State-Local Governance in the Balance or Imbalance: Uncharted New Territory

eBlog, 11/11/16

Good Morning! In this a.m.’s eBlog, we consider the uncertain governance situation in New Jersey in the wake of Wednesday’s yesterday’s granting of authority for a state takeover of the City of Atlantic City—a state takeover which could be further impacted by the potential selection by President-elect Trump, because New Jersey Governor Chris Christie appears to be a potential Cabinet or other senior advisor to the President-elect. As we noted yesterday, actual governance will shift from local accountability to the state’s Division of Local Government Services—but with the state already having imposed a state emergency manager in the city, what the new state takeover means continues to be uncertain.  Then we turn to a very different change of governance—in bankrupt San Bernardino, where the state has played absolutely no role, but where voters Tuesday, by a wide margin, voted to change the city’s charter and move to a city manager form of government, even as the city nears, early next year, emerging from the longest chapter 9 municipal bankruptcy ever. Then we venture to post-chapter 9 Detroit, where voters pored through an exceptionally long list of candidates to elect a new school board—a board confronted with a state-imposed double school system of charter and public schools—and in a city whose school system has been under a state imposed manager, the ever so rhythmic retired U.S. Bankruptcy Judge Steven Rhodes, who oversaw the long judicial process from which Detroit emerged from the largest municipal bankruptcy in U.S. history. Given the critical import of restoring a school system that would bring families back into Detroit—and thereby enhancing assessed property values, the new DPS school board members will have to learn very fast. Finally, we venture to Flint, where, yesterday, a U.S. District court decision could have difficult and costly consequences for the fiscally challenged city.

State Preemption of a Municipality? In the wake of this week’s 5-0 vote by the New Jersey Local Finance Board, Gov. Chris Christie’s administration has been granted the authority to immediately seize control of financially distressed Atlantic City, with the unanimous vote paving the way for a five-year state takeover—a takeover Governor Christie referred to as the best way to keep the city from becoming the first New Jersey municipality since 1938 to go into chapter 9 municipal bankruptcy. The vote came, of course, just prior to the Presidential election of Donald Trump—an election which has many guessing that Governor Christie might abruptly be named as a senior adviser or even member of a new Presidential cabinet—he has been discussed as a potential Attorney General. Thus, even as the state of New Jersey has moved to usurp the authority to assume key functions usually controlled by local elected leaders: renegotiating union contracts, hiring and firing employees, and selling municipal assets, the question is how. The right to wrest governance authority was power included under the Municipal Stabilization and Recovery Act, but exactly how that state takeover will work remains fuzzy. Under the terms of the state preemption, Timothy Cunningham, the Director of the Division of Local Government Services, will assume responsibility during the takeover—in effect not unlike the authority granted under Michigan’s Emergency manager law—except that in Michigan, said emergency manager can—and did in the case of Detroit—assume absolute power. Within the first twenty-four hours, the then Mayor and Council were barred from meeting and preempted from any governance authority.

In New Jersey, however, the State of New Jersey, with only one previous takeover as experience, means, as Mr. Cunningham appears to be the first to admit: he is uncertain what duties or responsibilities would remain with the city’s elected local leaders—describing the decision as moving into “unchartered territory,” as well as an “unbelievable responsibility.” Thus the state takeover, comes at this time of uncertainty in the statehouse, and with the state emergency manager already having been in place in Atlantic City for over a year: what happens next? The ever so insightful Marc Pfeiffer, the Assistant Director of the Bloustein Local Government Research Center at Rutgers University, puts it succinctly: “This is a new process…We’ve never done a process like this before.” While New Jersey has previous experience, as we have written, with a state takeover of Camden, in this instance, as Mr. Pfeiffer notes, the state has granted itself more authority to take direct control in Atlantic City, adding that while more than a decade ago in Camden, the state assigned a chief operating officer to help sort out Camden’s financial problems—a change which resulted in the dissolution of the city’s police department and the transfer of authority to patrol Camden to the county police—and which, today, he notes,means: “Camden is effectively not on the critical list anymore,” adding it is, fiscally, in better shape than either Trenton or Paterson—even as he cautions: “Atlantic City’s fiscal problems are far more critical that those of Trenton or Paterson: The city’s not dead: They haven’t been able to get their expenses under control to live within their circumstances.” Mr. Pfeiffer opines that the state might opt to dissolve Atlantic City’s Municipal Utilities Authority and sell it or enter into a long-term contract with an outside entity for its operation—even as the city’s leadership has countered they would sue to stop such a move.

Who’s in Charge? Again, unlike in Michigan, the state preemption authority is not spelled out with regard to who will be in charge, what will happen to the state’s existing quasi emergency manager who has been in Atlantic City for well over a year, much less what actions it will take and which powers, if any, will remain with city officials. And, as Mr. Pfeiffer notes, there are also legal questions about how the state can execute the major decision-making powers it usurped from the city and gave to Local Government Services Director Timothy Cunningham.

Presumably, Director Cunningham, or his designee, can now sell city assets, hire or fire workers and break union contracts, among other powers, for up to five years as the state tries to fix the city’s finances—all part of a brave new world of distressed municipal finance the state is still trying to work out—even down to questions not just with regard to who will be in charge of the city, but also whether that supervising state official will be based in Trenton or in Atlantic City. Mr. Cunningham has so far declined to comment on whether he would run the city himself or appoint a designee, but said he would consider looking “outside and inside” the division. He noted yesterday: “I do have a very competent staff that has the majority of the municipalities under control while my attention has been on Atlantic City…If a designee was brought on, I don’t know if I have the resources in-house.”

From the city’s perspective, as it seeks to keep its legal options to sue the state open, it remains unclear what authority remains: the New Jersey preemption authority does, however, include a long list of powers the state could use, from suing on behalf of the city to purchasing goods and services. Thus, Council President Marty Small noted: “We have to sit down with the Commissioner and see what powers we still have to continue to represent the people who elected us,” adding that the Commissioner has “all the powers to do everything that was in the (takeover law), and we’re just hoping it isn’t as draconian.” But, as Mr. Cunningham noted, there will remain a role for the Mayor and Council, as he committed to meet with city officials to discuss the powers granted to him under the takeover law, noting: “I think there are still some authorities and actions that will be retained by the executive and legislative branches.”

 “If there was such a plan for the state, we could say ‘They’re planning to implement this power,’” as Michael Darcy, Executive Director of the New Jersey League of Municipalities put it: “It creates a lot of questions.” Mr. Darcy said the League would await to see how the state intervenes in Atlantic City and what the possible statewide implications might mean to the future of state-local relations before deciding to get involved, adding: “We’re not the league of one municipality, we’re the league of all municipalities…We are going to keep a close look at it.” In this unclear and unsettled set of complex governance choices, as Mr. Pfeiffer makes clear, New Jersey’s third branch of government, the courts, could play a role, as the state’s actions may trigger a lawsuit, citing, for example, that if the State of New Jersey were to break city union contracts, such an action could be grounds for litigation.

Bracing for a New Beginning. San Bernardino voters Tuesday voted overwhelmingly to adopt a new city charter to move to a city manager form of governance, reversing rejections of that direction in 2014 and 2010. With more than a 60% margin, they voted for Measure L, which replaces the city’s governing document. The new charter replaces the 111 year old charter—a charter adopted when the city was a small municipality of less than 10,000, with a charter for the 21st century which provides the framework with regard to which positions are elected and which are appointed, the responsibilities of those officials and certain other restrictions. A key change will increase the power of the city manager and shift that day-to-day responsibility away from the elected officials directly—that is, move to a council-manager form of government, the structure for 58 percent of cities with a population over 100,000, or, as Mayor Davis described it during the campaign: “This is how modern governments work, with the mayor and council setting the policy and professionals implementing it,” even as his predecessor, former Mayor Judith Valles had warned that such a change would weaken San Bernardino: “There’s a pecking order among cities, and the cities where the mayor is a strong mayor are able to take leadership.” The new charter eliminates elections for three positions, so that, in future, the Mayor and Council will appoint the city attorney.

Interestingly, during the campaign, former city attorney, James F. Penman, in opposing the measure, had argued that the people will not and should not give up their power to vote, stating: “When he was a Congressman in the House of Representatives, on July 27, 1848, Abraham Lincoln gave a speech in which he said, quote, ‘In leaving the people’s business in their hands, we cannot be wrong’…It’s such a fundamental part of American democracy.” Under the newly adopted charter, San Bernardino will move its election cycle to even-numbered years, the years when state legislators, the governor, and President are up for election, a change with regard to which former San Bernardino Councilwoman Susan Lien Longville had said: “Combining elections will even save San Bernardino taxpayer dollars—money the city can spend on reducing crime, improving parks and libraries, and fixing our roads.” Also, interestingly, the new charter will replace the old charter’s personnel rules—rules which mandated that police and firefighter pay be set as the average of 10 like-sized California cities, rather than by collective bargaining like nearly all other cities. Under the new charter, employee pay will be set through collective bargaining. Similarly, pay for the City Councilmembers, previously set at $600 per year, now will be set by the Mayor and Council after a public hearing, and after hearing from an advisory commission. Any raises will go into effect following the next election after the increase. The new charter also imposes a balanced budget requirement, strict financial controls, and an annual independent audit which must be shared publicly. The now discarded charter read: “The Mayor shall have the books and records of all public departments, pertaining to the finances of the City, experted by a competent person at least once in every year.” Clearly that “experted” part proved out-of-order as the city collapsed in 2012 into what has stretched to the longest municipal bankruptcy in American history with the city’s books crushed in 2012 under a $45.8 million deficit and its books unaudited for years. The newly adopted charter provides that the city’s Water Department and Library Board will remain independent. In the wake of the vote, Mayor Davis said he looked forward to seeing the reaction of U.S. Bankruptcy Judge Meredith Jury, who has been presiding over the city’s chapter petition, noting: “It sends a good message…I think she’ll be overjoyed.”

Learning for a City’s Future. Detroit voters, facing record numbers of candidates (sixty-three!) for its re-constituted public school system, elected newcomers to a majority of the seven public school board seats that were open: among the winners were one former school board member and his wife. Those vying included ten persons who sat on the previous school board, as well as newcomers hailing from backgrounds in business, education, and the ministry. (All seats were at-large.) Of those elected, the top two vote-getters will serve for six years, the next three will serve four-year terms, and the final two will serve for two years. Their unenviable task will be to steer the 45,000-student district following years of severe financial turmoil, poor academic performance, a series of widely criticized state-appointed emergency managers, and the signal disruption by the Michigan Legislature’s creation of a dual school system in Detroit made up of charter and public schools—as part of the controversial and historic $617-million financial restructuring package which divided the  Detroit Public Schools (DPS) in two, creating the new DPSCD: the old of former DPS district now exists only to collect tax revenue to pay down debt. That new legislation also restored power to an elected board, albeit authority subject to the prerogatives of the Detroit Financial Review Commission, which monitors the city’s finances, and now will add oversight of the newly created district to its report card.

The new DPS school board will be able to hire a new superintendent and have policy-making authority; however, it cannot fire the superintendent on its own. How the new schooling system works as the Motor City is emerging from the largest municipal bankruptcy in U.S. history, will, perhaps, be the single most critical determinant pf the city’s long-term post-bankruptcy future. And it will require heavy lifting: the city’s public schools have suffered enrollment losses over 66 percent over the last sixteen years: enrollment has dropped by more than two-thirds since 2000—a combination of the city’s sharp population decline, but also the flood of departures to charter schools and suburban districts: more than 100 schools have closed since 2005. During this period, state-appointed emergency managers have run the district since 2009—and that followed the period from 1999 to 2005, when the system was also under state control. Now, with the board facing a severely impeded school system of charter and public schools mandated by the state, the question is whether this seemingly jerry-rigged patchwork of charter and public schools can recover their reputation sufficiently to lure young families in from the suburbs to create an enhanced municipal tax base for the future.

Out Like Flint? U.S. District Judge David Lawson yesterday ruled that the State of Michigan and the City of Flint must provide home-delivered bottled water to residents if they cannot prove faucet filters are working to remove harmful lead from the drinking water, ordering home delivery of four cases of water per resident each week unless state and city officials can verify each resident has a properly installed and maintained faucet water filter, writing: “The defendants need not deliver water to homes that have properly installed and maintained faucet water filters, as long as the defendants can monitor and verify the effectiveness of the filters,” in his 37-page opinion. Judge Lawson’s preliminary injunction had been pressed for by the Natural Resources Defense Council, the American Civil Liberties Union of Michigan, and Flint residents who had sued Michigan and Flint officials in an effort to try to speed up the slow process of removing lead service lines blamed for contaminating the city’s water. ACLU’s Michigan Legal Director Michael J. Steinberg, in the wake of the decision, noted: “It is an important, but rare, victory for the people of Flint, who have suffered one set back after the next since poison started flowing out their faucets more than two years ago.” Both Flint and Michigan officials had opposed door-to-door water service: they testified that the costly and time-consuming weekly distribution would delay efforts to remove and replace lead and galvanized metal pipes that are leaching toxic metal into the drinking water supply. In his opinion, however, Judge Lawson wrote: “It is in the best interest of everyone to move people out of harm’s way before addressing the source of the harm.” Indeed, it will be costly: the Michigan State Police’s emergency operations division estimated it would cost $9.4 million for weekly delivery of bottled water to the 30,000 to 34,000 occupied homes in Flint. Judge Lawson also ordered state and city officials to file a report by December 16th detailing how they are complying with his order. In his decision, Judge Lawson wrote that the city and state’s water resource sites were insufficient for the daily needs of Flint residents, while the water remains unsafe to drink without lead filters: “The fact that such items are available does not mean that they are reliably accessible or effective in furnishing safe drinking water to every household…Indeed, the endeavor of hunting for water has become a dominant activity in some Flint residents’ daily lives.” The judge also wrote that a safe and reliable water supply “has always been critical to civilization,” as he blamed the city’s water pipe leaching of lead directly on the shoulders of the City of Flint while under control by a state-appointed emergency manager: “It appears beyond dispute that the city of Flint failed to meet its responsibilities under the corrosion control regulations of the Lead and Copper Rule,” adding it “appears that Flint is continuing to violate” rules for monitoring lead levels in Flint’s drinking water system based water sampling protocols not being followed.

 

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