Detroit city council passes 1995 budget balanced by new, restructured bonds.

CHICAGO - The Detroit city council yesterday approved Mayor Dennis Archer's $2.2 billion fiscal 1995 budget after making minimal changes.

The budget, which is Archer's first since taking office in January, was passed on a near unanimous vote, with only one of the nine council members voting against two measures in the budget package.

Council president Maryann Mahaffey said the council's approval reflected the belief that the budget is based on "more realistic" revenue projections than past budgets were.

"For the most part, we left [Archer's] budget intact," Mahaffey said.

The budget for the fiscal year that begins July 1 would be balanced through the issuance of $125 million of new and restructured seven-year deficit funding bonds.

The mayor's debt plan calls for issuing about $43 million of new deficit funding bonds and restructuring the $82 million in remaining principal from the city's 1992 issuance of $106 million of five-year deficit funding bonds.

Proceeds from the $43 million of new debt, along with $20 million saved by restructuring the old debt to eliminate principal payments until fiscal 1996, would erase a projected $63.3 million budget deficit.

A large portion of the deficit was caused by a cut in revenue sharing from the state of Michigan.

Mahaffey said the bond issue will give Detroit "breathing space" to allow it to concentrate on attracting more economic development.

J. Edward Hannan, executive assistant director of Detroit's finance department, said the council still needs to approve a bond resolution for the issue. He said the bonds should be sold sometime this summer and that a special debt task force appointed by the mayor should meet soon to begin recommending firms for the deal.

In the firm selection process,the city is using responses from underwriters to a request for qualifications that it sent out last month.

In his April 13 budget address, Archer said the bond plan is needed to accomodate several factors on which he based his budget. They include using current labor contracts and "realistic" revenue and spending projection, as well as no layoffs, no privatization of city services, and funding health care insurance at "actual costs."

Ed Rago, Detroit's budget director, said while the council's changes to the budget were "very minimal," he expects to "strongly encourage" the mayor to veto a 3% increase in the maximum salary cap for city council employees that the council added.

Mahaffey said the increases would be given only on a merit basis, and if funds are available. Rago said the move sends the wrong message, given the fact that the city is in arbitration with its uniformed employees over a two-year 10% wage cut worth $26 million a year.

The fiscal 1995 budget returns 10% in wages to other city employees who had their salaries reduced by that amount during the past two fiscal years.

Archer has a deadline of May 27 to take veto action on the budget. The council has until June 1 to attempt to override any veto.

Before the deficit bonds are issued and by the end of June, Hannan said the city will issue $50 million to $60 million of tax anticipation notes. Proceeds will be used to make the city's June 31 payment to its police and fire pension funds.

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