States of Municipal Limbo


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eBlog, 7/08/16

In this morning’s eBlog, we focus—again—on the ongoing challenges over Detroit’s future, as an ongoing struggle over the city’s insolvent public schools and the governance thereof appears to be diverting scarce state resources and, more importantly, strategic governance to ensure that families can be confident the schools will not only open in the Fall, but also that the state granted resources will focus on the kids and their future. Then we turn to the sudden introduction of Presidential politics in Atlantic City to determine if there might be any light into what a new tenant at the White House might have under consideration for federal urban policy with regard to municipal insolvency.  

Educated in Municipal Bankruptcy? Members of the Detroit Public Schools (DPS) Board of Education announced Wednesday they have filed in the Court of Claims for an injunction against Governor Rick Snyder and the Michigan Legislature to block a $617 million DPS bailout and restructuring package on the grounds the legislation violates Michigan’s constitution. The board believes the legislation will give the city’s schools unfair bond rates and unjustly split DPS into two districts — the old system to pay off hundreds of millions in debt, and a new, debt-free system to educate students. The suit is the second the Board has filed in the past few months—having filed a similar class-action suit last April. This suit comes in the wake of the Board’s rejection, last week, of a $150 million state loan offer (part of the $617 million state rescue package adopted on a partisan vote to erase the old DPS $467 million in debt). The litigation comes as the new debt-free Detroit school district has received all students from the old district; the current school board has been stripped of its responsibilities, and elections are scheduled for a new school board in November. Disputed DPS school board President LaMar Lemmons said the money used to split the district should instead be put into classrooms to reduce class sizes and provide services, noting: “Although we did appreciate the $150 million quote ‘loan,’ that the state was presenting to us at a reasonable rate — the municipal market rate of 1.5 to 2.5 percent — it was the extension of the bond that had a cap up to 18 percent, to which we said, ‘you’re serious?’” Ms. Lemmons added: “We vehemently objected to that as well as the unnecessary, costly bifurcation of the district.” In addition, Ms. Lemmons is requesting that the state perform a forensic audit on the district, adding that the state should take responsibility for the district’s finances, because state-appointed emergency managers have run the district since 2009, largely sidelining the school board and accumulating much of DPS’ debt. According to the board’s attorney, Thomas Bleakley, the district was financially solvent in 1999 when the state began its intervention in the Detroit school system. Note: while Mr. Bleakley is representing the board members for free, he warned that the legal process will still be a costly one—presumably costly not just fiscally, but also to the future for Detroit’s kids with such large resources diverted to litigation instead of education.

State of Limbo. Perhaps no city has been as associated with Donald Trump as Atlantic City—a city, after all, that was once his glorious gambling mecca—that is before he began a string of corporate bankruptcies that had devastating fiscal consequences for the city—a city now facing a state takeover. So it was that Wednesday, candidate Hilary Clinton visited Atlantic City’s iconic boardwalk, where she depicted Mr. Trump as a corporate pirate who reaped millions from the city while leaving behind a legacy of bankruptcies, unpaid bills, layoffs, and lawsuits: “Well, we should believe him – and make sure he never has the chance to bankrupt America the way he bankrupted his businesses,” recalling the ‘80s and ‘90s, when Mr. Trump boasted at his grandiose arrivals and news conferences he would transform the city into an outpost of his burgeoning real estate empire. Mrs. Clinton, however, offered few ideas with regard to her views about Atlantic City’s future, other than a generic call to create jobs “here in Atlantic City and across America.” Mrs. Clinton brought no clarity to her vision of Atlantic City’s future—much less the nation’s cities’ futures. Mr. Trump was able to gamble Atlantic City’s fiscal future, but the closings of four Atlantic City casinos over the past two years have triggered the loss of nearly 8,000 jobs and a steep decline in the city’s tax revenues—and put the city in a deep hole: it has until the end of the year to craft a cost-cutting plan or be taken over by the state. Until then, it is, as one writer put it, in a state of limbo. For Mr. Trump, bankruptcy has perhaps seemed an easy way to walk away from a serious fiscal challenge—but that is not an option for a municipality. It would be a shame if the candidates in the wake of the unprecedented number of post-Great Recession municipal bankruptcies do not address what their respective urban policies would be—and that, despite the visits from both Mrs. Clinton and Mr. Trump, neither addressed the key steps to a sustainable fiscal future for Atlantic City; rather they came and left it in a state of limbo.

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