its ability to fulfill its commitment to retiring public workers. And its bond rating had been lowered to junk status, making it more difficult to borrow money for public infrastructure and other obligations.

Now in his third term as county executive, Evans is marking a sustained turnaround for the county’s finances. The $2.23 billion budget approved by the Wayne County Commission last month is the county’s tenth budget in a row to have a surplus. Evans says it was a series of difficult choices made with emergency powers and a focus on sustainable budgeting that helped Wayne County step back from the ledge.

“Anybody that you talk to, unless they have some kind of revisionist history, would tell you that we were going into bankruptcy just like Detroit,” Evans says. “It was kind of my commitment not to do that if at all possible. At that point I wasn’t really sure.”

There were economic conditions that precipitated the county’s fiscal crisis, including population loss and a changing economy in Detroit, along with the 2008 recession. But there were also bad financial decisions made by previous county leaders, Evans says. The county’s spending was based on unrealistic revenue expectations.

“Everybody who could count to 10 knew the budget was crap,” Evans says. “We’d never be able to deal with it short of kicking the can down the road and waiting for a miracle.”

Facing a financial emergency, the county had a few options to avoid a state takeover, including bankruptcy, mediation, and a consent agreement with the state. The county chose a consent agreement, which, in part, gave Evans sole negotiating power with public workers’ unions. Evans imposed cuts to employees’ wages and benefits which he said were necessary to eliminate growing deficits. He eliminated a so-called “13th check” for pensioners, which rewarded retirees with additional money when pension funds had good returns. The county also froze salaries, let some positions go unfilled, and cut certain programs.

Many of those decisions were painful, and some were unpopular. One former county commissioner noted in 2015 that unions had only accepted certain conditions because they had “a gun to their heads” under the county’s emergency powers. A union leader said at the time that the county should have considered a property tax increase to offset cuts.

Evans says he has not asked for a millage increase on property, which makes up the bulk of Wayne County’s revenue, since taking office. Tax increases are "often a crutch for not making the best use of current tax dollars," he says. He says the public is likely to be more supportive of future tax increases that are tied to specific public benefits because the county has held off on raising taxes in recent years. But increases in property values have also helped shore up the county’s finances.

Alisha Bell, the Wayne County Commission’s longest-serving member, says she voted against the elimination of the 13th check partly because she couldn’t face her father, a retiree, if she had voted for it. The measure passed the county commission by a vote of 8-5. The county also eliminated non-essential programs, like a workforce program that provided an alternative to sentencing for criminal offenders.

“A lot of the hard decisions were made at the beginning [of Evans’ tenure],” Bell says. “We really had to kind of go to the bare bones of our county government.”

Evans, who is a Democrat, says there was some political backlash when he called in a Republican financial manager from a neighboring county to help address Wayne County’s budget problems. He believes he also had credibility with some unions because he’d been a county employee since the early 1970s. He made a point of “not sugarcoating” the county’s financial problems.

“I wanted everybody to see how deep the hole was so the focus would be on the seriousness of the problem,” Evans says.

Wayne County had a small surplus in its 2014-2015 budget. It had a larger one in the 2015-2016 budget. The county’s standing with bond rating agencies has gradually improved. That has made borrowing cheaper and freed up more room in the general fund, Evans says.

The county’s pension funding ratio is now about 63 percent, Evans says. While anything short of 100 percent is less than ideal, Evans says an 80 percent funding ratio is foreseeable.

“We’ve got some way to go there, but at the rate we’re going, we’ll get there,” he says.

Wayne County has also been increasing compensation for public employees. It negotiated a contract with its public safety workers last year that includes pay increases of about 25 percent over several years. The current budget also includes about $25 million in raises for rank and file workers, according to reports. The stability of the county’s finances has also helped with worker recruitment and retention, Evans says.

“If you’re bringing people in, you don’t bring them into a financial situation where you’re on the brink of bankruptcy,” he says. “That doesn’t attract people.”

Having worked for the county for nearly 50 years, he says he’s focused on improving its image. He says stabilizing the county’s finances — without resorting to bankruptcy or an unelected emergency manager — went a long way to achieving that.

“I always look at the worst-case scenario in planning,” Evans says. “The goal for us is to do things that are sustainable.”