As city leaders, we have done a poor job in articulating the benefit and impact to citizens and businesses of a City of Detroit balanced budget.
A city government operating with an annual deficit like Detroit has for more than a decade affects the rates we pay on debt. Bottom line, what does this mean to you? Less funds for municipal services as dollars are diverted to make debt payments.
The more municipal debt we racked up, the more bonds we sold to make debt payments and cover operational expenses. Of course the interest rates continued to grow. This is a vicious cycle that we must end.
For instance, if you have $10,000 in household credit card debt, the interest rate you pay on that debt rises the longer you take to pay it off.
Sometimes families use other credit cards to pay off debt which increases your overall debt load. This creates a never-ending cycle. What is more detrimental is debt payments becoming a priority that diverts funds from family purchases and monthly living expenses. Disposable income is nonexistent and is not even a topic for serious conversation.
A household cannot survive in that financial model, nor can a municipality.
Essentially stacking up debt in the City of Detroit has forced the diversion of funds from service delivery to debt payment. That means less money for public safety, less money for recreation and less money for other municipal services.
There is further impact outside of city government. As the City of Detroit's debt has climbed, contractors have not been paid in a timely fashion. In order to cover payroll they pay more for their line of credit and other operational expenses -- this adds to their cost of doing business.
These matters adversely affect private industry costs and job opportunities in our city.
In June, we were spending $360,000 more per day than we were bringing into city coffers. This is unsustainable!
As you can see, the sacrifice of reducing the budget by $250 million, although difficult, it is absolutely necessary.
A balanced budget starting during the current fiscal year, affords us the capacity to begin eliminating our deficit and pay toward our debt.
As we continue balancing the budget, paying more toward the debt, our bond rating improves, giving us the capacity to refinance the debt at lower interest rates, so we may pay it off more quickly.
In three years, when we have eliminated the structural deficit then we may invest more funds into public safety, trash pick-up and other core municipal services.
The end goal is a fiscally stable, efficient municipal government that creates the environment for you and other Detroiters to thrive.