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• UM continues to predict Detroit’s economy is coming back faster than expected, and employment data suggests a growing labor force offers opportunities for acceleration in employment levels.
• The successful reopening of the casinos and the new internet gaming activity have helped stabilize the City’s four-year revenue forecast as employment recovers in the City.
• The forecast also shows the return on past efforts to create good-paying jobs in the City of Detroit; an effort which our plans for investing in the American Rescue Plan Act recovery funds will magnify.

DETROIT - On September 15, the City of Detroit held its regular biannual Revenue Estimating Conference to receive an update to the Detroit Economic Outlook for 2020-2026 and approve revised economic and revenue forecasts for the remainder of fiscal year 2022 and for fiscal year 2023 through fiscal year 2026. State law requires the City to hold independent revenue conferences in September and February each fiscal year to set the total amount available to be budgeted for the next four years.

The Detroit Economic Outlook for 2020-2026, which was previously released in August, reports that Detroit’s employment recovery from COVID is exceeding expectations. The forecast is prepared by the City of Detroit University Economic Analysis Partnership, which is a collaboration of economic researchers at Wayne State University, Michigan State University, and the Research Seminar in Quantitative Economics (RSQE) at the University of Michigan. 

Revenue Outlook Improving

The City’s revenue outlook is improving following two challenging fiscal years of revenues losses driven by the economic impact of the pandemic, nonresidents working remotely, and casino closures and capacity restrictions.

The increase is significantly related to the addition of new internet gaming and sports betting taxes, which were launched in late January. These gains will help offset the expected continuation of reductions in City income tax revenues from nonresidents continuing to work remotely through hybrid work models or full-time remote work. Without the new gaming revenue, the City’s revenue forecast would still be below pre-pandemic levels.

The ongoing pandemic and its lasting effects remain substantial risks to the economic and revenue forecasts approved today. However, the City’s ongoing efforts to attract major employers and provide Detroiters with opportunities for good-paying jobs provide potential revenue upside to the forecast as well.

"This increase in our revenue base is evidence of a resilient economy in Detroit. As we implement our plan to invest federal pandemic recovery funds to bolster Detroit’s future and as we maintain financial responsibility for our budget, the City will strengthen its structurally balanced four-year financial plan,” said City of Detroit Chief Financial Officer, Jay Rising.

Revenue Estimating Conference Results

The Revenue Conference reported FY2022 General Fund revenues projected at $1.106 billion for the current fiscal year ending June 30, up to $111 million (11.2%) from the previous conference estimate in February 2021 but up only $10.5 million (1.0%) from pre-pandemic estimates from February 2020.

General Fund revenues for FY2023, which begins next July 1, are now forecasted at $1.118 billion, an increase of $11.7 million (1.1%) over the revised FY2022 estimates. The conservative General Fund revenue forecasts for FY2024 through FY2026 show continued modest revenue growth of around 1.3% per year.

The City will use the estimates approved today to begin developing the City’s FY2023 Budget and FY2023 through FY2026 Four-Year Financial Plan. The conference will meet again to approve revised revenue estimates in February 2022. The voting conference principals included Jay B. Rising, the City’s Chief Financial Officer; Eric Bussis, Chief Economist, Michigan Department of Treasury; and George A. Fulton, PhD, Director Emeritus, Research Seminar in Quantitative Economics, University of Michigan.

• September 2021 Revenue Conference - Detroit Economic Outlook Slides
• September 2021 Revenue Conference - Revenue Estimates Slides

To review past Revenue Estimating Conference Reports visit Financial Reports under Revenue Estimating Conference Reports section.

• City budget faces larger crunch, but major development projects to spur Detroiter employment

On February 16, the City held its regular February Revenue Estimating Conference to receive an update to the Detroit Economic Outlook for 2020-2025 and approve economic and revenue forecasts for the remainder of fiscal year 2021 and for fiscal year 2022 through fiscal year 2025. State law requires the City to hold independent revenue conferences in September and February each fiscal year to set the total amount available to be budgeted for the next four years.

The Detroit Economic Outlook Update for 2020-2025 was prepared by the City of Detroit University Economic Analysis Partnership, which is a collaboration of economic researchers at Wayne State University, Michigan State University, and the Research Seminar in Quantitative Economics (RSQE) at the University of Michigan.  The Update noted that “[t]he COVID-19 recession will have a deep and long-lasting impact on the city of Detroit.”

In its presentation, RSQE noted the dramatic economic impact of COVID-19 upon the City, which saw unemployment rates rise from 8.8% in 2019 to 20% in calendar year 2020.  RSQE also noted that this rate has declined in 2021 to a projected 14.3%, but that a return to pre-COVID levels could take until 2025. 

“The challenging revenue and economic outlook will require the City to focus on controlling costs, while making targeted one-time investments to protect City residents and support the City’s future,” said Acting CFO Jay Rising. “Detroit and its residents were disproportionately impacted by COVID-19, both personally and economically.  What we heard today underscores the need for fiscal relief from Washington to help our residents, businesses, and Detroit weather the remaining life of this pandemic.”

Faster Detroiter employment rebound expected

While unemployment rate recovery may be protracted, the City’s total payroll job count and the payroll jobs held by Detroit residents is projected to recover more quickly with pre-COVID 19 levels of total payroll employment returning by 2022 and of Detroit resident employment by 2023.

Despite the pandemic’s impact on Detroit’s economy, RSQE projects a stronger recovery for the city than the state overall because many long-term projects in the city remain underway. These include the Hudson’s Site downtown, Michigan Central Station in Corktown, the FCA assembly complex, the Amazon distribution center at the State Fairgrounds, and the Gordie Howe International Bridge. The City’s conservative revenue estimates exclude the new jobs and investment from these projects, which will provide revenue upside compared to the forecast.

Revenue Outlook Remains Challenging

The Revenue Conference reported FY2021 General Fund (GF) and GF-Impact revenues projected at $931.1 million for the fiscal year ending June 30, down $58.5 million (5.9%) from the FY2021 Adopted Budget in April 2020 and down $252.6 million (21.3%) from pre-pandemic estimates in February 2020. Revenue losses are driven by the economic impact of the pandemic, nonresidents working remotely, and casino closures and capacity restrictions imposed in response to COVID-19.

General Fund and GF-Impact revenue for FY2022, which begins July 1, is now forecasted at $1.092 billion, an increase of $161.2 million (17.3%) over the revised FY2021 but still down $103 million (8.6%) from pre-pandemic FY2022 estimates. This FY2022 forecast assumes nonresidents who work in the City will gradually begin returning to City workplaces and casino operations begin normalizing through this summer and fall.

The General Fund revenue forecast for FY2023 increases 5.1% over FY2022 as peak pandemic effects on nonresident remote work and casinos wear off. The conservative forecasts for FY2024 and FY2025 show modest revenue growth around 1.5%. In total, the City’s recurring revenues do not recover to FY2019 levels until FY2024.

The estimates approved today set the revenues for the City’s FY2022 Budget and FY2022 through FY2025 Four-Year Financial Plan. The voting conference principals included Jay B. Rising, the City’s Acting Chief Financial Officer; Eric Bussis, Chief Economist, Michigan Department of Treasury; and George A. Fulton, PhD, Director Emeritus, Research Seminar in Quantitative Economics, University of Michigan.

• February 2021 Revenue Conference - Detroit Economic Outlook Slides
• February 2021 Revenue Conference - Revenue Estimates Slides
• University of Michigan RSQE - Detroit Economic Outlook Reports

To review past Revenue Estimating Conference Reports visit Financial Reports under Revenue Estimating Conference Reports section.

• Investor interest in Detroit bonds so strong they could have been sold 20x over
• City leverages intense interest to achieve low 3.36% interest rate
• Sale comes on the heels of S&P boosting Detroit’s rating outlook to “Stable”

The City of Detroit’s ambitious project to rehab 8,000 vacant homes and demolish another 8,000 got its first infusion of funds today as the City of Detroit sold the first $175 million in bonds of a planned $250 million neighborhood improvement effort. In November, more than 70% of Detroit voters approved letting the city sell the bonds.   

The bond funds will allow the city to begin the process of stabilizing and securing thousands of vacant Land Bank properties until they can be sold for rehab and demolishing houses that can’t be saved. The city plans to go to the market again next year to sell additional Prop N bonds.   

Interest among investors was so strong in this series of Detroit Prop N bonds that they could have been sold 20 times over. Specifically, for this $175 million bond sale, there were over $3.4 billion in orders.  

“The incredibly strong interest in these bonds is a direct reflection of investor’s confidence in Detroit’s strong financial management and that starts with our Office of Chief Financial Officer,” said Mayor Mike Duggan. “CFO Jay Rising, Chief Deputy CFOs Tanya Stoudemire and John Naglick, and their entire team have done a tremendous job managing the city’s finances to put us in a strong position, now and for the future.”    

Currently, contracts for the first 1,380 demolition properties are before City Council awaiting approval.  All seven companies selected through the city’s procurement process to perform the work are Detroit headquartered and five of those companies are black owned.  More than 51% of the employees doing the demolition work for all seven companies will be verified residents of the city of Detroit.    

Strong demand means lower interest rate

The City issued a mix of taxable and tax-exempt bonds that will be immediately spent as the first installment on Proposal N programs.  More than 60 institutional investors placed orders on the bonds on Thursday, many of which were repeat investors that purchased the City’s 2020 and 2018 bonds demonstrating their continued support and interest in the City, according to CFO Rising.   

That overwhelming level of interest allowed the City to achieve a much lower interest rate than it had initially expected and will translate to much lower repayment costs over time for Detroit taxpayers.   

“Investors took notice of Detroit’s steady progress in building financial strength and swiftly responding to the pandemic driven revenue shortfalls. They saw that while the COVID-19 crisis may have slowed this positive trend, it did not reverse it,” said Rising. 

The strong market and demand for Detroit bonds allowed the City to secure a 3.36% interest rate, significantly less than city officials had initially anticipated and 1.28 percentage points less than the interest rate received by the City on its last general obligation bond issue in October, 2020.  Detroit marketed these bonds with the “Social Bond” designation to attract Environmental, Social, and Governance (ESG) focused investors that are interested in financing socially beneficial projects. 

Recent S&P Upgrade set the stage

In bringing Detroit’s outlook to “Stable” two weeks ago, Standard & Poors referenced the City’s strong fiscal management and the vision behind Proposal N:  “We view the passage [of the $250 million Proposal N] as significant in that it will further a key component of the administration's long-term vision for strengthening the tax base and do so with a dedicated debt millage as opposed to funding through reserves or the operating budget.”  

This is the third time since 2018 that Detroit sold municipal bonds backed solely on the City’s ability to repay. During the prior 20 years, the City could only sell bonds that were either backed by the state of Michigan or with insurance to the bondholder, which greatly added to the cost for the City.