Hard Choices for Municipalities

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eBlog, 11/03/16

Good Morning! In this a.m.’s eBlog, we visit Petersburg, Virginia, where the beleaguered city is under new management—management which yesterday unveiled troubling evidence of how significant a fiscal hole confronts the small municipality’s future. Then we return to the nation’s East Coast former gaming capitol—Atlantic City—where, in the wake of the state’s announced takeover of the city, questions abound to just what that means, whether the city will sue to bar such a takeover, and how such a takeover might manifest itself. Finally, we head west to Stockton where, yesterday, a Councilmember vying next Tuesday against the incumbent Mayor announced he had been endorsed by the President. Wow.

Citizen’s Trust in its Elected Leaders? Former Richmond City Manager Robert Bobb laid out his firm’s short-term plan to deliver Petersburg from financial peril on Tuesday, a week after taking command of the city’s beleaguered administration. Advising the City Council that the city lacked adequate fiscal resources to operate through this month, Mr. Bobb demonstrated to the Council and audience a photo of fat stacks of unsent municipal checks—not awaiting stamps, but rather sufficient funds—necessitating, he warned, in the near term that the city triage debts, adding that even as unmet bills are piling up, so too are expensive legal challenges. Nevertheless, after criticizing what he described as a lack of transparency surrounding the city’s financial challenges, he drew applause when he followed up by stating: “This is not rocket science, we can make this happen.” Prior to the session, Petersburg City Treasurer Kevin Brown said he could not provide a reporter with tax collection revenues from last year, nor give an estimate of where collections were anticipated to be at this point in FY2017, stating that all he had were the revenues tallied by Dironna Moore Belton, Petersburg’s transit manager, who had served as the municipality’s interim city manager for eight months.

The exchange came as the Council agreed to permit the Bobb Group to negotiate with lenders in an effort to remain solvent through the end of this month—albeit the proposal, coming in the wake of steep cuts in municipal workers’ salaries, cancellation of the city’s summer youth program, and cutting deeply into the budget of Petersburg’s underperforming schools would be, as Councilwoman Treska Wilson-Smith warned, challenging: “We’ve been doing this for years to help our cash flow, but our financial advisers had recommended we lessen our reliance on this type of thing.” Councilmember Wilson-Smith and the remaining council members ultimately voted to allow negotiations to move forward. For his part, Mr. Bobb said his firm had struggled in an effort to find evidence of corrective action taken by the city’s leadership in response to increasing problems he traced to 2009: “The deficit from a cash standpoint cascaded to where we are today…It’s just basic research in trying to find: How did we get where we are?” He added that Petersburg’s leaders failed to act last March when the city’s financial advisers “basically said that the city’s house is on fire,” adding that, at that stage, the answer should have been: “Do something; take some action,” as he vowed that a fuller blueprint for moving the municipality forward would be delivered within a month. (Under his contract, the virtually insolvent municipality is obligated to an initial five month contract of on-site assistance at a cost of $350,000, plus up to $25,000 in expenses under a contract executed last week under emergency hiring rules.)

As the city sputters toward a promised comprehensive solution to its financial challenges, residents increasingly frustrated with the city’s administrative dysfunction continue to take matters into their own hands. Last week, local lawyer Dale Pittman and other members of a committee that oversees Petersburg’s public law library filed a lawsuit against the city over a possible misuse of funds. Historical preservation advocates are crowdfunding a $50,000 campaign to staff museums shuttered as a cost-saving measure last month. The membership of a government accountability group whose leaders are a vocal presence at City Council meetings has ballooned to more than 1,830 members online—with an organizer of that group, Clean Sweep Petersburg, challenging audience members at this week’s session to remember that the city’s residents have the ability to hire and fire Council Members, noting: “I’m looking at tonight as the last meeting before you know some different team members will be part of this Council,” she wrote, referring to Election Day next Tuesday. This week’s Council session commenced behind closed doors with a 35-minute session to discuss “matters related to litigation.” In the public session, the meeting came with a warning—or, as Petersburg resident Cory Harris told the elected officials: “We are not your enemy, we just want to be heard…You cannot fix Petersburg without fixing the people, and the citizens of this city are angry, they’re frustrated, they’re confused.”

Saving Grace? Atlantic City Mayor Don Guardian yesterday—in response to the state’s announced takeover of the city, said the city would rework and resubmit the city’s financial-recovery plan to the state—a response which would, he noted, speak to what he termed “inaccuracies and misinformation,” as the city hopes to work with New Jersey Department of Community Affairs Commissioner Charles Richman—adding that the 150-day period provided by the state to form an acceptable recovery plan expires tomorrow. The Mayor added the city is prepared to go to court to bar a state takeover: “Having a plan in place allows the city to access bond markets at reasonable interest rates…We are appealing to the Commissioner to understand the critical nature of this plan and reevaluate it on the accurate backup information that we will provide.” The city’s response came as a spokesperson for the Department said New Jersey’s Local Finance Board will consider whether it should assume finance-related powers under the Municipal Stabilization and Recovery Act approved by lawmakers last May—a new state statute which authorizes the Local Finance Board to alter Atlantic City’s outstanding debt and municipal contracts, as well as sell city assets for a five-year period. The spokesperson, however, did not immediately respond for comment on what would happen if the city resubmits the recovery plan to the DCA or what the timetable is for deciding how much control the state may choose to exercise. The city has, ironically, been under state financial supervision since October of 2010, the year the state Local Finance Board, which oversees municipal budgets and finances, voted to put Atlantic City under financial supervision that gave the state approval over its annual budgets. Last year, the state took a further step when Gov. Christie appointed an emergency manager, who, theoretically was charged with assuming responsibility over Atlantic City’s day-to-day operations; however, his executive authority was amorphous at best. Unlike in Michigan, where state law authorizes an emergency manager to bar elected leaders from even meeting or taking any governmental actions, no such authority is provided under New Jersey’s statutes; therefore it is unclear whether New Jersey’s model provides any constructive means for a state to work with a fiscally stressed municipality to not only avert insolvency, but also to act as a coordinator between the state and municipality. Indeed, Atlantic City Council President Marty Small yesterday noted that six years of state oversight of by the state have proven ineffective, adding that the city’s elected leadership would continue to oppose what would be the state’s most preemptive interference with a local government in decades, adding: “The state has never had a plan, never will have a plan, and in their 75 pages of nonsense they didn’t offer a plan…All of the criticism that they had for the city government—the state has overseen every decision that we made in the city of Atlantic City since 2010.” Nevertheless, a spokesperson for the Department stated: “Commissioner Richman categorically rejects any claim that his decision was disingenuous, inaccurate, misinformed, politically motivated…It was a fair examination; the commissioner and his team stand by the decision.”

Moody credit rating agency analyst Douglas Goldmacher, who had praised the city’s proposed recovery plan, yesterday noted the negative response from the state to the city’s proposed plan left unclear how it would impact Atlantic City’s credit rating, mostly because it provided little information with regard to exactly how such a “takeover” would work, albeit adding: “The city’s financial condition remains extremely weak, and it will be difficult for it to make these payments without funding assistance from the state or other outside sources.”

Marc Pfeiffer, mayhap one of the most insightful and thoughtful experts on the state’s fiscal policies, who is a remarkable senior policy fellow and Assistant Director for Rutgers University’s Bloustein Local Government Research Center, notes that Commissioner Richman’s report raises legitimate concerns with regard to a number of provisions, including Atlantic City’s proposal to raise cash by selling its former municipal airport to its public water utility for $110 million, and he adds that Atlantic City leaders’ announcement that they intend to resubmit their plan to address the state’s concerns likely lays the groundwork for court action: “There’s been a chess game in play for about three years now and this is the next move: What we have is uncertainty, which unfortunately will continue for a while.” (It reminds one of the terrific Paul Newman line: “What we have here is a failure to communicate.”)Gordon MacInnes, President of the New Jersey Policy Perspective think tank, added that New Jersey’s record on intervention in Atlantic City is not a record which inspires confidence that a state takeover would work—adding a key concern: “Both the municipal and the state governments walked away from acknowledging the magnitude of the problem and working together to try to do something about it.”

What’s Next? The announced takeover opens the door to unprecedented state authority over Atlantic City’s affairs, including the right to:

  • dissolve agencies,
  • override decisions by elected local leaders, and
  • sell off assets, including land and a water utility coveted by private operators.

Commissioner Richman, however, offered no insights with regard to how the state intends to use that authority, with a spokesperson for the state agency stating that “the next step” will be up to the state Local Finance Board; however, she provided no timetable for a decision. The city’s 120-page proposal had proposed 100 job cuts, early retirement for some employees, a tax settlement with casinos, and a plan to sell the former Bader Field airport site to the city’s municipal utilities authority for $110 million, among other cost-saving measures.

Taking Election Stock in Stockton. Mayoral challenger Michael Tubbs yesterday announced he had received the endorsement of President Obama, a rare and possibly singular occurrence in Stockton political history. The President’s statement noted: “I am proud to endorse Michael Tubbs in his bid to become Stockton’s next Mayor…Michael’s service as a Councilmember illustrates that he understands the need for every Stocktonian to have safer neighborhoods, stronger schools, and a voice in the political process. His story is the American story, and Michael will work tirelessly to ensure that Stockton reaches its full potential.” Unsurprisingly, it seems unprecedented for a Stockton mayoral candidate to have received a presidential endorsement—especially against an incumbent mayor—in this instance, Mayor Anthony Silva. If Councilmember Tubbs wins, he will be Stockton’s first black mayor and its youngest mayor ever. The Councilmember was raised by a south Stockton single mother; he is a graduate of Franklin High School and, as is this blogger, a graduate of Stanford University. The Councilmember is not exactly new to the White House: he served a four-month internship at the White House in 2010, and, three years later, wrote to the White House seeking designation for Stockton by the federal government as a “Promise Zone,” albeit this was a wish ungranted.  

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