06.11.14

Civic Leadership & Responsibility. Laura Berman of the Detroit News yesterday wrote: “As 32,000 current and former city employees study their ballots and ponder their future, the cameras roll, and the officials hold their breath. Nobody can take these workers — now cast to be the city’s saviors or spoilers — for granted.” That is to write that much hinges on how the Motor City’s retirees vote: the city, she notes, is at a “moment of triumph and tension, with many players still waiting to exhale.”  She describes this moment in time – with “so many working parts, and so many people who don’t ordinarily speak to each other” as “at once awe-inspiring and incredibly fragile.”  In her column, she describes the many disparate factions—coming from all three levels and branches of government—who might well be on the precipice of overcoming unprecedented odds, noting the respective roles of the Governor, legislature, Chairman of the Detroit Institute of Arts Chairman Eugene Gargaro, the automakers—this unique coalition, who, she notes are: “displaying solidarity and leadership, the way civic fathers do in old-fashioned history books.” She wrote of Chief U.S. District Court Judge Gerald Rosen—selected by U.S. Bankruptcy Judge Steven Rhodes of the Indubitable Equivalents—to play a unique role, especially with regard to those retirees who might otherwise fall below the federal poverty level, noting Judge Rosen’s salute this week, who saluted as “heroes of the bankruptcy” both Shirley Lightsey, who heads the Detroit employees retirees union, and Don Taylor, of the Detroit police and firefighters. Ms. Lightsey, she wrote, “stated: ‘You cannot eat principle and uncertainty does not pay the bills,’ explaining why she wants her members to vote for the bargain, even if it is just OK, rather than truly grand for most of them.” She saluted individuals, such as Chairman Gargaro, who, charged with raising $100 million for pensioners as a condition of DIA’s own survival, this week reiterated his intent to raise $100 million. Or, as she wrote: “So far, the spirit of good will is borne out in commitments by all these disparate factions: Thirteen foundations — who aren’t in the business of helping pensioners. The Republican-controlled state Legislature, which typically objects to Detroit. Three auto companies joining to make a $26 million contribution. And the DIA, usually fundraising for its own needs, is $70 million or so into raising $100 million to benefit Detroit retirees: A region grown infamous for modeling what not to do is showing off courage and commitment, social intelligence and communal generosity. Its public/private model for action is downright innovative.”

San Bernardino Loses a Round. The California State Controller’s Office and Department of Finance gained a victory over San Bernardino in the U.S. District Court when Judge James Otero reversed U.S. Bankruptcy Judge Meredith Jury’s finding that the Tenth and Eleventh amendments do not bar a suit against the agencies brought by the bankrupt city of San Bernardino. The issue involves the money transferred to the city following the dissolution of its redevelopment agency by the state—funds the city had initially protected in the federal bankruptcy court when it sought to enjoin the state agencies from carrying out threats to withhold tax revenues due to the city in the wake of threats by the Dept. of Finance to withhold property taxes and sales and use taxes due to the city, should its redevelopment successor agency be unable to pay more than $15 million in unencumbered low- and moderate-Income housing funds within 30 days. U.S. District Court Judge James Otero, in his decision (In re: City of San Bernardino, ED CV 13-01797), held that the federal bankruptcy court “erred in denying our Eleventh Amendment sovereign immunity arguments.”  The issue involved property tax funds caught up in the redevelopment dissolution process—a process involving some 150 suits by the state against California local governments  under Tenth and Eleventh Amendment claims by the State, with Judge Otero finding that the federal courts are barred by the Eleventh Amendment from adjudicating such claims: those issues must be resolved in the state courts, lest, otherwise, federal municipal bankruptcy claims could be used as a vehicle to undermine state law. The federal court thus reversed Judge Jury’s decision on Eleventh Amendment issues and remanded the case for further proceedings, according to the filing. The two California state agencies contended that San Bernardino inappropriately held on to $15 million that belonged to the former city redevelopment agency—funds the state said should be redistributed to school districts, special districts, and every other municipal entity that receives a split of property taxes, including the city itself. In her initial ruling, Judge Jury found that San Bernardino and the successor agency to its redevelopment agency are separate entities, making it a non-bankruptcy court issue—and held that if the successor agency had a dispute with the California Department of Finance, it should take the issue to state court; Judge Jury also left the door open for the city to file before her a second time, which the city did—and it was on this second filing that Judge Otero reversed, holding that San Bernardino and the successor agency are separate entities, so that the city had no standing to sue the state. Judge Otero also found in favor of state on the 11th amendment, which protects state sovereignty: “Proceeding forward would insert the Bankruptcy Court into a dispute between a state and a non-debtor municipal agency, even though the state agency’s actions have no direct tie to the debtor’s property and the [bankruptcy] court does not and never will have in rem jurisdiction over the disputed property.” Judge Otero noted that as a municipality, the city is a creature of state law, so that the state can withhold, grant, or withdraw powers and privileges of its municipalities as it sees fit.

Sisyphos. Sometimes it seems thatthe effort to push the rock of municipal bankruptcy up to the top of the hill can be crushing to the spirit.While Ms. Berman celebrated the extraordinary collaboration and contributions of many across the State of Michigan and the public and private sector to enhance the chances for the Motor City to recover, the challenge is San Bernardino is daunting. The city’s AAA Auto Club last weekend, after nearly a century’s presence in the city, moved to east Highland; the San Bernardino Hilton Hotel will close by midmonth, as will the Elephant Bar restaurant. The three departures mean the loss of nearly 200 jobs in the struggling city, departures barely three months after Mayor Carey Davis took office, joining three new councilmen on a wave of optimism that the city could turn itself around—with Mayor Davis focusing on revival of San Bernardino’s downtown as one of his top priorities. According to media reports, the auto club decision was related to apprehensions about the safety of its employees—even though there were no crime reports of assaults, robberies, or other serious crimes. Chamber of Commerce CEO Judi Penman and Councilwoman Virginia Marquez met with the club’s local supervisor, who expressed concerns about problems with vagrants and panhandlers, and told them that the Club had hired an unarmed security guard several years ago, but switched to an armed guard last year.  But it came too late to save the Auto Club office. Marquez said she and Penman were told the decision could not be changed and was made in the organization’s corporate office to protect employees and customers.

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