Mayor Dave Bing City of Detroit, Michigan

1. Mayor Dave BingCity of Detroit, Michigan Presented to: Municipal Analysts Group of New York September 22, 2011

2. 1. Introduction

3. Our organization is focused on three key principles… • Financial Sustainability • Ensure the City is financially sustainable while delivering high quality services • Address key structural cost drivers such as pension and medical benefits • Address key agencies requiring subsidies: e.g. Transportation • Public Safety • Create a safe & secure City for residents & visitors • Focused cost cuts and operational improvements without compromising safety • Economic Development • Focus migration of population towards Detroit (Woodward Light Rail, Land Development Plan) • Continue momentum of new jobs in Detroit • Ongoing focus on training of current Detroit population

4. Delivering sustainable growth with integrity is critical for a stable Detroit… The core challenge of my Administration is to balance political reality with the drastic need for change • It is our duty to ensure this City’s financial solvency • This must be done in a manner that improves Detroiters’ quality of life • We are in a political environment - and it is not always enough to be right • There is no way to succeed without picking and winning difficult political battles

5. 2. Economic Fundamentals

6. Despite a variety of adverse headwinds, Detroit is progressing towards economic stability due to… • Declining unemployment rates with trends more favorable than the State of Michigan and the nation as a whole • Continued stabilization in State Equalized Valuation as declines have slowed • Top employers in the City operating in diverse industries • Expected increase in population growth evidenced by recent surge in residential construction building permits issued

7. Favorable employment trends support economic stability… • Detroit anchors a metropolitan area of approximately 4.3 million people (per the 2010 Census) • Major manufacturing hub with a diversified economy • The top ten employers operate in five different industries • The new Detroit revolves around health-care, computers and energy in addition to the automotive industry SOURCE: Crain’s Book of Lists, 2011 edition

8. Taxable values and the City’s top ten taxpayers… • Although taxable value has declined the last three years, this decline has slowed from 6.3% in fiscal year 2011 to 3.9% in fiscal year 2012 • The ten largest taxpayers in the City make up only 19% of the taxable value, down from 24% in 2007 • Eight of the current top ten taxpayers have been on the list since at least fiscal year 2000 SOURCE: 2007 CAFR and Assessors Report for 2012 FY

9. Building permits indicates renewed activity… • Following the housing market slump, the City has recently seen an increase in the issuance of building permits for new construction, especially for residences SOURCE: Building, Safety and Engineering Department

10. Tax revenue growth through new and in-migration… • Quicken Loans moved 1,700 employees downtown and has announced it will move another 2,000 bringing their work force in downtown to nearly 4,000 • Blue Cross Blue Shield moved 3,000 employees downtown • $120 million in investments and 7,000 jobs have come into Detroit since 2010 • Five companies offering incentives to 15,500 eligible employees to live downtown • Project 14 offers City employees down-payment incentives to move into the City. (Funded by Bank of America, Chase Bank and Art Van Furniture.)

11. Ongoing momentum of a positive Detroit image… • Positive national press escalates Detroit image • Detroit Pushes Back with Young Muscles - “Turning Detroit into a Midwestern TriBeCa.” • The New Detroit Cool - “Detroit’s oldest neighborhood…has become a place to see Detroit at its coolest.” • Chrysler Super Bowl “Imported from Detroit” superbowl ad, now national campaign promotes positive Detroit image • Whole Foods announces store in Midtown

12. 3. Financial Fundamentals(General Fund)

13. Improving financial integrity and risk management… • One of our key principles is ensuring financial sustainability, which requires financial integrity and risk management and is being demonstrated by the following actions • Heightened financial management policies and procedures clearly outlining personnel authority and financial limitation • Consolidation of Health & Human Services into single building • Consolidation of grants management into a single department • Enhancing performance and accountability via a web-based public Performance Dashboard • Introduction of a new public tips hotline for reporting fraud, theft, abuse, or City service requests • FY 2011 CAFR for City of Detroit expected to be completed on time for 2nd consecutive year

14. Preliminary FY 2011 revenue estimates trending favorably… • Total revenue has trended down in past 3 years, but preliminary FY 2011 results show signs of stability with a modest increase over FY 2010 (1.8%) • No short term working capital issuances in FY 2011 (RAN/TAN) • Income tax revenue showing improvement in preliminary FY 2011 results • Wagering tax revenue has been and continues to remain stable • Utility tax legislation amended to reinstate and maintain revenue stream • Property tax revenue in preliminary FY 2011 results is lower due to charge-backs related to delinquent amounts in excess of reserve * Preliminary results based on early financial reports

15. Expenses trending downward in most categories… • Expenses have trended downward in nearly all major categories, except for pension related costs • Market conditions and economic crises have caused spike in pension related costs, but City has achieved recent concessions and is pursuing further cost reduction opportunities related to pension costs * Preliminary results based on early financial reports

16. Deficit elimination plan… • Preliminary FY 2011 results estimate an accumulated deficit balance of $195 million, an increase of $39 million from prior year • $30 million surplus anticipated in FY 2012 • Challenges and accomplishments for FY 2012 • State revenue sharing reductions; City achieved $19 million of revenue initiative • Utility tax challenged by census data; legislative changes made to reinstate and maintain utility tax • Income tax rate challenged by census data; legislative changes made to maintain current municipal income tax rate • Employee headcount reductions of approximately 750, an estimated $50 million of annual savings (only $25 million in amended budget) • Certain pension related concessions already achieved for FY 2012, further cost reductions being pursued • Employee benefit cost reduction initiatives expected to be realized in FY 2013 and beyond • No cash flow borrowings expected in FY 2012 • Deficit Elimination Plan to eliminate deficit entirely by FY 2015

17. Structural deficit expected to be eliminated by FY 2015… NOTE: While some classifications may vary slightly from original Deficit Elimination Plan, net surplus (deficit) is the same • Keys to DEP success • DEP makes reasonable estimates of revenues and expenditures • Property tax, income tax, utility tax, wagering tax, State revenue sharing and Other are all projected to decline • Total expenditures are projected to increase after 2013 • Employee benefit concessions • Changes to plans and coverage options • Increase portion of healthcare costs borne by employees • Substantial pension concessions have been achieved and additional negotiations are underway • Operational cost reductions through outsourcing; corresponding reductions in payroll not included in DEP

18. 4. Management and Governance

19. Transparent and timely reporting is a critical focus… • Streamlined reporting of financial functions • Increased coordination and collaboration of Finance, Treasury and Budget departments • Comparison of actual versus forecast by major category • Process of closing books on a monthly basis • Continued Segregation of restricted and unrestricted funds by each agency • Weekly and monthly cash flow reporting • Regular updates on macro economic trends • Investor website and performance metrics including reporting to City Council, State and the public • Detroit promises to become much more transparent to investors • If you have questions we promise to get you an answer in a reasonable amount of time. Call one of us or the City’s Debt Manager, Donita Crumpler at (313) 224-7244.

20. 5. Debt Profile

21. Outstanding general obligation debt… • The City’s long-term debt amortizes rapidly at 9.7 years average life • 65% of the City’s debt amortizes within 10 years • The City’s UTGO debt service gradually declines through 2021 with a large drop thereafter • The City’s LTGO debt service drops by $13.2 million in 2015 and by an additional $23.2 million after 2016 *Excludes pension obligation certificates

22. Detroit debt ratios… • With its rapid amortization, Detroit’s direct debt as a percent of true cash value will drop from 4.76% in 2012 to 3.25% by 2016 assuming fiscal year 2012 assessed value • The City has no plans to issue general obligation debt *Excludes pension obligation certificates and assumes no new issuances through 2016

23. 6. Summary and Closing

24. In summary, we are confident about Detroit’s outlook… • Positive momentum from local businesses • Stable base of top ten taxpayers and employers • Employment indicators are improving • Property valuation decline is slowing Economic Fundamentals • Material progress in achieving key cost reductions such as headcount and pension savings • Revenues stabilizing. • CAFR on time due tosustainableprocess improvements Financial Fundamentals • Robust policies including monthly reporting and accountability • City Council, State and Executive team working together Management & Governance • Declining debt burden. • No anticipated short-term borrowings for FY 2012 Debt Profile