MSU Extension Center for Local Government Finance & Policy

Introduction

Hamtramck's FY 2021-22 audits submitted at the end of 2022 show the city’s financial position as of June 30, 2022.  Although a bit dated, it shows how the city has managed its finances over the past few years including during the height of the pandemic period.  

The city of Hamtramck is one of the few older industrial cities in Michigan experiencing population growth. Between 2010 and 2022 according to the U.S. Census Bureau, the population grew by 27 percent mostly due to international immigration.  It is also the first known majority Muslim city council based on news reports.  The city of Hamtramck was placed under emergency financial management with an appointed emergency manager from 2013 to 201. In 2015 the EM was withdrawn, and the city was required to receive approval for budget and financial actions from a Receivership Transition Advisory Board (RTAB) until 2018.  

We will look at both the city’s balance sheet and income statement for the FY 2021-2022 (July 1, 2021, through June 30,2022).  The balance sheet can tell us about the assets and liabilities of the city and its potential fiscal health over many years. The position is the term used to refer to whether a government has a positive or a negative situation in terms of assets against liabilities.  There is balance sheet for both the government wide (primarily tax supported) portion of the government and for the enterprise funds (generally water and sewer systems). 

The income statement can tell us about the inflows of revenues and outflows of expenses and gives a sense of short-term fiscal health. The income statement is available for both government and enterprise funds. The income statement measures revenues versus expenses. An operating deficit exists when expenditures are greater than revenues and a surplus is the reverse situation. A total deficit will refer to a situation whereby the municipality has an operating deficit and has spent down all its savings as well.  

Balance Sheet Assessment 

The government-wide balance sheet for Hamtramck reveals a negative net position of $24 million for governmental funds and positive net position of $14 million for enterprise funds. This means that from a long-term perspective the city has more liabilities than assets and would be considered insolvent in a private corporate context.  However, because governments have taxing authority and are not businesses this assumption would not apply.  When it comes to municipal bankruptcy, the relevant question is whether the municipality can pay its bills as they come due (liquidity) and not insolvency. 

 A negative net position for governmental funds is typical for many Michigan municipalities. This is usually due to the liability associated with retiree commitments in the form of pension or retiree healthcare costs that must be paid out over many years.  Hamtramck’s negative position is almost entirely due to a long-term pension liability of $55 million. The city has almost no other debt such as bonds or even retiree healthcare liabilities. 

The city is on the Michigan Department of Treasury’s list to receive a “Protecting Michigan Pensions” grant. This grant would increase the city’s 43 percent pension funding ratio for 2021 to least a 60 percent funded ratio.   This pension grant would reduce annual expenses for the city budget as well. Grants will be awarded in the second half of 2023. The FY 2023-24 audit will capture the effects of the pension grant. 

Income Statement Assessment 

Next, we turn to the income statement for governmental funds and enterprise funds.  For governmental funds, Hamtramck’s governmental revenue continues to do quite well. City income taxes almost doubled between 2021 and 2022. Property taxes are not growing much mainly due to Michigan laws on property revenue limitations.  State shared revenues have also increased at a good pace. All the city’s governmental funds generated a net operating surplus in 2022.  Due to this operating surplus, the city has managed to build both a very stable level of fund balance for the general fund and other governmental funds. 

The enterprise funds reflect the city operated sewer and water system.   The system just about breaks even in terms of operating revenues and expenses at $8.3 million. The system has a positive net cash balance of almost $10 million and thus has adequate reserves given the size of the system. There may be issues with deferred maintenance or other such costs which are harder to track in a financial audit. Overall, as of 2022 from a short-term financial context, the sewer and water system looks healthy. 

Concluding Thoughts 

Given the challenges that the city of Hamtramck has faced in the past, the city has been financially stable as of FY 2021-2002 or June 30, 2022. The pension liabilities remain its greatest current financial risk.  However, this risk will be partially alleviated by the state’s new pension grant program.