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House committee approves Detroit bond proposal

Ed Brayton — Thu, 10 Dec 2009 12:11:23 +0000

Detroit Mayor Dave Bing’s proposal to sell $250 million in debt reduction bonds cleared its first major hurdle then the state House Appropriations Committee approved the sale by a 19-8 vote on Wednesday. The bonds be backed by future state revenue sharing funds and future property tax receipts, both of which have been dropping steadily for years. No word on how the city will pay its bills when those future funds are used to pay off the bonds and therefore unavailable to pay their then-current bills.

Bing seeks bond to pay down debt

Ed Brayton — Fri, 20 Nov 2009 12:24:26 +0000

Mayor Dave Bing is going to ask the Detroit City Council to approve a debt reduction plan that includes selling $250 million worth of bonds to pay down some of the city’s $300 million in already existing debt. The Detroit Free Press reports:

Detroit Mayor Dave Bing is expected to ask City Council today to approve the sale of a $250-million bond that would help reduce the city’s accumulated debt.

“A deficit elimination plan will be submitted to council that is inclusive of a $250-million deficit-elimination bond,” Karen Dumas, Bing’s director of communications told the Free Press.

Those who have taken a basic math class may be wondering how you reduce a $300 million debt by adding a new $250 million debt and pondering analogies like filling up a hole with more dirt from that same hole. That would be a very reasonable question, and one that the bond rating agencies — which already have Detroit’s securities rated at junk bond status — will undoubtedly be asking.

Theoretically, of course, this could work. It’s like using the equity in one’s house to pay off their credit card debts, thus spreading out the payment of the short-term debt over a longer period of time. But it only works if you don’t run the credit card balances back up again, something that will be difficult to avoid in Detroit — especially with the recent cuts in state revenue sharing costing the city $38 million next year.

Detroit sells bonds to prevent insolvency

Ed Brayton — Wed, 14 Oct 2009 11:04:54 +0000

The Detroit City Council voted on Tuesday to approve the sale of $94 million in bonds backed by future property tax receipts in order to keep the city running. The vote was 6-1, with only councilwoman JoAnn Watson voting against the proposal.

The problem may be selling the bonds because of Detroit’s junk bond designation from the bond rating companies. That means they will have to promise larger payouts to entice buyers while borrowing from themselves. It also means that those future tax receipts will not be available down the line to cover current budget necessities when the bonds come due.

Unfortunately, the city had little choice. Without the bond sale, the city government would likely have been insolvent in a matter of weeks, unable to cover payroll and other expenses.