Has The City Improperly Commingled?

Provided by Councilwoman Hicks-Clayton you will see legal opinions given to the City back in 2011 regarding inter-fund borrowing. Here is what the City received regarding this,

Often local governments will loan resources from one fund to another fund experiencing
a temporary cash shortage. This is allowed under Michigan State Constitution. Interfund loans are addressed in GASB 34, ¶112(a).1: Interfund loans—amounts provided with a requirement for repayment. Interfund loans should be reported asinterfund receivables in lender funds and interfund payables in borrower funds. This activity should not be reported as other
financing sources or uses in the fund financial statements. If repayment is not expected within a reasonable time, the interfund balances should be reduced and the amount that is not expected
to be repaid should be reported as a transfer from the fund that made the loan to the fund that received the loan.

In addition, in 2011, a opinion letter was received from the Michigan Department of Treasury, to the City of Dearborn Heights, Corporate Council, City Treasurer and Council members:

Below is the opinion from Corporation Counsel asked for by the Council regarding inter-fund loans

Gary T. Miotke
Corporation Counsel
Daniel S. Paletko
March 29,2011

Honorable City Council
c/o City Clerk Judy Dudzinski
City of Dearborn Heights
6045 Fenton
Dearborn Heights, MI 48127
Re: Interfund Loans
Dear City Council Members:
Per Motion 11-071, your Honorable Body directed that I research interfund loans
and make a recommendation on my findings. More precisely, I was to research the
propriety of interfund loans and how to properly effectuate them. Subject to what is
otherwise stated in this letter, it is my opinion that the types of interfund loans that are
specifically contemplated by the City are proper provided they are approved by your
Honorable Body. – —
– —-
Treasurer Riley raised the issue in a letter to your Honorable Body. In his letter,
Treasurer Riley referred to an email from Michael P. McGee, a public finance attorney
associated with the law firm of Miller Canfield. In his emailv Mr. McGee concluded that
a municipal interfund loan is “permitted provided it is properly documented and approved
as a loan by city council so as to distinguish it from an inappropriate transfer.” Based on
this communication, Treasurer Riley requested and your Honorable Body approved
Motion 11-071.
I agree with the opinions expressed by Mr. McGee and Miller Canfield.
However, my opinion is also subject to the following.
First, any such interfund loan must truly be treated as a loan in all relevant
respects. Per Treasurer Riley, the four (4) funds from which interfund loans are likely to
be made are water, major streets, local streets, and library. These funds are special or
dedicated funds based on State law, dedicated millages, and/or user fees. Based on
general law and Michigan case law from the 1800’s, “the well-settled rule is that special
funds cannot be used for another and different purpose.” See McQuillin Municipal
Corporations, Section 39.50, Volume 15, p. 186 and see Chaffee v. Granger, 6 Mich 51,
57 (1858). Yet, there is authority that has been recognized in general and in Michigan
City of Dearborn Heights·
that a truly temporary interfund loan from a special fund is not inappropriate provided the
fund receiving the loan has sufficient revenue to repay the loan and provided further that
that the borrowed funds are idle, are loaned with the express intent that they are to be
repaid, are available if needed to pay persons entitled to be paid from such fund, and are
repaid to the fund from which they have been borrowed. See McQuillin Municipal
Corporations, Section 39.50, footnote 5 (and authorities cited therein) and see Michigan
Op. Atty. Gen. 1951, No. 1451 (August 1,1951), p. 327 (citing the McQuillin section just
cited and an Illinois court opinion). Hence, interfund loans from special funds can be
appropriate if they meet the requirements in the preceding sentence and otherwise are
truly temporary loans.
Second, any such inter fund loan must be approved by your Honorable Body. This
is required by the Uniform Budgeting and Accounting Act. See MCL 141.437 and MCL
Third, this opinion is limited to the propriety of interfund loans from the City
funds for water, major streets, local streets, and library. Since I have not researched this
issue in relation to any other City special funds, I am unable at this time to offer an
opinion about the propriety of interfund loans from other City special funds.
Fourth, I must caution that this opinion is based on rather meager authority. More
specifically, there is very limited authority either supporting or opposing the conclusion
that interfund loans from special funds can be appropriate. Yet, in my opinion, the
limited weight of that authority tends to support this conclusion particularly where it is
also supported by an opinion of the Michigan Attorney General.
In conclusion, the contemplated interfund loans from the City’s special funds for
water, major streets, local streets, and library are not inappropriate provided they are truly
temporary loans meeting the requirements noted in this letter. To be effectuated, any
such interfund loans must be approved by your Honorable Body as required by the
Uniform Budgeting and Accounting Act.
If you should require my further assistance regarding this matter, or any other
matter, please feel free to contact me at your convenience.
Very truly yours,

xc via hand-delivery only:
Mayor Daniel S. Paletko
Treasurer John J. Riley II

Now I get that I’ve seen it before when this was all happening and as you can see one of the funds being used to borrow money from is the water fund. At the same time if I’m understanding everything the CSO bond money collected from residents goes to the water fund. While the legal opinion above is good did they look at all the information before giving it? I ask this question based on what I’ve seen come on the blog and what has happened at the most recent City Council meeting when Troy Brown asked some interesting questions. From what I’m reading on Troy 4 The Truth Facebook Page he’s found this,


That the CSO Bond Tax is considered a “Debt Service Fund” and is governed by the Revised Municipal Finance Act.

Below are some possible violations, of the MCL, that may have occurred during the years in which Dearborn Heights residents and property owners were over TAXED by millions for the CSO Bond:

Improper commingling of debt service funds;

Inter-fund borrowing of debt service money;

Use of debt service money for other than debt service payments;

Excess tax levies for debt service purposes;

Inappropriate transfer of excess debt funds to the local unit’s operating funds

Now reading some of the possible violations I would like to ask any Council member, the Mayor, the Comptroller, or Treasurer a couple of questions.

  1. Are the CSO money’s deposited in a separate bank account or are they put in the same account as the water fund money’s?
  2. If CSO money collected is put into the same fund as the water fund and there is no separation and money was borrowed from the water fund with CSO money in that fund… How could the lawyers give an opinion that would let the City use this money in clear violation of the rules.

I’m hoping someone can answer these questions I think it’s very important to find out where the CSO money went. If the money was put in a separate account and that account wasn’t touched to barrow money to the City then there is only the issue of over charging. If however the money’s are Commingling and being used in the operating funds there is as I can see and I’m not a lawyer a problem.


9 thoughts on “Has The City Improperly Commingled?”

  1. For the record here, I have contacted ALL city officials and Council Members on this issue and have not received one response from them . It will be question for the meeting for sure! Note: this was the topic from last night in which the Mayor responded that he was correct and that the use of surplus money from the CSO Fund was good business. The problem with that statement is that you cannot break the law by over-taxing residents only to “invest” the money, Even if it is inner — fund “investing”. That is BAD for the residents and this city. Ref – MCL 141.2701(4)


  2. The city should have on record who is the city official directly responsible for the CSO bond fund management, including reporting and filing the financial records required by laws and regulations. those requirements are basically required to be in place by end of the CSO fiscal year (June 30 of each year) and should be available to Plant Moran (3rd party-external auditors) to perform their audits for the CSO bond fund.

    In light of all the questions about the CSO bond fund, the city government should disclose The CSO bond fund financial records for the past 29 years to the public on the city website (scan and post). Transparency and openness is the best answer to this bond fund financial records questions.

    It will be very difficult task and time consuming, but necessary to assure public trust and transparent governing.


  3. I would hope to see you at the study session https://www.facebook.com/events/145971019078607/
    Next I think you should be asking these questions about the accounts to the Treasurer of the City he would have the information on all accounts
    I would be very surprised if the CSO money was put in the water fund money, but it’s important to make sure that it wasn’t.
    Another issue that is something of concern are ‘Water Rates’ It’s important at least in my opinion that these rates aren’t raised again. Water shouldn’t just be for those who have enough money to pay their bill every two months. I say this because from my understanding the City Council and this administration is looking to raise them again. The residents of Dearborn Heights already pay double compared to other city’s around us. Why? This is according to information Gramma Suzzane here on the blog has uncovered. Yes, councilwoman Hicks-Clayton has said that you must have a certain amount in the account to allow for operating expenses water main breaks and so on. Let’s understand that even with a higher than average year of water main breaks and projects there was still enough in that fund for the City to borrow from.


  4. drheights48127, on September 4, 2015 at 9:41 am, you stated:
    “For the record, I don’t think anything is going to happen to anyone in the City for violating any of the rules that apply with the CSO Bond. Call me jaded that’s true been watching this kind of stuff play out for a long time now and nothing ever gets done.”

    When the last time the city was in violation of state laws and nothing happened?.

    Ethics and laws are 2 different subjects, improper ethical conducts may become laws if legislators or voters make them. Violations may be civil or criminal, when they are civil public prosecution is not involved its between the involved parties, but when its criminal public prosecutions take over and become the public against who ever been accused of violations of public laws . some cases can be both. “OJ Simpson”


  5. Lisa I’m sure if not for you this study session would never have happened. I was told that there are only four bank accounts that are in use by the City. If the CSO money isn’t put in with the water fund what account is it put in? I’m not asking you to answer this question that can be asked at the study session. Thank you for the clarification and all of the hard work you are doing on this issue and so many other issues in the City. I’m sure you know better than most that this isn’t the only issue in the City.

    For the record, I don’t think anything is going to happen to anyone in the City for violating any of the rules that apply with the CSO Bond. Call me jaded that’s true been watching this kind of stuff play out for a long time now and nothing ever gets done. I would be happy if just once the Mayor, this administration those involved in the collection of the Bond and the Council would just for once “OWN IT.” If council, didn’t get the right information from the Mayor say it publicly. If the Council approved without looking or taking a moment to notice that there was too much money being collected say that. Someone in this administration dropped the Ball…All starts and ends with the Mayor who will never admit he did something wrong/mistake.



    Special Levy tax collection monies need to be in a separate account. The act and law are clear – see below:

    141.2411 Money deposited in special fund; use.
    Sec. 411.
    The money in each special fund required by this part shall be deposited in a bank account separate from any other money of the municipality and shall be used for no purpose other than to retire the municipal security for which the special fund was established.
    History: 2001, Act 34, Eff. Mar. 1, 20

    The next questions are: who besides a hand full of us residents, is going to hold this government accountable for these systematic, clandestine violations of the law? Who is going to get all of our money back from the law firms who only did part of their jobs? Who is going to get all of the excess taxes in a place to benefit all the residents and protect it from the government itself?


  7. Quick clarification; I did not refer to the CSO Millage as part of the inter-fund borrowing. I referred the water budget and was providing back up resources for another comment on the blog which had previously questioned the legality of inter-fund borrowing. The legal opinion and opinion letter from 2011 was posted, as a back up document, for the benefit of the previous post and question to legality of inter-fund borrowing. NO, you cannot borrow from a restricted and dedicated fund, i.e. CSO Millage. In addition, the two funds, CSO Millage and the water fund cannot co-,mingle. There are accounting practices followed by the City Treasurer to assure there is not a violation of this law. Plante Moran prepares and presents an audit annually, as required by State law. This information, along with information presented, by Plante Moran, the Administration and the City Comptroller, is presented to the City Council. The information is assessed to determine the budget request. The CSO Millage was approved by the voters of Dearborn Heights, as you are aware. Water rates are determined in a similar fashion, based on the information provided at the study session. In addition, factors must be considered including current infrastructure conditions and liabilities, water main breaks, repairs, legal liabilities, rates incurred, labor, water department equipment, etc.

    As an elected official, I am entrusted to represent our residents’ and our City’s best interest (Charter). I have continued to pursue and follow up on the CSO Millage question, as well as prepare for the upcoming water rate discussions. I actively pursued the CSO Millage study session, which is scheduled for Tuesday, September 29, 2015. This study session provides our City Council and our residents the opportunity to ask questions, secure information and address, in an open & public forum, the CSO Millage and the Miller Canfield legal opinion letter.

    In closing, I offer Constituent Office Hours the first and third Monday of each month at the Berwyn Senior Center, 10:00 a.m. , and the first and third Tuesdays at the Eton Senior Center, 10:00 a.m. I am always available by appointment, by calling (313)348-9848. In addition, I offer an E-Letter Communication and Facebook page, for information updates. I thank you for your support and words of encouragement. We have some work to do!

    Serving Our Community,

    Lisa Hicks-Clayton
    Dearborn Heights City Councilwoman


  8. Sorry for the typo: The “nudities”/audited party is responsible for their own actions. It should read as follow: The” audities”/audited party is responsible for their own actions.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s