CHICAGO -- Felix Rohatyn and Lazard Freres & Co. have been tapped by Detroit to once again help that city cure its fiscal ills.
Mayor Coleman Young announced late last month that Mr. Rohatyn, a partner at the firm and the chairman of the Municipal Assistance Corporation of New York, and Lazard would "be available to assist the city in an advisory capacity in the same manner they did so successfully in 1981."
Back then the city formed a panel to make recommendations on dealing with a $113 million deficit, which Detroit eventually eliminated through the issuance of deficit bonds, union concessions, and new revenues.
The mayor said he will appoint a similar committee of finance, business, industry, and labor leaders by the end of the month to analyze the city's fiscal condition and recommend actions to ensure its future fiscal stability.
While there was some initial confusion at Lazard as to what, if any, role it would play in Detroit, Michael DelGiudice, a partner, said yesterday that the firm has held "preliminary conversations" with the city to provide "informal help.
"Nothing has been finalized," Mr. Del Giudice said, adding that in the meantime, the firm was "talking to [the city] generally about financial issues that we deal with all the time."
Teresa Blossom, a spokeswoman for Mayor Young, confirmed that the mayor has talked to Mr. Rohatyn, and that he and the firm were committed to helping the city.
Mr. Rohatyn is no stranger in assisting troubled cities. During the mid-1970s and the early 1980s, Mr. Rohatyn was one of the principal architects of New York City's recovery from its fiscal crisis. Toward the end of the 1980s, his role waned as the city's economy revived. In 1990, as New York City's budget problems bubbled up again and the city's fiscal condition began to erode, Mr. Rohatyn again came on the scene. He now holds the key to a $1 billion bailout for the city, but has held off turning the key until the city presents a structurally balanced revised four-year financial plan.
Mr. Rohatyn was not available for comment.
While Bella Marshall, Detroit's finance director, called the city's problems serious, the city is not facing as large a fiscal imbalance as a decade ago. Last week, Standard & Poor's Corp. pegged the fiscal 1992 imbalance at $30 million to $50 million. Ms. Marshall said it was too early to tell what the number would be, particularly since the city was awaiting Gov. John Engler's action on Michigan's budget for fiscal 1992, which began Oct. 1. Detroit's fiscal year began July 1.
She said the mayor's panel would examine the city's union contracts, most of which expire next year, as well as employee fringe benefits. She added that the committee would also look at city services to determine candidates for privatization.
Whatever plan is devised for the city by Lazard and the yet-to-be appointed committee, many of the financial options that were open to Detroit in 1981 may no longer be available.
According to Bettie Buss, a senior research associate at the Citizens Research Council of Michigan, a fiscal watchdog group, the city at that time was able to take four steps to end its fiscal problems.
One wazs state approval for the issuance of $113 million of five-year deficit funding bonds that were paid off out of general fund revenues. Those revenues came from the second step, which was a voter-approved increase in the city income tax charged to residents and non-residents. A third factor was the city's successful negotiations with most of its unions for no wage increases for three years in exchange for no layoffs. The fourth step was an increase in the cap on utility user excise taxes the city could collect.
But Detroit no longer has any room for growth in any of the taxes. Ms. Buss pointed out the city is at its maximum mill levy for property taxes, as well as at the legal limit for its income and utility taxes.
One political observer said while the city could seek tax increases from the Michigan Legislature, "the spirit in Lansing is definitely not to increase taxes."
In his statement, Mayor Young said any new revenues would not include an increase in the city income tax, however he held out the possibility of so-called nuisance taxes, or taxes on cigarettes and liquor.
"That's why we need this type of panel of financial experts to look at possible sources of revenue," Ms. Blossom explained. "Nothing's been kicked out."
In the meantime, the city is in the process of completing the sale of its incinerator to Philip Morris Capital Corp. for tax credits. The city plans to use the $54 million from the sale to eliminate a deficit incurred over the past two fiscal years.