Numbered Letter 2016-01

Deficit Elimination Plans

Effective Date: July 11, 2016 (Revised September 23, 2025)

Summary

The Glenn Steil State Revenue Sharing Act of 1971, 1971 Public Act (PA) 140, Section 21(2), states that units of local government (local units) who end their fiscal year in a deficit condition shall formulate a deficit elimination plan (plan). Any assessment of a local unit’s deficit condition should be made at the fund level of reporting, not at the government-wide level. The plan and certified resolution shall be filed with the Department of Treasury (Treasury) for evaluation and certification. Primary local units are responsible for filing the plans of discretely presented component units. Plans for discretely presented component units should be at the full accrual fund level reported in the audit report, not at a sub-fund level.

1. Determining a Deficit for Governmental Funds (Modified Accrual)
   1. For all governmental funds (not proprietary funds, fiduciary funds, or discretely presented component units), a plan is necessary to eliminate most “unrestricted fund balance” deficits. For governmental funds other than the General Fund, if the “deferred inflows of resources minus taxes and special assessments receivable” is great enough to cover the “unrestricted fund balance,” no plan is necessary. Unrestricted fund balance is the sum of the Committed, Assigned, and Unassigned balances. An unrestricted fund balance deficit exists when the local unit does not have sufficient resources available to cover the deficit. This occurs when the sum of the Non-spendable and Restricted fund balances is greater than the total fund balance. Non-spendable and Restricted fund balances may not be used to eliminate an unrestricted fund balance deficit. Resources available to cover the deficit include assets that are not restricted by federal, state, or local laws, regulatory authorities, bond covenants, contractual agreements, or other legal constraints. Therefore, when funds have a total fund balance surplus and an unrestricted fund balance deficit, sufficient unrestricted resources do not exist to eliminate the deficit.
2. Determining a Deficit for Proprietary Funds, Fiduciary Funds, and Discretely Presented Component Units (Full Accrual)
3. Various methods have been used to determine the amount of a deficit in a proprietary fund, fiduciary fund, or a discretely presented component unit. For purposes of uniformity among all units of local government, Treasury will define a deficit as stated below. Local units will be expected to apply the same test to determine if a deficit elimination plan is necessary.
4. Proprietary Fund, Fiduciary Fund, and Discretely Presented Component Unit Deficit Test
   1. Step 1: Does the “unrestricted net position” or “total net position" have a deficit? If both are “no,” no plan is necessary. If one is “yes,” is the “deferred inflows of resources (excluding those related to Pension or OPEB) minus taxes and special assessments receivable” greater than the larger deficit? If “yes,” no plan is necessary. If “no” proceed to Step 2.
   2. Step 2: Calculate current assets minus current liabilities. For this calculation, current assets should not include restricted assets, and current liabilities should not include the current portion of long-term obligations. If the answer is positive, no plan is necessary. If the answer is negative, proceed to Step 3.
   3. Step 3: Compare A) the larger deficit between the “unrestricted net position” and the “total net position,” and B) current assets minus current liabilities.
   4. Step 4: Submit a plan to eliminate the smaller deficit between A and B.
      1. Example 1
         1. Unrestricted Net Position = (430,000), Total Net Position = 1,800,000
         2. Deferred Inflows of Resources (excluding those related to Pension or OPEB) minus Taxes and Special Assessments Receivable = 150,000
         3. Current Assets = 75,000, Current Liabilities = 60,000
            1. Step 1: Unrestricted Net Position has a deficit > Deferred Inflows of Resources (excluding those related to Pension or OPEB) minus Taxes and Special Assessments Receivable. Proceed to Step 2.
            2. Step 2: 75,000 – 60,000 = 15,000. Answer is positive. No plan is necessary.
            3. Step 3: Not Applicable.
            4. Step 4: Not Applicable.
      2. Example 2
         1. Unrestricted Net Position = (430,000), Total Net Position = 1,800,000
         2. Deferred Inflows of Resources (excluding those related to Pension or OPEB) minus Taxes and Special Assessments Receivable = 150,000
         3. Current Assets = 75,000, Current Liabilities = 510,000
            1. Step 1: Unrestricted Net Position has a deficit > Deferred Inflows of Resources (excluding those related to Pension or OPEB) minus Taxes and Special Assessments Receivable. Proceed to Step 2.
            2. Step 2: 75,000 – 510,000 = (435,000). Answer is negative. Proceed to Step 3.
            3. Step 3: A (430,000) or 1,800,000, B (435,000).
            4. Step 4: A is a smaller deficit than B. Submit a plan to eliminate the (430,000) unrestricted net position deficit.
      3. Example 3
         1. Unrestricted Net Position = (430,000), Total Net Position = 1,800,000
         2. Deferred Inflows of Resources (excluding those related to Pension or OPEB) minus Taxes and Special Assessments Receivable = 150,000
         3. Current Assets = 75,000, Current Liabilities = 200,000
            1. Step 1: Unrestricted Net Position has a deficit > Deferred Inflows of Resources (excluding those related to Pension or OPEB) minus Taxes and Special Assessments Receivable. Proceed to Step 2.
            2. Step 2: 75,000 – 200,000 = (125,000). Answer is negative. Proceed to Step 3.
            3. Step 3: A (430,000) or 1,800,000, B (125,000).
            4. Step 4: B is a smaller deficit than A. Submit a plan to eliminate the (125,000) difference between current assets and current liabilities.
      4. Example 4
         1. Unrestricted Net Position = (430,000), Total Net Position = (1,500,000)
         2. Deferred Inflows of Resources (excluding those related to Pension or OPEB) minus Taxes and Special Assessments Receivable = 150,000
         3. Current Assets = 75,000, Current Liabilities = 510,000
            1. Step 1: Unrestricted Net Position and Toal Net Position have a deficit > Deferred Inflows of Resources (excluding those related to Pension or OPEB) minus Taxes and Special Assessments Receivable. Proceed to Step 2.
            2. Step 2: 75,000 – 510,000 = (435,000). Answer is negative. Proceed to Step 3.
            3. Step 3: A (430,000) or (1,500,000), B (435,000).
            4. Step 4: B is a smaller deficit than A. Submit a plan to eliminate the (435,000) difference between current assets and current liabilities.
      5. Example 5
         1. Unrestricted Net Position = (430,000), Total Net Position = (450,000)
         2. Deferred Inflows of Resources (excluding those related to Pension or OPEB) minus Taxes and Special Assessments Receivable = 150,000
         3. Current Assets = 75,000, Current Liabilities = 610,000
            1. Step 1: Unrestricted Net Position and Total Net Position have a deficit > Deferred Inflows of Resources (excluding those related to Pension or OPEB) minus Taxes and Special Assessments Receivable. Proceed to Step 2.
            2. Step 2: 75,000 – 610,000 = (535,000). Answer is negative. Proceed to Step 3.
            3. Step 3: A (430,000) or (450,000), B (535,000).
            4. Step 4: A is a smaller deficit than B. Submit a plan to eliminate the (450,000) total net position deficit.
      6. Example 6
         1. Unrestricted Net Position = (470,000), Total Net Position = (450,000)
         2. Deferred Inflows of Resources (excluding those related to Pension or OPEB) minus Taxes and Special Assessments Receivable = 150,000
         3. Current Assets = 75,000, Current Liabilities = 610,000
            1. Step 1: Unrestricted Net Position and Total Net Position have a deficit > Deferred Inflows of Resources (excluding those related to Pension or OPEB) minus Taxes and Special Assessments Receivable. Proceed to Step 2.
            2. Step 2: 75,000 – 610,000 = (535,000). Answer is negative. Proceed to Step 3.
            3. Step 3: A (470,000) or (450,000), B (535,000).
            4. Step 4: A is a smaller deficit than B. Submit a plan to eliminate the (470,000) unrestricted net position deficit.
      7. Example 7
         1. Unrestricted Net Position = (130,000), Total Net Position = 1,800,000
         2. Deferred Inflows of Resources (excluding those related to Pension or OPEB) minus Taxes and Special Assessments Receivable = 150,000
         3. Current Assets = 55,000, Current Liabilities = 60,000
            1. Step 1: Unrestricted Net Position has a deficit > Deferred Inflows of Resources (excluding those related to Pension or OPEB) minus Taxes and Special Assessments Receivable. No plan is necessary.
            2. Step 2: Not Applicable.
            3. Step 3: Not Applicable.
            4. Step 4: Not Applicable.
5. Electronic Filing Requirements
   1. It is the position of Treasury that a reasonable plan to eliminate a deficit condition is vital to the fiscal well-being of a local unit as is early implementation of that plan. By providing better guidance on what constitutes a deficit, it is the expectation of Treasury that a local unit will submit a plan and certified resolution in a more expeditious manner. A plan and certified resolution may be filed as soon as one business day following the submission of the local unit’s audit report and Auditing Procedures Report (Form 496) to Treasury.
   2. A plan generally should be for one year, but in no case longer than five years. Local units with multiple year plans must submit a revised plan each subsequent year, even if they meet their projection, which adheres to the time frame that was originally certified, not to exceed five years. For example, a local unit has a deficit in 2025. They file a five-year plan covering 2026-2030. When they file a revised plan in 2026, the revised plan can only go through 2030, or the end of the original five-year period. Had the local unit filed a three-year plan in 2025, covering 2026-2028, when filing a revised plan in 2026, the revised plan could be extended through 2030. Revised plans also need legislative approval by means of a certified signed and dated resolution. Requiring a revised plan each subsequent year, even when meeting the original projection, gives both Treasury and the legislative body an update of the plan, and ensures that new members of the legislative body are aware of the deficit. Treasury’s continued certification of a plan may be contingent on the filing of monthly update reports with Treasury, as deemed necessary.
   3. Plans and certified resolutions will no longer be accepted through the U.S. Postal Service, by email, or by hand delivery, effective for deficits associated with audit reports filed on or after July 11, 2016. Instead, the plans and certified resolutions are to be uploaded online at http://www.michigan.gov/MunicipalFinance. Click on the “Deficit Elimination Plans” drop-down menu, then select the “Deficit Elimination Plan Upload” link.
   4. If not already acquired, users must obtain a new User ID and Password by clicking on the “Request Access New User” link on the login page. Once clicking on “Request Access New User,” there is an instruction link available should you require additional assistance. The plans and certified resolutions for all of a local unit’s deficit funds must be uploaded as a single file in the .pdf format. Each upload would have a minimum one plan and one certified resolution.
   5. Once logged in, from the drop-down lists, select your County, Municipality Type, and Municipality. Under the Form drop-down list, select “Deficit Elimination Plan Upload.” In order for “Deficit Elimination Plan Upload” to be a selection on the Form drop-down list, the Auditing Procedures Report must have been filed at least one business day prior. Last, select the Fiscal Year and then select Create Form. One the next page, select Browse, select your file, select Continue, and if you agree with the Certifying Information, check the box and select Submit. A confirmation of receipt is available by selecting the “Deficit Elimination Plan Upload” associated with your recent submission.
   6. Approval and denial letters will no longer be sent via the U.S. Postal Service. Notifications will now be sent via email to the local unit contact as provided in the Auditing Procedures Report (Form 496). The letters, plans, and certified resolutions will be posted on our website within one business day after receipt of the notification email.
6. Acceptable Evidence to Support a Plan
   1. Projected budget approved by the legislative body as evidenced by a certified, signed, and dated resolution itemizing yearly revenues by source, expenditures/expenses by activity, and changes in the fund balance/net position, beginning with actual numbers from the most recent audit and through the year of the deficit’s eventual elimination. For comparative purposes, it is recommended that the projected budget be at the same level of detail as the audit. A written explanation of how the deficit will be eliminated should accompany the plan. Furthermore, should itemized revenues increase or itemized expenditures/expenses decrease by 5% or more from the prior year, an explanation of the increase/decrease is required. There is a five-year limit for an approved plan; the plan must be revised and submitted each subsequent year.
   2. Note that a short-term (due to/from) or long-term (advance) loan from another fund to the fund in deficit will not reduce the unrestricted fund balance or net position deficit.
   3. If a deficit exists in the General Fund, the General Fund plan should include a monthly breakdown of revenues and expenditures for the first two years of the projection and annual detail for the remaining years. For example, a five-year plan would show monthly detail for 24 months, and annual detail for the remaining three years. When a revised plan is submitted in the subsequent year, it would include a monthly breakdown for two years and an annual breakdown for the remaining two years. The monthly breakdown shall be for actual revenue and expenditures expected that month. For example, property taxes should be included in the months the taxes are projected to be collected. It shall not be merely the annual revenue and expenditures divided by 12 months. This will allow for a more meaningful picture of how the municipality is progressing on a monthly basis.
7. Failure to Submit an Acceptable Plan
   1. Upon completion of the Auditing Procedures Report, within one business day the local unit will be emailed a Notice of Intent to Withhold State Payments. The local unit will have 30 days from the date of the notice to file a plan and certified resolution. Should a plan and certified resolution not be filed within 30 days, we may withhold 25% of the local unit’s State Incentive Payments or payments issued under 1971 PA 140, the Glenn Steil State Revenue Sharing Act of 1971. Once withheld, payments are released not when a plan and certified resolution have been filed, but when a plan and certified resolution have been evaluated and certified by Treasury.
   2. If you have any questions, please contact our office at Treas_MunicipalFinance@michigan.gov.
8. Sample Deficit Elimination Plan
   1. Treasury has provided a sample proprietary fund legislative body resolution and a multiple year deficit elimination plan. The fiscal years are in columns, beginning with the most recently concluded year and ending with the year the deficit will be eliminated. Each year starts with the beginning unrestricted net position, adds revenues, subtracts expenditures, adds non-operating revenues, and concludes with the ending unrestricted net position. The ending unrestricted net position in the first year is then carried over to the beginning unrestricted net position in the subsequent year. This is done each year through the elimination of the deficit.
   2. In addition, Treasury has also provided a sample current assets minus current liabilities calculation. The fiscal years are in columns, beginning with the most recently concluded year and ending with the year the deficit will be eliminated. Each year starts with beginning current assets minus current liabilities balance, adds revenues, subtracts expenditures, adds non-operating revenues, adds back depreciation, subtracts the purchase of capital assets, subtracts the principal payment on long-term debt, and concludes with the ending current assets minus liabilities balance. The ending current assets minus current liabilities balance in the first year is then carried over to the beginning current assets minus current liabilities balance in the subsequent year. This is done each year through the elimination of the deficit.

Sample Proprietary Fund Legislative Body Resolution and Multiple Year Deficit Elimination Plan

WHEREAS (Sample Unit’s) Park Fund has a $12,800 deficit fund balance on December 31, 2026; and

WHEREAS 1971 PA 140 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’s) Park Fund Deficit Elimination Plan:

Explanation: Increase charges for services 10% in 2027. Decrease park hours and work hours thereby decreasing salaries and wages by 11.3% in 2027. Increase transfer from General Fund by 50% in 2027.

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.

ADD CLERK’S CERTIFICATION.