Detroit’s coronavirus budget squeeze means staffing and service cuts are coming

In an address Tuesday night, Mayor Mike Duggan got real about the city’s grim financial situation in the aftermath of Detroit’s coronavirus epidemic and what budget cuts will mean for workers. Overall, the accounting underscored the fragility of Detroit’s recent and slow economic recovery, while sparking flashbacks to the deep cuts to services residents faced in the years before bankruptcy. 

The big number to know: $348 million. That’s the city’s projected revenue loss over 16 months — $154 million for the current fiscal year, which ends June 30, and $194 million in the following fiscal year. They predict the biggest loss will be $150 million in income taxes, due to the high rate of unemployment, and then $112 million in casino taxes. 

The city’s annual general fund budget: $1.086 billion, about half of the overall budget. The projected revenue declines amount to 15% of the general fund budget this fiscal year and 18% in the next year. The city has also spent more than $11 million on COVID-19 response.

“Next to Las Vegas … we probably got hit harder than any city in the country because we rely on the casino taxes,” Duggan said. He added that since casino revenue usually continues even in a downturn, this kind of loss wasn’t projected in any of their modeling. 

The next big number to know: $50 million. That’s the remaining budget shortfall after $298 million is covered by reallocating rainy day funds, saved surpluses, funding for blight demolition and a few other chunks of change. 

“There’s no way around the fact that the last $50 million is going to have to come from the men and women delivering service in this community,” Duggan said, introducing job cuts. 

Here’s how the job cuts are broken down:

200 part-time workers, like employees at the rec centers that are currently closed, will be laid off. The city will file for state unemployment benefits on their behalf, as well as for full-time workers with reduced hours. 

900 full-time workers will have their hours and pay reduced by 90% through the crisis — this is mainly so the city can bring them back when it’s safe and continue paying their health insurance, Duggan said. Includes DPD traffic controllers, DDOT ticket sellers and other positions that aren’t currently able to work. 

1,300 full-time workers will have their hours and pay reduced by 20%. Includes accountants, IT specialists, financial analysts and others. 

100 workers who make over $125,000 will have their pay cut 5% through June 2021 and continue to work the same hours. 

5,500 workers who work in frontline jobs will not have any cuts (and did already receive additional hazard pay) — though they, like other full-time employees, are being asked to forego scheduled pay increases in July. 

Duggan was clear that keeping essential services running meant others would be limited, including blight reduction, his major priority for years before the coronavirus epidemic, as well as road repairs and rec center operations. 

City Council will have to approve some elements of Duggan’s plan, though layoffs are beginning next week.

Why a deficit really, really matters: After emerging from bankruptcy, Detroit still didn’t get out from state oversight (through the State Financial Review Commission) until 2018. But if the city runs a deficit, the city will be subject to state oversight again for a minimum of three years.

“If we don’t handle this deficit ourselves, the state of Michigan is going to be running this city again and I’m going to do everything I can to ensure that doesn’t happen,” Duggan said. 

The mayor also credited City Council and his administration for good financial management in the last few years, saying the budget crisis could have been much worse. A financial analyst at Moody’s told ABC News that though the city is more exposed to downturns than most cities because of its reliance on gambling and income taxes, it “has an improved capacity to respond to stresses.”