The State-Local Governing Challenge When Children Are at Risk

eBlog, 9/19/16

In this morning’s eBlog, we consider the state actions in Michigan to preempt the authority of the City of Flint to seek judicial redress over the state’s actions with regard to the drinking water crisis so toxic to its youngest and most vulnerable children. Those actions appear to have increased pressure to address the state’s so-called Emergency manager law—a unique state law that allows the Governor to, in effect, suspend democracy in the state’s local governments and public school districts—an action that was critical to Detroit’s exit from the largest municipal bankruptcy in U.S. history, but which has had devastating impacts on the youngest and most innocent children of the City of Flint. Then we look south to Detroit, where, even though the school year is underway, the fiscal math for the old Detroit Public Schools is in the D-minus range. What does that augur for the city’s fiscal future? Finally, we look at the most awkward governance challenges created by East Cleveland’s proposal to merge with the City of Cleveland—especially given the profound silence and absence of the State of Ohio in any of these discussions—much less in response to East Cleveland’s long-standing request for authority to file for chapter 9 municipal bankruptcy.

Preempting a City Governance & Ability to Protect the Health & Safety of its Residents. Days after Flint Mayor Karen Weaver served notice that her devastated city might file a lawsuit against the State of Michigan over the state-precipitated Flint drinking water crisis, the state responded by preempting her municipality’s authority to sue under its residual authority via a 4-0 vote of the five-member Receivership Transition Advisory Board, whose members are appointed by Gov. Rick Snyder—with the Board in this instance moving precipitously to amend its rules to prevent the city from filing suit absent permission from the very same state-appointed  board. (The lead contamination occurred when Flint, a city of nearly 100,000, which was under state emergency management, switched in 2014 from the metropolitan Detroit utility system to a temporary water source, the Flint River. State environmental regulators mistakenly said not to add a chemical to prevent lead from leaching out of old pipes, and state-appointed emergency managers came under scrutiny for blocking a switch back for financial reasons. Indeed, the Michigan emergency management law was blamed as a factor in the Flint disaster by Michigan Governor Rick Snyder’s own task force.) Thus, even though the board’s name would seem to suggest it has an “advisory” rather than preemptive role, the panel is authorized under state law to provide the Michigan Treasury Department powers under the emergency manager law to rein in Flint in the event the Mayor and City Council began spending beyond the city’s means. It does not appear that the intent of the law, as adopted, was to broadly preempt the elected leaders of Flint from making decisions with regard to the health and safety of the city’s youngest children.

Nevertheless, Gov. Rick Snyder’s administration quietly acted to ensure the state could not be sued by Flint over the city’s lead-contaminated water crisis by requiring that ligation be approved by an oversight board stacked with gubernatorial appointees. The Flint Receivership Transition Advisory Board passed a resolution last March 31st preempting Flint’s authority to initiate litigation without first getting approval from the board. The Board, rather than truly being advisory, was imposed by the state to have veto power on budgets after the city’s last emergency manager, imposed by Governor Rick Snyder, departed in April of last year. Unsurprisingly the panel’s members are all appointees of Gov. Snyder. Thus, the state appointed board acted swiftly to preempt the city’s authority some seven days after the City of Flint filed a notice in the Michigan Court of Claims preserving its right to sue the state over the city’s water becoming contaminated with toxic lead. Indeed. On the 31st, at the Flint Receivership Transition Advisory Board, Chairman Frederick Headen, a Michigan Treasury Department official, portrayed the resolution as being needed to give City Council more oversight of lawsuit settlements, according to a transcript of the meeting—making only a passing mention with regard to the provision mandating the Board’s approval in order for Flint to be able to file lawsuits, stating: “The purpose of the proposed RTAB resolution this afternoon is to restore, basically, the role which the City Council would otherwise have had, meaning that such litigation could not be settled without first being approved by City Council,” Mr. Headen said, according to the transcript, as he emphasized the new checks and balances being put in place for setting litigation. Indeed, according to Mr. Headen, the RTAB resolution eliminating the city administrator’s “complete decision-making authority” helped restore mayoral authority and powers, not restrict them: “We had started on a path of restoring powers to the locally elected the government,” Mr. Headen said yesterday: “We had given the Mayor back a lot of her authority to hire and fire employees. This was revising that (Ambrose) order to bring city council, the mayor in — and the board.”

Unsurprisingly, however, the state board members did not discuss the resolution’s broader preemption of municipal authority to protect the health and safety of the city’s families, much less the state imposition of control with regard to the rights of the municipality to seek any legal redress through the state’s judicial branch of government. Chair Headen, mayhap with his fingers crossed behind his back, added: “And, of course, the most important feature would, again, be the restoration of the City Council’s role in this process.” (Jerry Ambrose, Flint’s last state-appointed emergency manager, left a tightly-written city ordinance in place in April 2015 which granted his deputy, Natasha Henderson, considerable control over city finances and management, even though Flint City Hall was no longer technically being run by the state.)

Flint Mayor Karen Weaver’s filing with the Michigan Court of Claims cited “grossly negligent oversight” by the Michigan Department of Environmental Quality, whose decisions not to require corrosion control chemicals led to lead leaching into the drinking water and “irreversible” damage to municipal infrastructure—and, of course, an especially toxic threat to the city’s youngest children. For her part, Mayor Weaver this week graciously acknowledged how disappointed she was to learn of “the timing” of the state preemption—and its implications for local authority and governance, adding she hoped that barring the city from suing without state approval was a signal of the state’s commitment “to ensure the City of Flint is indemnified for any and all debts and obligations imposed upon the city while under state control.” Of course, in the wake of the state’s former Director with the Michigan Department of Health and Human Services plea of no contest this week to a misdemeanor charge in the Flint water crisis, it might be difficult to trust the state’s commitment. The municipality’s chief legal officer, Stacy Erwin Oakes, made clear Flint “cannot know” what motivated the state preemption, adding, however: “the timing of the amendment speaks for itself…Previously, the city administrator had discretionary authority regarding litigation, now the city, including but not limited to the chief legal officer, can’t  initiate litigation and assert its rights in court without state approval, through the (advisory board)…Whether the…resolution stripping the city’s authority would survive a direct legal challenge is a question for another day. In the meantime, the city continues to be significantly under state control, even after the departure of the Emergency Manager, and while accumulating significant obligations as a result of decisions made by, and/or at the direction of emergency managers.”

The state emergency manager—created Flint drinking water crisis has been costly to the state: to its reputation, to its governance vis-à-vis the enormous fiscal disparities amongst its municipalities, and now to its fisc: Michigan has allocated $234 million toward the public health emergency that exposed children to lead and has been linked to a deadly Legionnaires’ disease outbreak. Notwithstanding, Michigan has been slow, from a governance perspective, to act constructively, and now, it seems likely that no major action in the legislature will occur until next year to address the existing state law which essentially allows for the state appointment of virtual dictators to displace elected local officials—and policies essential to public health and safety. In the meantime, in the four months since a bicameral, Republican-led legislative committee concluded hearings about the Flint drinking water crisis, the Michigan legislature has yet to issue a report or to make policy recommendations; half a year has elapsed since a bipartisan task force named by Gov. Snyder made recommendations. Gov. Snyder has apologized for his administration’s mistakes which both caused and exacerbated the disaster; he claims he is addressing many of the items administratively, while others will require legislative approval. He has tasked a separate group to focus on response and recovery efforts, a group which includes Mayor Weaver and outsiders who uncovered the lead contamination last September—a group which forwarded its recommendations to Gov. Snyder three weeks ago. And his administration has proposed the nation’s toughest lead-testing rules, the replacement of all underground lead service pipes in the state, and the mandatory disclosure of lead plumbing in home sales and rental contracts.

All of which would seem at odds with his administration’s efforts to preempt such essential municipal rights. Unsurprisingly, Democrats in the state legislature this week intend to introduce legislation to create an ombudsman to hear the concerns of residents living in communities under emergency management. Another bill would lower the “action level” for lead in drinking water from 15 parts per billion — the federal standard — to 10 in 2021 and 5 in 2027. Other legislation expected would propose phasing out emergency managers while leaving intact other options for debt-impacted local governments and school districts.

School Days. As Chuck Berry sang: “Up in the mornin’ and out to school; the teacher is teachin’ the Golden Rule: American history and practical math…” but with October 1 fast approaching, a signal transition begins: that is the day the old Detroit Public Schools—which owns the school system’s legacy debt—will lose access to state aid pledged to support DPS’ 2011 and 2012 municipal bonds; however, with little information on the blackboard, or indeed anywhere, from Michigan, S&P got out its red pencil and downgraded yet once gain DPS’ debt deeper into junk status to B. For the system’s struggling algebra students, this increases the risk of payment interruption, especially due to the lack, according to the rating agency, of communicated progress on the state-desired refinancing of the state aid debt. S&P notes there is either a lack of urgency to address investor concerns (unsurprising) or challenges in crafting a take-out financing for the debt (even more unsurprising, noting the Michigan Legislature’s post-Detroit-bankruptcy fatigue with “bailing out” the city and related entities). Nevertheless, our respected colleague at Municipal Market Analytics still expect the state will come through by the deadline: they write: “[T]here is too much downside in allowing those bonds to even partially default. Still, the surrounding events serve as a reminder of the state’s willingness to punish investors for its own political mistakes.”

To Merge or Not to Merge: That is the Question. Cleveland, Ohio City Council President Kevin Kelley yesterday said he must figure out how to go about studying the pros and cons of annexing neighboring East Cleveland, but do so without locking Cleveland into a plan to do so. In a session of a Committee of the Whole, Councilmember Kelley told his colleagues that Cleveland must be certain it wants to move forward with a merger before formally expressing that interest through legislation, because, he noted: there is a point of no return after which Cleveland could no longer opt out. Presumably what his colleagues already understand is that such negotiations would be awkward—especially in the wake—as we have reported—of the uncertain, and constantly evolving, position of East Cleveland’s Mayor and Council—which last month, in an emergency meeting voted to adopt new legislation appointing three representatives to a commission impaneled to negotiate the annexation, replacing one passed earlier this summer, which was tied to such an ill-advised list of conditions that Councilmember Kelley rejected them out of hand terming the proposal a “non-starter.” So, under Ohio law, round two means the Mayor and Council in East Cleveland, in the wake of a brief public notice and comment period, will propose legislation to the Cleveland City Council, triggering, under Ohio’s laws, a thirty-day period during which the Mayor and Council will have to decide if they also will adopt legislation appointing three panelists to such a commission—note: if the 30 days lapse without action, the initiative must start all over with the circulation of new signature petitions. If Cleveland’s Council were to agree, the two municipalities would be legally committed to submitting some kind of plan for annexation. Indeed, failure to do so would warrant a judge’s intervention, Councilmember Kelley yesterday advised his colleagues: The commission would have 120 days to draft the terms of the merger that East Cleveland voters would consider. Cleveland City Council members would then either vote to adopt the plan or send the issue to the ballot.

From the City of Cleveland’s perspective, Councilmember Kelley suggested there ought to be three principles to guide Cleveland in its decision on whether to pursue the merger: There must be a funding source available – preferably from the State of Ohio, the missing player so far—to cover East Cleveland’s capital needs; East Cleveland’s millions of dollars in liabilities – which include debt, court judgments, and settlements – must be resolved; and such a merger must not harm Cleveland’s current residents, or the level of essential public services they receive, in any way. These are three “oughts” which the Councilmember advised his colleagues on which he had yet to receive any reassurances. Indeed, he made clear he does not believe 30 days—or even 120 days—will be sufficient time in which to determine the cost of addressing East Cleveland’s infrastructure problems, much less which government would be responsible to address them—making it more likely than not that Cleveland will not act in this thirty-day grace period, and await the answers to its questions—or, just maybe—the here-to-date absent State of Ohio will exercise some fiscal responsibility. In the nonce, Councilman Kelley suggested or proposed the assembling of an ad hoc committee made up of engineers, lawyers, and municipal finance experts to do an in-depth fiscal analysis of East Cleveland’s assets and liabilities before the Council formally appoints commission members and commits Cleveland to any final determination vis-à-vis annexation.

Amongst his colleagues, there have been mixed responses: some last night indicated they still support annexation and see a benefit to both cities; others, including Councilmembers Michael Polensek and TJ Dow, passed along constituents’ apprehensions that a merger would siphon resources and services from Cleveland neighborhoods. Indeed, with November looming, Councilman Matt Zone said this is a time when the Council should be “laser-focused” on the November election and a ballot which includes a school levy renewal, a proposed city income tax increase, and a City Charter amendment related to police reform.



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