What Will the Tides of November Bode for Struggling Cities’ Futures?

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eBlog, 9/09/16

In this morning’s eBlog, we consider the tightening noose around Atlantic City’s fiscal future as a state takeover looms. We consider the grim political and legal complications in post-chapter 9 Stockton, where a criminal trial of the incumbent Mayor who helped steer the city out of municipal bankruptcy looms just weeks before his campaign for re-election. What might it augur for the recovering city’s fiscal fate? Then we head east to Detroit, where elections of a very different sort will be on November’s ballot for a perspective from the Mayor on key ballot issues; finally, we consider the inability to achieve any clarity or resolution with regard to the fiscal fate of nearly fiscally and politically insolvent East Cleveland.  

A City on the Road to Nowhere? The Atlantic City Council has failed to accede to state terms and vote to dissolve its Municipal Utilities Authority, moving the city closer to default—the non-vote occurred after discussion in executive session, where, according to Council President Marty Small, there was insufficient support to reintroduce the requisite authority-related measures. Because the Council did not vote Wednesday evening, the municipality is nearly certain to violate the terms of its $73 million state loan—a loan which made the authority’s assets collateral and required the city to adopt an ordinance by next Thursday—and dissolves the authority if the city does not pay back the loan. The ball now moves to the state, which, under the terms, could then demand immediate repayment of money loaned to date. The city would be unable to repay the loan at this time, putting the authority at risk of monetization by the state, as we had noted from the op-ed Council President Small and Mayor Don Guardian wrote last Monday—or, as Council President Small put it: “It’s sad to say, but whatever the state does, we deserve…People didn’t take it seriously. They missed meetings. They claimed meetings were illegal.”

For the citizens of the beleaguered city, their future is unclear: they packed Council chambers Wednesday: some urged the Council to rescind a July 28 resolution that authorized the loan—a request which Councilman Frank Gilliam so motioned, in the wake of which Council voted 5-3-1 to support; however, Legislative Counsel Robert Tarver later said the measure needed a two-thirds majority to pass since prior notice of the vote had not been given; moreover, he noted that Council cannot rescind the resolution, since the state already performed on the agreement by loaning the city money. As in the old expression “misery loves company,” the actions have also triggered a pending lawsuit against the city, which seeks to void the resolution; the suit asserts a two-thirds majority of the full council was needed to pass the resolution, since it was an “emergency appropriation.” No matter what such future court battles might mean, however, the new reality is that the city’s inability to act means the state can demand it immediately pay back the $73 million loan—a demand the city cannot fiscally meet—but funds the city desperately needs if it is to meet the state-imposed November deadline to develop and submit a five-year fiscal plan to avoid a state takeover.

A Most Uncertain Road out of Municipal Bankruptcy. California Superior Court Judge Leslie Nichols has set an October 18 date for the trial of incumbent Stockton Mayor Anthony Silva—a candidate for re-election in November, where he is being challenged in his bid for a second term by City Councilman Michael Tubbs. The Mayor was arrested last month on charges he participated in and illegally recorded an alcohol-fueled game of strip poker with teenagers in 2015 at his annual summer youth camp in Silver Lake. His attorney reports the Mayor has no intention of dropping out of the race, noting: “That would never happen, for a really good reason…He is the People’s Mayor. He works very hard for the people of Stockton. I don’t think anyone would dispute that he gives every part of himself to being the Mayor of Stockton. He should be re-elected based on the merit that he gives the city.” The Mayor pleaded not guilty at his initial court appearance last month, complaining he is the victim of a political smear campaign being waged because he is a “threat” to Stockton’s establishment; nonetheless, it will be a jury which determines his fate with regard to the felony charge for allegedly making the audio recording without the consent of the strip poker participants and three misdemeanors related to the alleged providing of alcohol to underage drinkers.

A Motown Post Municipal Bankruptcy Future & Community Benefits. While Stockton’s post-chapter 9 recovery appears clouded by the looming criminal trial of the Mayor who was in office throughout his city’s long and arduous adoption of a plan of debt adjustment and emergence from municipal bankruptcy, his counterpart in Detroit, Mayor Mike Duggan, elected in the wake of the Motor City’s emergence from municipal bankruptcy under Michigan’s law, under which—in sharp contrast to California—the Governor had appointed an emergency manager, Kevyn Orr, who barred the city’s former Mayor and Council of any governance authority. Now Mayor Duggan is voting for what he calls the more manageable version of two proposed ordinances requiring “community benefits” be provided by would-be developers. In discussion with reporters and editors from Crain’s, Mayor Duggan warned that if a community benefits ordinance proposed by Rise Together Detroit passes in his city’s November general election, it would “guarantee we never see a (new) auto parts plant in this city again,” because of the requirements it places on developers: “Getting manufacturing jobs in the city will be over if Proposal A passes.” Mayor Duggan made clear he intends to vote for Proposal B, which is the alternative proposed community benefits ordinance.

Proposal A, put together by Rise Together Detroit, would require that projects of $15 million or more which receive $300,000 or more in city actions such as tax abatements or incentives enter into a legally binding community benefits agreement with a group of “representative residents, businesses and nonprofit organizations” within the “host community,” based on U.S. Census tract information. Such agreements would specify what the developer would provide to the community in which the development is located, such as education and land use programs, local small business and resident inclusion, and participation in the project. Environmental protections could also be considered community benefits—albeit, as the mayor noted: “You’d have to send a notice to the city clerk…The clerk and the council somehow contact people in the surrounding Census tract. Those people somehow form a committee, but Proposal A doesn’t say how they form a negotiating committee, doesn’t say how many people are on the negotiating committee. They could be negotiating with 50 or 100 people. It doesn’t say how long the negotiations go on, if they go on months or even years. If the site happens to be near the city border, the neighboring Census tracts would include the suburbs and you could have suburbanites who would get to say no to a development in Detroit.”

In contrast. Proposal B, which was developed by Detroit City Councilmember Scott Benson, appears to offer a less onerous alternative to Proposal A: it would mandate community benefits agreements for developments of $75 million or more and receiving $1 million or more in public incentives or on property with a cumulative market value of $1 million or more that was sold or transferred to a developer. In his conversation with the paper, Mayor Duggan made clear his comments were not a public endorsement of Proposal B; however, he noted there are compelling arguments toward the idea of institutionalizing these agreements for large projects: “Endorsing suggests a level of public campaigning that is different than a personal decision. But right now, I’m going to vote for it.”

In his comments, Mayor Duggan also addressed other pressing issues in his city, including on the pressing issues of the city’s struggling schools. Noting that while enrollment numbers will not be officially disclosed for about a month, Mayor Duggan said he would not discuss any new initiatives between the city and the Detroit Public Schools (DPS) until there is further certainty with regard to how many students the district has—that is, until there is a better sense whether DPS has emerged from its crisis mode, noting the serious “truancy issue in the city that we need to deal with.” With regard to the related Detroit Education Commission, a contentious sticking point in the DPS bailout legislation passed by the GOP-led Legislature and signed by Gov. Rick Snyder this past summer, the Mayor made clear he is not finished with pressing the issue: “To get things through a Republican Legislature, I need allies in addition to the Governor. I’ve learned my lesson and we’ll come back in a different way.”

To Merge or Not to Merge: That Is the Question. The Cuyahoga County, Ohio sheriff’s office is looking into the collection of signatures for a merger petition which was circulated in East Cleveland this summer, according to spokespersons for the sheriff and prosecutor. East Cleveland Mayor Gary Norton and his allies had collected more than 1,600 signatures on petitions to mandate the City Council to begin merger negotiations with neighboring Cleveland—of which the Cuyahoga County Board of Elections determined slightly over half were valid—albeit enough to begin negotiating an annexation agreement (Cleveland willing) that would be decided by voters in November; however, the Council did not appoint any negotiators; instead, Council Members asked the county prosecutor to investigate what they believed to be irregularities in the petitions. Or, as Council President Barbara Thomas reported to Ohio state officials: “East Cleveland City Council has serious questions about annex petitions, related certification, and has declared the petitions to be invalid.” Now the sheriff’s office has received the case from the prosecutor and is investigating, according to the County communications director—albeit she has declined to elaborate on what specifically the probe is examining. Adding to the state of confusion, Mayor Norton’s chief of staff, Michael Smedley, recently filed a lawsuit asking the court to compel East Cleveland’s City Council to move forward with merger talks—merger talks in which the City of Cleveland has expressed no interest. The suit also asks the judge to consider appointing annexation negotiators himself. Even as East Cleveland still awaits a response from the State of Ohio with regard to whether it may file for chapter 9 municipal bankruptcy, the municipality has heard from the State Auditor’s office—the office which last month laid out stark financial options for the struggling municipality, noting the road out of fiscal emergency may require the city to cut between 20 to 40 percent of its staff.