Untransparency, Democracy, State Roles, & Municipal Bankruptcy

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November 19, 2015. Share on Twitter

Untransparency, Democracy, State Roles, & Municipal Bankruptcy. In the minority of states which permit municipalities to file for chapter 9 municipal bankruptcy, state laws differ considerably with regard to the role of municipal elected leaders—from states such as Michigan and Rhode Island, which confer state authority to name receivers or emergency managers—and bar or remove the municipal elected leaders—to states such as New Jersey with its hybrid system in which the Governor may appoint an emergency manager to “co-govern” with the city’s elected leaders, to states such as Georgia and California, where a municipality’s elected leaders retain full authority, and the state either plays no role (California) or contributes to making fiscal issues worse (Georgia). Thus, in these different municipal bankruptcies across the nation, different governance models have emerged—with those under which local leaders remain in charge demonstrating unique challenges. While Stockton leaders—and the city’s citizens and taxpayers—demonstrated extraordinary resilience in fashioning the city’s successful exit from bankruptcy, San Bernardino’s leaders, in southern California, have raised issues with regard to whether elected leaders might prove unable to actually produce a plan to exit what has become the longest municipal bankruptcy in American history. And it has raised this issue we have examined of the difficult balance—and question—whether elected local leaders who presided as a municipality went into insolvency can be trusted to lead such a municipality back to solvency.

In what has become its record breaking municipal bankruptcy, San Bernardino, yesterday, acted to make a key personnel change—a change acted upon in secret, without transparency, and with likely disruption to its already difficult path to exiting municipal bankruptcy—a change which will now require a critical personnel decision if the city is to be able to fashion a plan of debt adjustment which can gain the approval of U.S. Bankruptcy Judge Meredith Jury. Mayor Carey Davis yesterday called a special, closed-session Council meeting which listed only two agenda items: 1) San Bernardino’s ongoing municipal bankruptcy, and 2) the fate of its city manager—an agenda in which speculation is that the two items were related, as, indeed, it was subsequently disclosed that December 31st will by City Manager Allen Parker’s last day in the wake of Monday’s agreement by the City Council to a modification of his contract under which a year’s severance pay was added in exchange for his resignation, according to reports in the San Bernardino Sun. Nevertheless, notwithstanding that California state law generally requires actions taken during a closed session of the Council to be reported at the end of the session, San Bernardino City Attorney Gary Saenz said there had been no reportable action. Mayor Carey Davis yesterday refused to say whether a vote had been taken to terminate Mr. Parker’s service, adding: “That is not something that I can say.”

The relationship between the Mayor and manager has been fractious—at best: eleven months ago, Mayor Davis requested Mr. Parker’s resignation—a request Mr. Parker rejected, as he could under the city’s charter, under which such a firing or dismissal may only be made with the consent of two-thirds of the City Council—a two-thirds which the Mayor was unable to procure in the wake of last year’s closed-session annual performance review. The inability to gain a two-thirds vote meant that this week’s event was fashioned via a quasi-buyout, under which the San Bernardino City Council agreed to Manager Parker’s offer, made last month, to a severance package under which the bankrupt city would provide him with his full annual salary of $221,976, and benefits for himself and his spouse. This week’s agreement required a modification of the contract to which Mr. Parker and the City Council had agreed to before he began 2013, under which either he or the city could end his employment with 60 days’ notice, and under which he would be ineligible for any severance, but only for any unused leave time. Indeed, last June, the City Council rejected, on a 4-2 vote, an amendment to that agreement under which he would have been entitled to $110,988, or six months’ salary.

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2 thoughts on “Untransparency, Democracy, State Roles, & Municipal Bankruptcy

  1. Frank – re your comments about “to states such as New Jersey with its hybrid system in which the Governor may appoint an emergency manager to “co-govern” with the city’s elected leaders.” Under our statutes the notion of “emergency manager” doesn’t exist. The current Atlantic City “emergency manager” has no legal authority, only moral suasion created by the Governor. The legal authority rests with the Local Finance Board (albeit appointed by the Governor with advice and consent of the Senate) and the Director of the Division of Local Government Services (also appointed by the Governor).

    The Board, under the Local Government Supervision Act can oversee the finances (under which Atlantic City has operated since the fall of 2010) of a city in financial distress. We have a separate unused and untested bankruptcy statute that was enacted in the 1940’s. How the Atlantic City story will play out is still uncertain, but we do have a 60+ year track record of successful interventions that have prevented implementation of the bankruptcy statute (which requires the approval of the Local Finance Board for any federal filing).

    The EM is an artificial construct without authority. Any legal action has to happen through the Local Finance Board, regardless of moral suasion.

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