When Governance Fails

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eBlog, 6/14/16

In this morning’s eBlog, we consider the state actions in Florida—a state grieving over the horrible events which transpired in Orlando—to take over the small city of Opa-locka—where severe fiscal and ethical lapses have left the city in a state of financial emergency. The challenge for Governor Rick Scott will be to ensure the accountability of the persons he appointed to take over the small city.

In the wake of declaring the City of Opa-locka in a state of financial emergency on June 1st, Florida Gov. Rick Scott has appointed nine people to take charge of the small municipality’s finances—a quasi-oversight board, of which six of the appointees are high-level state employees, including Governor Scott’s Chief Inspector General, Melinda Miguel. Designating the small city of about 16,000 to be in such an emergency triggers its eligibility for state assistance, including loans—but also means Opa-locka is barred from issuing any debt absent gubernatorial approval. Likewise, should the city opt to seek chapter 9 municipal bankruptcy, such a move would require the Governor’s signature. No Gator city has ever sought municipal bankruptcy; two utility districts and two transportation districts have. In addition, Florida laws dealing with severe municipal distress are unique in that, in certain situations, such a city’s municipal bondholders may bring an action to compel the municipal governing body to perform a ministerial action it has refused to undertake, such as refusing to collect taxes or fees, or—in the event of filing for chapter 9 municipal bankruptcy, to continue to receive payment on municipal bonds to which statutory liens apply. [§132.43]. Going forward, the city is barred from issuing any municipal debt or any other kind of long-term debt without Gov. Scott’s approval while it remains in an emergency. Opa-locka currently has total long-term debt outstanding of $11.6 million, including $6.56 million of revenue bonds and state loans, according to its most recent audit; a financial assessment conducted by Miami-Dade County Auditor Cathy Jackson determined that the municipality had used debt service reserves, general contingency funds, and other restricted monies in violation of debt covenants and various agreements. The fiscal descent follows years of struggling to balance the municipality‘s budget, which has been losing revenues from plunging property tax receipts and major breakdowns in the city’s ability to collect water and sewer revenues.

Even as the state undertook a takeover of the city, acting City Manager Yvette Harrell had brought on former CFO Ezekial Orji, directing him to help root out serious breakdowns in the city’s budget—not exactly a new face: his assignment is to serve as a key point person between the city and the governor’s oversight board. It appears a troubling assignment: it seems Mr. Orji has his own troubled fiscal record with Opa-locka, having in previous employment with the city steered tens of thousands in taxpayer dollars to a close friend and contractor who had been charged with taking more than $700,000 in kickbacks—all actions which he had failed to disclose. Unsurprisingly, the appointment of Mr. Orji’s appointment, even as the city is under FBI investigation in a corruption probe into kickback schemes involving both elected and appointed municipal officials hardly bodes well for the city’s citizens, taxpayers, or bondholders. City Manager Harrell has defended her decision, responding that Mr. Orji was neither charged nor sanctioned during the county ethics investigation in 2012 and that she had cleared his hiring with the state before he arrived at the end of last month, telling the Miami Herald “There was no red flag.” However, it seems unclear whether Ms. Harrell had disclosed this history to the Governor’s office; now it matters less because Mr. Orji abruptly resigned when the media released the sordid history of his disservice to the municipality; City Manager Harrell advised the media Mr. Orji had resigned because of problems he perceived in working with the state oversight board, adding she regretted that “he was unable to work for us.” And someone needs to work—and quickly: Finance Director Charmaine Parchment has warned that the city will run out of money by the end of this month—raising questions with regard to the implications for the small municipality’s 170 employees—who are already reduced to 32-hour work weeks.

Gov. Rick Scott, in declaring the city in a state of financial emergency, has appointed nine members to a state oversight board which will have final say over the city’s budget over the next five years, headed up by Florida Inspector General Melinda Miguel.

Other members are:

▪ Christian Weiss, Policy Coordinator, Executive Office of Governor Rick Scott

▪ Kim Mills, Director of Auditing, Florida Housing Finance Corporation

▪ Andrew Collins, Chief of Financial Monitoring and Accountability, Florida Department of Economic Opportunity

▪ Angela Knecht, Program Administrator, Florida Department of Environmental Protection

▪ Marie Walker, Director of Auditing, Florida Department of Revenue

▪ J.D. Patterson, Jr., Former Director of the Miami-Dade Police Department (Retired)

▪ Vernita Nelson, Assistant City Manager, City of Miami Gardens

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