Budget Gimmicks, Debt and Deficit Smokescreens Preceded Flint Lead Crisis

Years before the city had a crisis with lead in its water, the Flint City Council and mayor ran unbalanced budgets by making "fund raids" on budget funds dedicated to specific functions. Among the targets was a fund dedicated to providing uncontaminated drinking water to residents. But there were other budget gimmicks city leaders used to avoid making needed reforms.

In addition to the fund raids, Flint officials also relied on state-backed loans, but these came with a requirement that the city develop a plan to climb out of its deepening financial hole. Its 2007 deficit- reduction plan projected a gap between spending and revenue of $9.1 million in 2010. An audit found the actual deficit that year was $14.6 million.

The 2008 plan projected that the deficit would be eliminated by 2014. But by the time Flint officials submitted their 2010 plan, a balanced budget had been pushed back to 2030.

These city’s practices were documented in the report of a state review team that looked at Flint’s finances in 2011.

The five-year-old report is still relevant because some people have challenged the emergency manager law that was used to try to fix the city’s finances.

Activists and city officials from Flint and elsewhere have condemned the state law that authorizes emergency managers, and some have sued in federal court to suspend it. On Sept. 12, the U.S. Court of Appeals for the Sixth Circuit upheld the law. The 3-0 ruling read in part:

“The emergency manager’s powers may be vast, but so are the problems in financially distressed localities, and the elected officials of those localities are most often the ones who — through the exercise of their powers — led the localities into their difficult situations.”

The state's review of Flint describes how, for a three-year period from 2008 to 2010, Flint officials consistently overestimated the city’s projected revenues and underestimated its spending by millions of dollars each year.

In 2007-08, the gap between projected revenue and actual spending was $8.8 million. Specifically, the city council was $4.2 million short in estimating how much revenue it would collect. It also budgeted $4.6 million less for expenditures than the city wound up spending.

The state review discovered that city officials had been alerted to budget shortfalls on a monthly basis — but up to six months would pass before they would act.

The reviewers characterized this pattern as “wholly inconsistent” with the state law that requires the “adoption of realistic budgets and their timely amendment as necessary to maintain them.”

“In short, it did not appear that city officials had moved with the degree of urgency and vigor commensurate with the seriousness of the existing financial emergency,” said the report.

The review team concluded there was a “lack of political will among a succession of city officials to confront reality and render difficult, but necessary, financial decisions.”

The team completed its examination in November 2011 and recommended that the state appoint an emergency manager to take over Flint’s finances. Gov. Rick Snyder appointed Michael Brown to the job on Dec. 11, 2011, which he held until April 29, 2015.

Flint Mayor Karen Weaver didn’t respond to an email seeking comment. Roger Fraser, the former city administrator for the city of Ann Arbor who served on the state’s review team, said he would not comment on the Flint review.