Detroit Mayor Mike Duggan will ask the City Council this week to put a $250 million bond proposal on the ballot.
The council has to approve the proposal by early December to make the March 2020 ballot.
If voters approve, the junk-rated city plans to issue $250 million of new money, unlimited tax general obligation bonds, Duggan said Monday. The bonds would be sold on the city’s own credit. The city issued its first standalone borrowing since its 2013 bankruptcy last December.
Proceeds will help the city complete the removal or renovation of remaining abandoned homes as federal and state money for the program runs dry. Duggan first announced the plan in May.
Duggan said on Monday that the funds will be used in addition to funds the city has set aside as part of the city’s plan of adjustment. The bonding would not require an increase in taxes; it would be paid back through existing city revenues.
“We are going to take that bonded money and add it the funds we committed in the plan of adjustment, which was $50 million a year to be used for blight overall — $30 million for taking down houses,” Duggan said. “The good news is our finances are strong. We can sell a bond issue with no increase in taxes. This will be on the ballot.”
The bonds would be unlimited tax general obligations of the city.
Moody’s Investors Service rates Detroit’s general obligation bonds Ba3, three notches below investment grade, and last upgraded the city nearly a year ago. S&P Global Ratings in February upgraded the city’s general obligation ratings to BB-minus — also three notches away from investment grade — from B-plus.
“In today’s market conditions I think Detroit could access the market at favorable rates without difficulty, notwithstanding that issuing bonds for blight removal is somewhat atypical,” said Lisa Washburn, a Municipal Market Analytics managing director. “Assuming market conditions remain similar to today and that the city’s finances continue to trend positive, then I’d expect that they will find a welcoming group of buyers at issuance.”
A city spokesperson said that if bond proposal fails at the ballot the city would complete the blight removal process over a period of 13 years using only existing city funds instead of the accelerated five-year time frame using the bond funds.
Detroit has received $265 million in federal funding since 2013 to target blight by tearing down vacant structures. It has demolished nearly 18,000 structures, and the Detroit Land Bank has sold 6,000 vacant houses to be rehabbed and occupied.
The city budgeted to use more than $100 million of assigned fund balance for capital projects and blight remediation in fiscal 2020. Revenue projections based on the May 2019 revenue estimates review show the city expects fiscal 2019 revenues $52 million above the budgeted level. The projected surplus will replenish unassigned fund balance previously appropriated for blight and capital improvements in FY 2020
Council President Brenda Jones said in a Sept. 17 memo to the Duggan administration that she wants several stipulations and requirements put in place if the ballot initiative is approved.
Jones wants the bond funds to be placed in an escrow account with a requirement that council must approve any “draw down” on the bonds. Jones also wants the bond funds to be drawn in five increments of $50 million, with 25% of those funds set aside for investment into foreclosure prevention and assistance.
Jones also wants each increment of $50 million to have 30% of the funds set aside for Detroit-based and Detroit-headquartered businesses.
A blight elimination performance review and implementation strategy would also have to be submitted at least 30 days prior to the request to use the funds from the escrow account. Jones also wants the administration to submit a monthly report.