The road to recovery from municipal bankruptcy is strewn with potholes and other obstacles.


January 14, 2014
Visit the project blog: The Municipal Sustainability Project

Learning how to recover. The road to recovery from municipal bankruptcy is strewn with potholes and other obstacles. Clearly a key issue for a city or county if it is to attract citizens is the quality of its public schools; thus, yesterday, Michigan Gov. Rick Snyder, in naming the City of Flint’s emergency manager, Darrell Earley, to be the next leader of Detroit Public Schools (DPS), the 4th emergency manager, said he does not believe bankruptcy is a good option for DPS. Mr. Earley’s appointment comes amid a swirl of discussions around education reform in post-bankruptcy Detroit. Last month, officials from the Skillman Foundation and other groups formed a 31-member coalition charged with finding ways to address academic achievement, finances and other problems surrounding education. Nevertheless, the Governor’s announcement sparked criticism from citizens who believe the district should be returned to local control. Mr. Earley stated he intends to spend his first 90 days reviewing operations and to focus on improving academic achievement. His gubernatorial appointment marks the fourth emergency manager for DPS in six years. For his part, the Governor said that even though another emergency manager was not his preferred option, he believed it was necessary, given DPS’s financial and academic challenges: the system has a $169.5-million deficit. Mr. Earley, an ordained deacon, served as Flint’s emergency manager since October 2013. Prior to that, he worked as a city manager in Saginaw, a city administrator in Flint, and budget director and controller for Ingham County. In making the appointment, Gov. Snyder said Mr. Earley has a “legacy of success” in taking on fiscal challenges. According to state officials, Flint is on track to return to local control in about three months. Nevertheless, the new challenge for Mr. Earley will be distinct: how to address falling enrollment—and how to restore trust in DPS. Yesterday, Mr. Earley said that “educational achievement must be the focal point of all of our interests,” so that he intends to implement changes. Falling enrollment continues to be a concern as the district faces increased competition from charter and suburban schools. DPS has about 47,000 students. LaMar Lemmons, a member of the Detroit school board, this week worried that emergency management has been a huge failure: “Democracy has been removed from the citizens…It’s unconscionable, and a total disservice to our children.” In addition, unsurprisingly, Gov. Snyder’s appointment has reawakened state-local apprehensions about Michigan’s emergency manager law, PA 436, the state’s statute which provides that if an emergency manager has served for at least 18 months after being appointed, a governing body can remove the manager by a two-thirds vote: yesterday’s appointment came just shy of the system’s previous gubernatorial appointee’s 18-month anniversary. For his part, Gov. Snyder reported that while school safety had improved, enrollment losses have stabilized, and there has been progress toward improved academic achievement under the outgoing emergency manager; challenges remain, especially on the fiscal front: DPS last month announced that its deficit was nearly $170 million, up nearly 33% from the $127 million announced a few months earlier—a significant drop from 2010’s deficit of more than $300 million, but much larger than the nearly $80-million shortfall DPS had around the time of the Governor’s previous appointee.

Sticker Shock. For Detroit, still another pothole in its road to recovery will be an issue virtually never discussed in U.S. Bankruptcy Judge Steven Rhodes courtroom: the cost of auto insurance. But for a city desperately seeking to recover some of its drastic 2/3’s population loss, here is another critical challenge. According to an analysis by, Detroit has the highest auto-insurance premiums in the U.S. So even as the Motor City successfully emerged from its record municipal bankruptcy last month, the task of luring families and individuals to move back into what was once one of the largest cities in the country, especially new tax-paying residents, the cost of car insurance in a city without terrific public transportation is a significant issue. reports that the Motor City features the five most expensive zip codes in the U.S. for auto insurance: zip codes in Detroit which produced average annual rates of about $5,000, 29 percent more than the highest average premium in New York City—even though New York’s median household income of $52,259 is twice Detroit’s, according to the U.S. census. Indeed, the cost of automobile insurance is such a universal complaint in Detroit that Mayor Mike Duggan promised in his 2013 election campaign to start a municipal insurance agency to offer reduced premiums. The city, in fact, hired an actuary to study whether that would be feasible, and officials are looking at all possibilities, including state legislation; however, Michigan Rep. Harvey Santana said Detroit lacks the resources to provide insurance relief. The cost of insurance is so prohibitive that an estimated 21 percent of Michigan motorists are uninsured, according to, nearly double the nationwide rate of 12.6 percent. While there is little Detroit can do to bring down the insurance rates, it appears that the city will have to address the volume and higher cost of claims compared with surrounding areas: Detroit’s vehicle-theft rate in 2014 was 1,534 per 100,000 residents, almost seven times the national rate, according to data from both the FBI and Detroit Police Department—leading Detroit city attorney Butch Hollowell to say: “We do believe that we can construct a system that would deliver a low-cost policy and provide coverage for people at an affordable rate.”

San Bernardino & the Sounds of Silence. With the city under a federal court order to come up with a plan of debt adjustment by early Spring for U.S. Bankruptcy Judge Meredith Jury, San Bernardino Mayor Carey Davis is proposing to further limit the time members of the public can speak at City Council meetings, according to City Clerk Gigi Hanna, with the Mayor proposing a rule which would limit each public speaker to a total of 12 minutes per meeting—a change from the current rules, under which anyone in attendance can speak for up to three minutes on each of any (or all) items on the Council’s agenda—and even an additional three minutes for items not on the agenda. Effective next Tuesday, individuals will be limited to three minutes of comment about the entire consent calendar — and only a council member or the mayor will be allowed to “pull” any item for fuller discussion. While an attendee will still be permitted to discuss regular agenda items for up to three minutes per item, the city clerk noted that citizens will be limited to a “12-minute-total limit per person per meeting.” The council did not vote on the decision. Part of the concern appears to be the seemingly interminable length of some council meetings, so the mayor’s move appears not to have ruffled any feathers amongst the council: six of the seven council members were on the dais for this week’s meeting, and California’s open meeting law requires public agencies to give the public an opportunity to address items of public interest at every meeting, but the state law explicitly allows time limits: “Every notice for a special meeting shall provide an opportunity for members of the public to directly address the legislative body concerning any item that has been described in the notice for the meeting before or during consideration of that item…The legislative body of a local agency may adopt reasonable regulations to ensure that the intent of subdivision (a) is carried out, including, but not limited to, regulations limiting the total amount of time allocated for public testimony on particular issues and for each individual speaker.” San Bernardino’s own charter provides that the mayor “shall preside” at council meetings, but otherwise appears to be silent with regard to authority to set limits on public participation.

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