Can A City Go Back into Municipal Bankruptcy?

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eBlog, 8/15/16

In this morning’s eBlog, we consider the un-considerable: could a city fall back into municipal bankruptcy? While this eBlog has, since the completion of our MacArthur Foundation studies on Stockton, San Bernardino, Detroit, Chicago, Pittsburgh, and Baltimore, focused on the steep roads into and out of municipal bankruptcy—and the perilous paths into potential municipal bankruptcy in Atlantic City, Opa-locka, East Cleveland, etc.; we have also followed the rhythmic efforts of retired U.S. Bankruptcy Judge Steven Rhodes who, having graduated from overseeing the City of Detroit’s entry into and exit out of chapter 9 now is at the helm seeking to steer the Detroit Public Schools on a course to avoid chapter 9—a course itself critically intertwined with Detroit’s long-term solvency.

We have also sought to compare and contrast the different ways different municipalities have gone through quite different paths into and out of municipal bankruptcy (Federal law provides for municipal bankruptcy—if authorized under state law—something only 18 of the states have authorized—but no two states have the same provisions: there are remarkable differences in these respective state laws.) Detroit emerged in 16 months under a Gubernatorially imposed emergency manager—where the Mayor and Council were barred from any vestige of governance; Jefferson County emerged in about two years (with some provisions still under appeal), but with the County Board remaining in charge of governance throughout; Central Falls, Rhode Island—where the Governor appointed a state emergency manager—who barred the sitting Mayor and Council from City Hall—emerged from chapter 9 in just over a year; Stockton emerged from its chapter 9 in two and a half years; and San Bernardino appears on the verge of exiting chapter 9 as early as next month—the longest municipal bankruptcy in U.S. history, just about four years.

Never in U.S. history, however, has there been an instance of a city emerging from chapter 9 municipal bankruptcy—but then going back into municipal bankruptcy. Now, as we watch events in Stockton (see below), there is apprehension that November’s municipal elections could reverse the city’s fiscal course. Thus, we begin to consider, with untoward events happening in Stockton, post-municipal bankruptcy elections: how does a city choose a course for the future? Here, the choices seem bleak in Stockton—the city nearly one full year out of bankruptcy.

Post Municipal Bankruptcy Blues II.  Stockton Mayor Anthony Silva, who—in the midst of his re-election campaign, for the city’s first post-chapter 9 election—was arrested last week and had become engulfed in a major separate controversy the week before that, sent an email to District Attorney Tori Verber Salazar last Friday alleging that his challenger, Councilmember Michael Tubbs, and four other Council Members violated California open meeting laws when they held a joint news conference one week ago outside City Hall. Mayor Silva, who is out on $20,000 bail, publicly posted his allegation of a violation of California’s Ralph M. Brown Act on Facebook: “This letter is to call your attention to what I believe was a substantial violation of a central provision of the Ralph M. Brown Act, one which may jeopardize the finality of the action taken by the City of Stockton. (The Ralph M. Brown Act, §54950, is California’s open meeting law. The law’s intent is that the actions of public commissions, boards and councils in California be taken openly and that their deliberations be conducted openly.) The speakers described an ‘approval in concept,’ or some other reflection of a consensus that the body would act or not act in a certain manner in the future.” City Attorney John Luebberke, however, last week stated he does not believe the news conference convened by Councilman/candidate Tubbs (a news conference also attended by City Council members Michael Blower, Elbert Holman, Susan Lofthus and Dan Wright) was in violation of the Brown Act. At the press conference Councilman/candidate Tubbs noted: “This press conference was one in which the members of the Council sought to assure citizens and residents that the council was still functioning. Maybe there was some political grandstanding involved — I’ll leave that to others to decide — but even if that’s the case that does not run afoul of the Brown Act.”

With the citizens of Stockton less than 12 weeks from the first post-bankruptcy municipal elections, it appears the intervening weeks risk being consumed with charges and countercharges (two weeks ago, it was revealed that a long-missing gun owned by Mayor Silva had been recovered by police two months earlier—a gun which had been determined to have been the murder weapon in the unsolved killing of 13-year-old Rayshawn “Ray Ray” Harris in late February of 2015 in south Stockton—a gun which Mayor Silva had not reported stolen until one month after the victim was slain—even though the Mayor acknowledged last week he knew the gun was missing at least two weeks before Mr. Harris’ death.) The District Attorney’s Office has noted that Mayor Silva has not cooperated with investigators since the gun’s recovery two months ago—a claim which Mayor Silva has strongly disputed. In addition, as we have previously noted, last Thursday authorities had arrested Mayor Silva in Amador County on charges he illegally recorded teens while playing strip poker last summer at a youth camp he runs. A 16-year-old boy is reported to have been one of multiple naked teens. Mayor Silva is scheduled for his first court appearance Thursday afternoon.

Crime and public safety were critical public policy issues both in Stockton’s collapse into municipal bankruptcy—and emerging. Indeed, the annual budget for FY 2014-2015 was developed with an emphasis on Mayor Silva’s proposed budget priorities and City Council’s post-municipal bankruptcy strategic goals and targeted areas. The Mayor had identified three priorities in his Proposed Budget Direction, and the City Council had held a strategic planning session which identified seven target areas expanding upon the Mayor’s overall direction: Public Safety, Fiscal Sustainability, Organizational Development, Economic Development, Youth, Infrastructure, and Public Relations/Image—goals and target areas intended to renew and expand upon Council’s previous Strategic Priorities. There was a clear recognition that high rates of crime had to be addressed as part of any successful plan of debt adjustment. Today, however, Stockton crime statistics report an overall upward trend in crime based on data from 14 years with violent crime increasing and property crime increasing. Based on this trend, the crime rate in Stockton for 2016 is expected to be higher than in 2012—a year when the city violent crime rate for Stockton was higher than the national violent crime rate average by 300.11% and the city property crime rate in Stockton was higher than the national property crime rate average by 79.21%. The campaign news from Stockton can only be described as grim, mayhap portending the first-ever reversion back into municipal bankruptcy.

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