Transitioning back to self government after Municipal Bankruptcy & Trying to adopt a post bankruptcy budget

             July 30, 2014

Visit the project blog: The Municipal Sustainability Project 

Transitioning Power in the Motor City. Detroit Emergency Manager Kevyn Orr yesterday issued his 31st Order, this one relinquishing control over the Detroit Water and Sewer Department to Mayor Mike Duggan. The order restores to the city the authority to manage the utility and make appointments to the Board of Water Commissioners. In his statement, Mr. Orr wrote, “As the Detroit Water and Sewerage Department works to operate more efficiently and communicate more effectively with customers, it is important to ensure there are clear lines of management and accountability;” however, the order includes a proviso: “The EM may modify, amend, rescind, replace, supplement, or otherwise revise this Order at any time.” In one sense, this is the transfer of a hot potato, U.S. Bankruptcy Judge Steven Rhodes and others have harshly criticized the emergency manager’s handling of water shutoffs to Motor City residents who owe more than $150 or are at least two months behind on their payments—as his office has sought to gain control over and recoup nearly $90 million, including more than $43 million from some 80,000 overdue accounts from residents. In his order, Mr. Orr noted: “This order provides additional clarity to the powers already delegated to the Mayor… This order ensures a common focus on customer service and sound management practices that reflects the city’s commitment to refocusing its efforts to help DWSD customers get and remain current on their water bills.” Mr. Orr’s spokesperson, Bill Nowling, further clarified the boundaries of the transition yesterday when he said it was “important to note that Order 31 does not delegate to the Mayor any authority over negotiations on creation of an authority or any other restructuring issue.” The transition comes at a tricky moment: the city’s water and sewer department, suburban officials, and the Motor City were ordered into mediation last April – under a gag order. Nevertheless, Mayor Duggan yesterday wrote that he had met Monday evening with the leadership of the Detroit Water and Sewer Department (DWSD), adding: “We need to change a number of things in the way we have approached the delinquent payment issues, and I expect us to have a new plan shortly…There are funds available to support those who cannot afford their bills — we need to do a much better job in community outreach to tell our residents how to access those funds. We will be developing a plan that allows those who are truly needy to access financial help and allows those who want to make payment arrangements to do so with shorter wait times. As for those who can pay and choose not to, we won’t force other Detroiters to pay their bills.” Because the Department serves the metro area, its board is representative of its service area, including: four members from Detroit and one each nominated by the Wayne County Executive, the Oakland County Water Resources Commissioner, and the Macomb Public Works Commissioner. With Mr. Orr’s appointment subject to termination by Detroit’s Mayor and Council on October 1st, the delicate process of transition—an issue distinct from the Jefferson County, Stockton, Vallejo, and San Bernardino municipal bankruptcies—where state laws do not provide gubernatorial authority to preempt municipal authority through the appointment of emergency managers—the order yesterday would appear to be an early effort to try and ensure a smooth transition.

Gambling on the 6th.  The 6th U.S. Circuit Court of Appeals today will entertain oral arguments on an appeal by bond insurer Syncora Guarantee Inc. of U.S. Bankruptcy Judge Steven Rhode’s decision last August denying the insurer access to the Motor City’s casino tax revenues, finding that those revenues, because they were part of the bankruptcy estate, were subject to the code’s automatic stay provisions—a ruling confirmed by the U.S. District Court earlier this month—and a vital ruling, as it has meant the Motor City has been able to continue to have access to what has proven to be one of the city’s most reliable revenue streams.

Fire in the Hole. U.S. Bankruptcy Judge Meredith Jury yesterday heard arguments on the San Bernardino firefighter unions’ attempt to sue in state court over alleged legal violations relating to layoffs and other reductions the City Council approved as part of its FY2015 budget. The adopted budget calls for two layoffs and four demotions that are scheduled to take effect in September, but the union is arguing the city’s budget action targets specific individuals for political and retaliatory purposes, with its attorney, Corey Glave, stating: “The cuts to the fire department, which contradict recommendations by the City’s own experts, put both firefighters and the general public at risk and are being viewed as retaliatory as they directly target no less than four members of the Board of Directors for the San Bernardino City Professional Firefighters…It is becoming clear that the City is seeking to gain some form of an advantage over the union in the Bankruptcy Court by disrupting the union’s board of directors.” As we reported early this month, San Bernardino, at its 11th hour, adopted some $2 million in cuts to its Fire Department budget as part of its $22 million in savings it adopted, including the closure of one fire station. In its response, San Bernardino City bankruptcy attorney Paul Glassman and City Attorney Gary Saenz, wrote that the laid-off employees can — and did — schedule hearings with the city’s Civil Service Commission, adding: “The tempest in the teapot that the SBCPF has created about the layoffs is a ruse for their goal of obtaining state law and state court jurisdiction over the rejection of their contract and the adjudication of the claims arising from the rejection,” adding they believe the accusations of bias are unsupported and unfair: “The (fire union’s) Stay Relief Motion, with its incendiary and irresponsible attacks on Chief Drasil, personal and professional, alleging anti-union animus, is nothing more than an effort to undermine Chief Drasil’s credibility as a witness for the City’s contract rejection motion,” the filing states. “The Court should not abide such scurrilous tactics and should reject the Stay Relief Motion for that reason alone.”

In response, U.S. Bankruptcy Judge Meredith Jury yesterday denied permission for the union to sue San Bernardino in California state court, but said she would entertain the union’s arguments in federal bankruptcy court, also finding that the union’s plea was “premature,” because the effective date for the cuts is scheduled for Sept. 23rd, although Judge Jury noted: “I put it (blame) on the city, that they didn’t communicate with the fire chief.” Judge Jury said she might later allow relief from the stay, but she repeated previous comments that she is “really reluctant” to have another court whose timing she cannot control get involved in the city’s efforts to address its fiscal situation and put together a plan of adjustment in order to emerge from municipal bankruptcy: “The city is doing this to try to balance the budget, in order to propose a way to go forward in a Chapter 9 proceeding.” Judge Jury noted that San Bernardino filed for federal bankruptcy protection, because it was insolvent: it could not meet payroll, but—describing the dilemma, added: “I also agree with you (the union): they can’t violate the (city) charter in order to do what they have to do in a Chapter 9 plan.”

On Monday evening, San Bernardino proposed a new contract, which Mr. Glave yesterday told the federal court he considered to be the city’s first proposal on a new contract. In response, Judge Jury said that while that proposal may have come arrived a little late, it did appear to her that the city had been attempting to negotiate with the union: “I see the stonewalling coming from the firefighters…And maybe that’s unfair, but that’s what I see, because no one else looks like they’re being stonewalled by the city.” (San Bernardino has reached agreements with most of its employee groups, and officials with the city and police union say they are close to an agreement.) Nevertheless, Judge Jury ordered the two sides to come to the bargaining table: “You’ve all got the message that this needs to happen as soon as you can.”

Can the Weed in San Bernardino be a Twofer? San Bernardino City Attorney Gary Saenz is proposing that the municipality be the first city in California’s San Bernardino County to allow some medical marijuana dispensaries — in the hope of both raising revenues, as well as enforcement with regard to illegal dispensaries that seem to have achieved little impact, notwithstanding the municipal ban. Mr. Saenz’s plan, which he first proposed at a city Council meeting last week, was sent to the city’s legislative review committee for review this Monday—with a draft ordinance and public hearing scheduled for a presumably weedless committee meeting scheduled for a week from Saturday. According to Mr. Saenz’s office, Palm Springs, the only municipality in the region that currently permits such dispensaries (it has authorized four for its 44,500 population), anticipates getting a little high from the projected weed revenue gained by means of a 10 percent tax—$500,000 annually—an amount approximately equal to what the city expends annually on enforcement. Under Mr. Saenz’s draft proposal, there would not be a cap on the number of such dispensaries, but the proposal would limit which zones allow dispensaries and prohibit them from being within certain distances of “sensitive uses” such as schools (1,000 feet), substance abuse rehabilitation centers (500 feet), and residential uses (150 feet). In addition, as the city noted, any ordinance would have to take into account federal laws: “It is important to the federal government that any state or local regulatory framework contain robust controls and procedures on paper as well as in practice…If the City of San Bernardino does enact a regulatory scheme for marijuana dispensaries, the regulatory framework will need to be thorough with regards to federal priorities and consistently enforced. Critical to such a regulatory scheme will be sufficient resources allocated to enforcement.”

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