12/04/2012 02:44 pm ET Updated Dec 04, 2012

Detroit Pension Fund: City Officials Argue For Budget Amendment After Accounting Error

Detroit City Council members on Tuesday scheduled a vote for Dec. 5 on a proposed budget amendment -- one that's needed because the City Administration seemingly forgot to make a very important payout.

Council members could vote to change Detroit's fiscal year 2012-2013 budget to allocate $28.1 million from departments across the city to pay for pension costs that are still due from last year -- along with a $1.4 million late fee.

That will go toward the unfunded actuarial accrued liability (UAAL) debts in the city's General Retirement System. As of December 2011, that number topped $481.5 million, according to a report from the nonpartisan Citizen Research Council of Michigan.

But, according to Cheryl Johnson, who is now the city's finance director, the city never budgeted the required payment on that UAAL debt for the General Retirement System in fiscal year 2011-12. The error was discovered by accounting firm Plante & Moran while they were conducting an audit.

"For whatever reason, it was an oversight," said Irvin Corley, Jr., fiscal analyst for the City of Detroit.

Several councilmembers complained that they weren't given enough time to contemplate the proposed amendment.

Brent Hartzell is the interim Budget Director for the City of Detroit. He, too, said he wasn't in a position of authority with the department during the time the UAAL debts weren't paid down. But he attributed the mistake to a breakdown in communication occurring between the Finance and Budget departments.

"The budget was never altered during the course of fiscal year 2011-2012 to deal with the lack of a decision at that time," he explained. "Something should have obviously been done," he added. "I very much regret that it happened the way that it did."

In a letter Hartzell addressed to members of City Council, he argued that passing the budget amendment immediately is needed in order for auditors to complete the Comprehensive Annual Financial Report (CAFR).

"Absent this approval, the CAFR cannot be completed timely, imperiling the City's ability to receive state shared revenues and further weakening the City's overall fiscal condition," he wrote.

Detroit is projected to have a cash shortfall this month -- one that could be staved off if they receive $30 million the state of Michigan is currently holding in escrow. The city was supposed to receive a $10 million payment in November under the terms of a agreement between Detroit and the state, but collecting the money has turned out to be difficult since Council didn't approve a contract with law firm Miller Canfield, one of the milestones in the agreement.

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