Apr. 12 (Bloomberg) -- Detroit Mayor Kwame Kilpatrick is asking municipal workers to take a 10 percent pay cut and spend more for their health care to help eliminate a $60 million deficit in the city's $1.4 billion general-fund budget.

Kilpatrick, 35, laid out his proposals today as he delivered a budget message to the Detroit City Council. City negotiators met yesterday on the health-care issue with American Federation of State, County and Municipal Employees Local 207, which represents 1,050 workers in Detroit's water department, and talks will resume next week.

In a speech today, Kilpatrick said he will press AFSCME and other unions to accept a 10 percent pay cut for the next fiscal year. ``If we can't reach an equitable agreement, I have the legal authority to impose our last best offer,'' Kilpatrick said. ``If necessary, I will do that.''

While progress had been made on the health-care issue, the wage cut faces opposition. John Riehl, president of the AFSCME local, said his union would consider going on strike if the mayor imposes his last, best offer. ``Our members are very angry that the city is trying to put concessions on us,'' Riehl said after the speech.

Kilpatrick said he wanted workers to pay more to help the nation's 11th-largest city cope with rising health-care costs and revenue shortfalls stemming partly from automaker job losses. The Detroit area -- a city more than 80 percent black hemmed by suburbs that are 96 percent white -- had a 7.0 percent unemployment rate in February. The U.S. rate was 5.1 percent.

About 34 percent of all Detroiters lived in poverty in 2004, the highest rate of any big U.S. city, according to the U.S. Census Bureau. The national poverty rate was 12.7 percent. Median household income in Detroit was $26,157 in 2003, compared with the U.S. median of $43,318, according to the Census Bureau.

Union Concessions

Benefits for Detroit municipal workers, including pensions and health-care coverage, equals 88 percent of a worker's base salary, compared with 30 percent among private-sector employers, according to Kilpatrick.

For the fiscal year starting July 1, Kilpatrick projected that the city's health costs would increase 20 percent, to $218 million from $184 million. He said the increase would have been $48 million higher if he hadn't budgeted health-care concessions he expects to negotiate with the city's unions.

``In our last proposal, we got really close to what the city wants on health care,'' AFSCME's Riehl had said before the end of yesterday's talks. The workers, whose monthly earnings average $2,700, already pay $200 per family a month to belong to a health-maintenance organization, Riehl said.

Kilpatrick's re-election to a second term on Nov. 8 delayed negotiations. AFSCME supported his general-election challenger, Freman Hendrix, 55, the city's former deputy mayor.

Rehiring Police

``The unions who will suffer most endorsed a different candidate,'' says Joseph O'Keefe, a Fitch Ratings analyst in Chicago. ``They weren't going to negotiate until the election was over.''

In his budget proposal today, Kilpatrick proposed 77 layoffs, including 11 at the city's convention center. At the same time, he said he would rehire 100 of the 150 police officers who were laid off last year.

Kilpatrick proposed a new monthly fee that would average $25 per household to pay for trash collection. This would be partly offset by the cancellation of property taxes collected for this purpose. He proposed adding a fare of 75 cents for physically disabled riders on the city's bus system who now ride free. That's half the fare paid by other riders. The elderly would still ride free.

Kilpatrick said he would seek a private company to help run the city's streetlight department through a joint venture. He also said he would spend the next year studying whether the city should try to save money by putting its trash in a landfill instead of burning it in a city-owned incinerator.

Council Wrangling

After Kilpatrick's speech today, the City Council will develop its own budget. Political sparring between the two sides might continue until just before the new fiscal year starts July 1, O'Keefe says. The mayor has the power to veto the council's budget, and the nine-member council, with six votes, can override the veto.

In 2003, Detroit's population stood at 911,402, less than half its peak in 1953. Job cuts at Detroit-based General Motors Corp. and Ford Motor Co., based in nearby Dearborn, Michigan, helped depress Detroit's income tax revenue 22 percent to $300.4 million in the two years ending June 30, 2004, O'Keefe says. During these same two years, the city's revenue sharing from the state of Michigan declined 14 percent to $286.5 million amid declining state revenue. The city hasn't released audited results for the fiscal year ended June 30, 2005.

Payroll Cuts

Partly because it sold $1.44 billion in bonds last year to stretch out its pension payments for municipal workers, the city's debt reached a level equal to 19.4 percent of the total value of taxable property within its boundaries, says Jane Hudson Ridley, a Chicago-based analyst for Standard & Poor's. In Cleveland, Ohio's largest city with a population of 478,000, this ratio was 5.6 percent, according to S&P data.

In his speech today, Kilpatrick said he had responded to the crisis by cutting the payroll below 15,000, from 20,000 in 2002.

In October, Kilpatrick estimated the deficit for the current fiscal year would be $186 million. He later reduced the amount to $132 million by selling city property and accelerating property tax collections, then cut the estimate today to $60 million.

``Anything that would make the city more efficient, the bond market would be in favor of,'' says Mike Davern, vice president for municipal finance at Chicago-based Nuveen Investments, Inc.

In November, S&P lowered its rating on Detroit's $580 million of general obligation bonds, with the unlimited backing of the city's taxes, by one level to BBB. Some $2 billion of bonds with a limited pledge of city taxes were lowered to BBB-, the lowest investment-grade rank.

Worker Absenteeism

S&P has a negative outlook on the rating. ``Their expenditures continue to mount, and they haven't found the revenue to keep up,'' S&P's Ridley says.

Worker absenteeism has been a concern. On March 14, Kilpatrick complained that on any given day, 30 percent of workers in the police and public works departments are absent, including those calling in sick.

At the water department, daily absenteeism is 19 percent, including vacations and jury duty, Riehl says. People miss work in the fire department because of injuries resulting from job cuts, says Dan McNamara, president of the Detroit Fire Fighters Association. Since 1960, staffing has been cut by 40 percent to 1,150 even though the city's physical size is unchanged, McNamara says.

As for health care, McNamara says his members have gone without raises five times in the last 15 years to help pay for rising costs. ``To come back and ask us to pay again is a betrayal,'' McNamara said in comments before the mayor's speech.

To contact the reporter for this story: John Lippert in Detroit at jlippert@bloomberg.net.

Last Updated: April 12, 2006 14:12 EDT