The Critical Role of Public Schools in Municipal Sustainability & theRole of States in Municipal Bankruptcy

January 13, 2016. Share on Twitter

What About the Future? While the number of school closings in Detroit appears to be ebbing, teacher “sickouts” continued to force school closings in the Motor City today. Teachers in the fiscally challenged Detroit Public Schools (DPS)—under a state-imposed emergency manager–are upset about large class sizes, pay, and benefit concessions. They are also opposed to a state plan to create a new, debt-free Detroit school district. In a statement yesterday, the interim president of the Detroit Federation of Teachers, Ivy Bailey, said district and state officials must address concerns about conditions in DPS school buildings: “As frustrations by educators, parents and the community continue to mount over deep concerns about Detroit Public Schools’ deplorable health, safety and learning conditions, we need real answers from Emergency Manager Darnell Earley and Gov. Rick Snyder…The community is crying out for help over what is clearly a crisis in our schools. The DFT has called for public hearings to fully reveal all of the problems in every school and for (Mr.) Earley to announce how he intends to mitigate the issues. Our students and their families deserve real answers.”

The statement came on the same day Mayor Mike Duggan—on a tour of a number of Detroit Public schools with city officials looking for health and safety violations witnessed a mouse—one apparently not enrolled. Mayor Duggan also witnessed school children wearing their coats in a chilly classroom—afterwards describing his visit as “deeply disturbing.” The school system, which has been subject to state control via a series of state-appointed emergency managers since March 2009, has accumulated $515 million in past debts and unpaid vendor and pension bills. There is no A for math, nor for state oversight. Gov. Rick Snyder yesterday noted: “What I would say is it’s really unfortunate, because it’s coming at the expense of the kids. There are other venues and ways — if people have issues or things that they’d like to present — to do that. They shouldn’t be doing it at the expense of not having kids in class, and that is something that we’re carefully monitoring,” adding that: “If it continues, I’m sure you’ll see action at some point. But the goal is, hopefully, they’ll stop that, and they’ll find other mechanisms and ways to communicate what issues they may have — and not do it at the expense of children.” But when reporters asked whether the solution might come from state enactment of legislation that better clarifies what constitutes “strike conditions,” the Governor said that could be something the Legislature eventually picks up.

For any city, the key to its future is the perceived safety and quality of its schools—an important indicator for assessed property values and long-term focus on the future. In Detroit, where the Detrpoit Public Schools (DPS), some 107 schools serving nearly 50,000 students, have been run by a series of state-appointed emergency managers since March of 2009, has $515 million in past debts and unpaid vendor and pension bills, a wave of teacher absences, described as “rolling strikes,” has thus captured the apprehension not just of city leaders, but also the state. That is a sharp contrast from the fall of 1999, when DPS had more than 150,000 students enrolled and no budget deficit—a year when teachers began the school year with a nine-day strike, in response to which, even though the strike was illegal, DPS imposed no fines, and teachers received a 6 percent raise, phased in over three years, better dental insurance, and smaller class sizes in some schools, according to Detroit News archives.

Yesterday more than half of Detroit’s 100 public schools were closed, keeping thousands of students at home as a “sickout” entered a second week: sixty-four of the city’s 97 schools were closed. Between the fierce winter weather, the school system, under an Emergency Manager appointed by Gov. Rick Snyder, with 46,000 students, has been in turmoil, struggling with poor morale among staff members, millions of dollars in debt and, increasingly, families that have other school choices for their kids. Indeed, as Ivy Bailey, interim president of the Detroit Federation of Teachers, noted, the city’s school classes have “too many students and rodents are plentiful.” State superintendent Brian Whiston said in a statement that DPS Emergency Manager Darnell Earley should set up a meeting with state, local, and district representatives in response to a press conference and a rally where teachers complained of buildings with leaky roofs, rat infestations, broken boilers and shortages of books and other supplies, noting: “I care deeply about the safety and well-being of teachers in Detroit, just as I do the students…They all still need to be in the classrooms teaching and learning, though. If buildings have health and safety issues, they need to be addressed immediately with the district administration and all appropriate agencies.” Mayor Mike Duggan said in response to “substandard conditions in school buildings” reported by the Detroit Federation of Teachers, he plans today to visit “a number of those schools” with the heads of the Detroit Health Department and the Detroit Buildings, Safety Engineering and Environmental Department, noting: “Based on what we find, the City of Detroit will take whatever enforcement action is necessary to make sure all Detroit Public Schools are compliant with all health and building codes.” The school system—in effect the future of Detroit—thus is in not just a state of near fiscal and physical bankruptcy—but also in a Twilight Zone with regard to governance. Yet it is the key to Detroit’s future.

Municipal Takeover? New Jersey State Senate President Stephen Sweeney (D-Gloucester), yesterday continued his abrupt push for the state to take over Atlantic City’s finances: he said he will soon introduce legislation, the “Municipal Stabilization and Recovery Act” — which would empower the state Department of Community Affairs’ Local Finance Board or a body it designates to take over the “functions, powers, privileges, immunities, and duties” of Atlantic City’s government. The bill, he said, would propose a formal takeover plan — and that the struggling gambling resort should declare municipal bankruptcy if the state Legislature does not approve the measure quickly. It seems, mayhap, Sen. Sweeney does not clearly understand New Jersey law, under which any county, municipality, or school district may only file for municipal bankruptcy with consent of the state’s municipal finance commission (New Jersey Statute Ann. §52:27-40). Nevertheless, Sen. Sweeney noted: “This is a very clear statement to Atlantic City: Get your act together. Knock off the B.S. and start addressing what you need to address…The state is not going to come in and bail you out anymore. You need to fix this.” The Senator’s statement also appeared to ignore the already significant state role in the city via the appointment by Governor and Presidential candidate Chris Christie of an Emergency Manager. Thus, unsurprisingly, the statement made without any consultation with the city’s emergency manager or elected leaders led Mayor Don Guardian yesterday to compare Sen. Sweeney’s proposal to Japan’s attack on Pearl Harbor in 1941.

The threatened takeover came as both houses of the state Legislature yesterday approved a revised version of a rescue bill that would allow Atlantic City’s eight casinos to make payments in lieu of taxes (the so-called PILOT program) to help stabilize Atlantic City’s finances. That bill now heads to Gov. Gov. Christie’s desk for his approval—even as the legislature put together another proposal with adverse implications for Atlantic City’s fiscal odds which, if approved by the Legislature, would ask voters next November to allow casinos in north New Jersey.

For decades, Atlantic City, the only municipality in which casinos are allowed in New Jersey, has been the East Coast’s premier gambling destination. But what had been a golden goose has become a cropper: over the last two years, four of the 12 casinos in the city closed amid ever-increasing competition from neighboring states, costing not just 10,000 jobs, but also significant property tax revenue losses—and, unsurprisingly, leading the city to increase taxes. Sen. Sweeney, seemingly ignoring the quasi state takeover of Atlantic City, accused the city of being fiscally irresponsible: he suggested the city could sell assets like Bader Field, a closed airport, and the Municipal Utilities Authority, which controls the city’s water department—adding that Mayor Don Guardian and the City Council “need to get their act together and start taking on and doing the tough things. Let’s get serious,” calling the city’s $262 million annual municipal budget “outrageous” for a municipality of only 40,000 residents, adding that, by comparison, Piscataway has 60,000 residents and only a $55 million budget—and adding that the state’s other ailing cities — such as Newark, Trenton, or Paterson — do not receive the same kind of attention, noting: “There is extreme Atlantic City fatigue in this Statehouse…My colleagues — every time we talk about doing something for Atlantic City now, they’re tired of hearing it.”

To which the beleaguered Mayor Guardian noted that he and the city council have worked hand in hand with both the state monitor and the state-imposed emergency manager to improve Atlantic City’s health, noting: “We’re not the Confederacy or Japan or Germany…We didn’t lose a war. We’re just a municipality in the state of New Jersey that’s always recognized the authority of the state…So the concept of a state takeover, it kinds of befuddles me.”

The seeming state takeover, appears to have garnered bipartisan support: State Assembly Minority Leader Jon Bramnick (R-Union) said he supports a takeover, noting: “You have two choices: You can simply send them an incredible amount of money from the taxpayers, or you give the state the opportunity to take it over.” Again, however, the Minority Leader’s statement appears to ignore the significant state role already imposed upon Atlantic City—much less, as State Sen. Jim Whelan (D-Atlantic), a former Atlantic City mayor, yesterday stated in opposing any such state takeover: “I’m not convinced the state can do a better job…It’s not going to solve the problem.”

On a more constructive front, the legislature yesterday passed its payment in lieu of taxes or PILOT bill, which, if signed by the Governor, would require the casinos to make $50 million in additional payments over seven years, and would share 13.5 percent of the money collected from the casinos with Atlantic County’s government and the city’s schools to help prevent tax increases. The bill also includes other revenue streams other than gambling when calculating how much the casinos owe, which effectively sets a collective minimum of $120 million per year for the casinos. In addition, the bill sets a goal of securing $10 million for economic development projects for the Casino Reinvestment Development Authority, and $8 million to continue marketing and tourism advertising for the resort after the abolition of the Atlantic City Alliance, which spent $30 million a year on that task. It will, as Mayor Guardian notes, provide “much-needed relief,” even if, as Moody’s has moodily noted, it will be insufficient, on its own, to stabilize the city’s finances.


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