Deficit Elimination Plan

In accordance with Public Act 140 of 1971, a local unit of government ending its fiscal year in a deficit condition shall formulate and file a deficit elimination plan with the Department of Treasury within 90 days after the beginning of the next fiscal year to correct the condition.

A deficit condition is defined as a fund where the total expenditure for that fund, including an accrued deficit, exceeds total revenues in that fund for the fiscal year.

General Plan Requirements:

  • The deficit elimination plan must be approved by the legislative body of the local unit of government and a copy of the resolution must accompany the plan when filed with the Department of Treasury.
  • A plan generally should be for one year, but in no case longer than five years.
  • An audit firm hired by the local unit of government may provide advice; however, it cannot issue a deficit elimination plan.
  • Once approved, the local unit will receive a signed certification letter.

Acceptable Plan Documentation:

  • Interim financial statements documenting the elimination of the deficit within the current period.
  • Certified copies of board/council resolutions (describing funds and amounts) approving additional appropriations sufficient to eliminate the deficit and a copy of the journal entry that shows that the transfer has been made.
  • A current year or projected budget approved by the legislative body as evidenced by a certified resolution itemizing yearly revenues by source, expenditures/expenses by activity, and changes in the unreserved fund balance/unrestricted net assets through the year of the deficit's eventual elimination. The revenue and expenditure detail should correspond with the audit report. There is a five-year limit for an approved plan; the plan must be amended if the deficit increases or the plan is not otherwise followed.
  • For tax increment finance or downtown development authorities, the ordinance or plan approving their existence is acceptable if it shows the flow of revenues and the priority of expenditures that would support the deficit elimination plan.
  • For drain or other special assessment-type funds that have deficits, which are not "covered" on the balance sheet by a long-term receivable and deferred revenue, a letter from the Drain Commissioner summarizing assessment levies which could not be recognized for the audited fiscal year due to generally accepted accounting principles, will suffice as a deficit elimination plan.

It is extremely important to show the details for all revenue enhancements and likewise for all expenditure cuts. To be considered for approval, a plan must be substantive, quantifiable and realistic.

Contact information for questions or concerns:

Local Audit and Finance Division
Michigan Department of Treasury
P.O. Box 30728
Lansing, Michigan 48909-8228
(517) 373-0660

Sample Legislative Body Resolution and Multiple Year Deficit Elimination Plan:

(Sample Legislative Body Resolution and Deficit Elimination Plan)

WHEREAS (Sample Unit)'s Park Fund has a $175,000 deficit fund balance on December 31, 2002; and

WHERAS, Act 275 of the Public Acts of 1980 requires that a Deficit Elimination Plan be formulated by the local unit of government and filed with the Michigan Department of Treasury:

NOW THEREFORE, IT IS RESOLVED that the (Sample Unit)'s legislative body adopts the following as the (Sample Unit) Park Fund Deficit Elimination Plan:

  2003 2004 2005 2006
Fund Balance (Deficit)
January 1
$(175,000) $(169,000) $(93,000) $(17,000)
Property Taxes 60,000 75,000 76,500 78,000
State Grants 95,000      
Charges for Services 95,000 96,000 96,000 99,500
Other 1,000 1,000 1,500 1,400
General Fund 50,000 50,000 50,000  
Total Revenue 206,000 222,000 225,000 178,000
Salaries and Wages 115,000 120,500 122,000 124,000
Supplies 15,000 15,500 16,000 16,000
Equipment Repair 4,000 4,000 4,500 4,500
Contractual Services 5,000 5,000 5,500 5,500
Other 1,000 1,000 1,000 1,200
Capital Outlay 60,000      
Total Expenditures 200,000 146,000 149,000 159,700
Fund Balance (Deficit)
December 31
$(169,000) $(93,000) $(17,000) $2,200

BE IT FURTHER RESOLVED that the (Sample Unit)'s (Official's Title) submits the Deficit Elimination Plan to the Michigan Department of Treasury for certification.