Breaking Up Is Hard to Do

June 8, 2018

Good Morning! In this morning’s eBlog, we consider the issue of unincorporated areas: what are the fiscal implications?

In many U.S. states, it’s not uncommon for homeowners to reside in what are known as “unincorporated” areas, meaning portions of the state or county that are not contained within the boundaries of an incorporated city, town, village or similar local governmental entity. From a municipal perspective, that means a community not governed by its own local municipal corporation, but rather is administered as part of larger governmental administrative division—such as a township, parish, borough, county, or city—governance entities which, depending upon the pertinent state laws, may file for chapter 9 municipal bankruptcy, dissolve, disincorporate, or, as we noted in today’s eGnus, make even separate. Widespread unincorporated communities and areas are a distinguishing feature of both the U.S. and our neighbor Canada—but rare in any other countries around the globe. In fact, unincorporated areas are mostly found in this country in Texas—an enormous state, but which has the nation’s smallest municipality: McAllen, in Jim Hogg County, with a population of 6.

When it comes to unincorporated areas within states, Pennsylvania appears unique: it is, after all, the state with the greatest number of local governments or political subdivisions: the Census Bureau puts the number at 5,000—putting the state only behind Texas and Illinois; but maybe ranks it first in terms of imposing vast and conflicting arrays of taxes—taxes which, however, are imposed on shrinking tax bases. Indeed, the fiscal stress has reached such a point that the state’s House Urban Affairs Committee recently convened a public hearing on legislation intended to assist smaller municipalities mired in cycles of financial distress—threatened with insolvency absent outside assistance. House Bill 2122 would allow these communities, after gaining approval in a voter referendum, to dissolve themselves and have their functions absorbed by the county. The co-sponsors, Representatives Dom Costa and Harold English, offered the bill as a means they described to provide for the voluntary dissolution of municipal corporations (cities, boroughs, towns, & townships) within counties of the second class (Allegheny), and the substitution of an unincorporated districts as a new form of government to be administered by the county. Under the proposed legislation, the process of dissolution would be initiated by the governing body of the municipal corporation through passage of a non-binding resolution to engage in discussion with the county over a period of six months, during which time they would develop a proposed essential services-transition plan as part of an intergovernmental cooperation agreement.: such a plan would be subject to public meetings in the community and would have to be voted on by the governing body of the municipal corporation, as well as the County Council: should both the municipal corporation and county governing bodies approve said plan, a referendum would be scheduled—an election where, if approved by the voters, a six-month winding down of the affairs of the municipal corporation would begin. At the conclusion of such a period, an unincorporated district administered by the county would go into effect, and the essential services-transition plan would become an official ordinance of the county. That would entail significant powers to said county to administer and manage such a district; the county would also retain the tax levying power and authority to assess fees and service charges previously authorized to that particular class of municipal corporation. All taxes and fees levied within the service district would have to be used for the benefit of the district.

Finally, the bill provides for the potential merger and consolidation of the unincorporated district with another municipal corporation or would permit the district to re-incorporate itself as another type of municipal corporation in accordance with the existing municipal codes applicable to such entities.

They reported the legislation was carefully crafted with input from the staff of the bicameral/bipartisan Local Government Commission, confident that it represents a unique voluntary agreement between municipalities – one in which a given city, borough or township would be able to ensure a more efficient and effective delivery of services to their residents while retaining their municipal identity. 

Pennsylvania’s Department of Community and Economic Development administers Act 47, as we have previously noted, a program to help “distressed” communities as designated under the terms of the state’s Act 47, under which the state could ultimately take on the task of providing local services. However, it appears that Deputy Secretary for Community Affairs Rick Vilello, the department’s deputy secretary for community affairs and development, HB2122 might provide a better option, or, as he testified: “We’ve not timed out [on recovery options] on a community who we felt wasn’t ready to try to make it on their own…But we are fast approaching a time when several municipalities will time out. When municipalities time out, there are very few good solutions from that point forward. House Bill 2122 provides a potential solution for local leaders facing hard decisions and is a tool worth trying.” Secretary Vilello testified that to date, only 31 municipalities in the state had ever reached “distressed” status out of 2,560. Of those 31, nine were in Allegheny County.

The Secretary noted: “House Bill 2122 could be a life-preserver for communities that have been treading water for a very long time: Who knows, if it works in [Allegheny County], what would be possible next. House Bill 2122 is a tool for the elected officials and for the citizens of distressed municipalities to make a choice about their future.”

Allegheny County Executive Rich Fitzgerald testified that the proposed legislation could be useful, not only to those communities whose finances have spiraled out of control, but also to those that have managed to avoid financial disaster by cutting essential services to minimal levels:  “Some of them, quite frankly, have not gone into Act 47…They just quit providing the services. They haven’t gone into the debt problem, but they haven’t provided the services their citizens have wanted. And what [residents have] basically been doing is voting with their feet. They’ve been leaving, [and] those municipalities have been shrinking in population.” The County Executive emphasized that the legislation could not lead to any municipality being dissolved against its will; similarly, he testified that no county could be forced to absorb a municipality against its will: both governments would have to agree to the terms of the disincorporation before it even went to the voters for approval.

Under the proposed legislation, the unincorporated community would retain some level of local governance through the establishment of a district advisory committee appointed by the county council. The advisory committee would hold open meetings in the former municipality and issue reports to the county on matters pertaining to local residents.

Nevertheless, Melissa Morgan, legislative and policy analyst for the Pennsylvania State Association of Township Supervisors, warned the proposed legislation would go too far in wresting local power and vesting it in a higher level of government, telling legislators her organization, which she said represents 1,454 townships in the state, opposes the passage of HB2122 or any other legislation that would allow for the dissolution of municipalities: “County government should not be given additional powers to administer unincorporated territory…Instead, the Legislature should consider relieving unfunded mandates for municipalities, such as those requiring benefits to uniform employees to help alleviate financial challenges.” County Executive Fitzgerald said he was in favor of the Legislature taking other steps such as those suggested by Ms. Morgan to ease the plight of struggling communities; however, he noted that HB2122 was also a good option to have on the books in case those other steps fail to provide relief: “It’s a voluntary program: It’s just giving people an option. And to me, that’s what democracy is about, giving people the choice. Right now, they don’t have that choice.”

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Post Municipal Bankruptcy Election, and How Does a City, County, State, or Territory Balance Schools versus Debt?

June 4, 2018

Good Morning! In this morning’s eBlog, we consider tomorrow’s primary in post-chapter 9 municipally bankrupt Stockton, and the harsh challenges of getting schooled in Puerto Rico.

Taking New Stock in Stockton? It was Trick or Treat Day in Stockton, in 2014, when Chris McKenzie, the former Executive Director of the California League of Cities described to us, from the U.S. Bankruptcy Court courtroom, Judge Christopher Klein’s rejection of the claims of the remaining holdout creditor, Franklin Templeton Investments, and approved the City of Stockton’s proposed Chapter 9 Bankruptcy Plan of Adjustment. Judge Klein had, earlier, ruled that the federal chapter 9 municipal bankruptcy law preempted California state law and made the city’s contract with the state’s public retirement system, CalPERS, subject to impairment by the city in the Chapter 9 proceeding. Judge Klein determined that that contract was inextricably tied to Stockton’s collective bargaining agreements with various employee groups. The Judge also had stressed that, because the city’s employees were third party beneficiaries of Stockton’s contract with CalPERS, that, contrary to Franklin’s assertion that CalPERS was the city’s largest creditor; rather it was the city’s employees—employees who had experienced substantial reductions in both salaries and pension benefits—effectively rejecting Franklin’s assertion that the employees’ pensions were given favorable treatment in the Plan of Adjustment. Judge Klein, in his opinion, had detailed all the reductions since 2008 (not just since the filing of the case in 2012) which had collectively ended the prior tradition of paying above market salaries and benefits to Stockton employees. Moreover, his decision included the loss of retiree health care,  reductions in positions, salaries and employer pension contributions, and approval of a new pension plan for new hires—a combination which Judge Klein noted meant that any further reductions, as called for by Franklin, would have made city employees “the real victims” of the proceeding. We had also noted that Judge Klein, citing an earlier disclosure by the city of over $13 million in professional services and other costs, had also commented that the high cost of Chapter 9 municipal bankruptcy proceedings should be an object lesson for everyone about why Chapter 9 bankruptcy should not be entered into lightly.

One key to the city’s approved plan of debt adjustment was the provision for a $5.1 million contribution for canceling retiree health benefits; however a second was the plan’s focus on the city’s fiscal future: voter approval to increase the city’s sales and use tax to 9 percent, a level expected to generate about $28 million annually, with the proceeds to be devoted to restoring city services and paying for law enforcement.

Moody’s, in its reading of the potential implications of that decision opined that Judge Klein’s ruling could set up future challenges from California cities burdened by their retiree obligations to CalPERS, with Gregory Lipitz, a vice president and senior credit officer at Moody’s, noting: “Local governments will now have more negotiating leverage with labor unions, who cannot count on pensions as ironclad obligations, even in bankruptcy.” A larger question, however, for city and county leaders across the nation was with regard to the potential implications of Judge Klein’s affirmation of Stockton’s plan to pay its municipal bond investors pennies on the dollar while shielding public pensions.

Currently, the city derives its revenues for its general fund from a business tax, fees for services, its property tax, sales tax, and utility user tax. Stockton’s General Fund reserve policy calls for the City to maintain a 17% operating reserve (approximately two months of expenditures) and establishes additional reserves for known contingencies, unforeseen revenue changes, infrastructure failures, and catastrophic events.  The known contingencies include amounts to address staff recruitment and retention, future CalPERS costs and City facilities. The policy establishes an automatic process to deposit one-time revenue increases and expenditure savings into the reserves.  

So now, four years in the wake of its exit from chapter 9 municipal bankruptcy, Republican businessman  and gubernatorial candidate John Cox has delivered one-liners and a vow to take back California in a campaign stop in Stockton before tomorrow’s primary election, asking prospective voters: “Are you ready for a Republican governor in 2018?”

According to the polls, this could be an unexpectedly tight race for the No. 2 spot against former Los Angeles Mayor Antonio Villaraigosa, a Democrat. (In the primary, the two top vote recipients will determine which two candidates will face off in the November election.) Currently, Democratic Lt. Gov. Gavin Newsom is ahead. Republicans have the opportunity to “take back the state of California,” however, candidate Cox said to a group of more than 130 men and women at Brookside Country Club—telling his audience that California deserves and needs an honest and efficient government, which has been missing, focusing most of his speech on what he said is California’s issue with corruption and cronyism worse than his former home state of Illinois. He vowed that, if elected, he would end “the sanctuary protections in the state’s cities.”

Seemingly absent from the debate leading up to this election are vital issues to the city’s fiscal future, especially Forbes’s 2012 ranking Stockton as the nation’s “eighth most miserable city,” and because of its steep drop in home values and high unemployment, and the National Insurance Crime Bureau’s ranking of the city as seventh in auto theft—and its ranking in that same year as the tenth most dangerous city in the U.S., and second only to Oakland as the most dangerous city in the state.

President Trump, a week ago last Friday, endorsed candidate Cox, tweeting: “California finally deserves a great Governor, one who understands borders, crime, and lowering taxes. John Cox is the man‒he’ll be the best Governor you’ve ever had. I fully endorse John Cox for Governor and look forward to working with him to Make California Great Again.” He followed that up with a message that California is in trouble and needs a manager, which is why Trump endorsed him, tweeting: “We will truly make California great again.”

Puerto Rico’s Future? Judge Santiago Cordero Osorio of the Commonwealth of Puerto Rico Superior Court last Friday issued a provisional injunction order for the Department of Education to halt the closure of six schools located in the Arecibo educational region—with his decision coming in response to a May 24th complaint by Xiomara Meléndez León, mother of two students from one of the affected schools, and with support in her efforts by the legal team of the Association of Teachers of Puerto Rico. The cease and desist order applies to all administrative proceedings intended to close schools in the muncipios of Laurentino Estrella Colon, Camuy; Hatillo; Molinari, Quebradillas; Vega Baja; Arecibo; and Lares—with Judge Cordero Osorio writing: “What this court has to determine is that according to the administrative regulations and circular letters of the Department of Education, there is and has been applied a formula that establishes a just line for the closure without passion and without prejudice to those schools that thus understand merit close.”  

With so many leaving Puerto Rico for the mainland, the issue with regard to education becomes both increasingly vital, while at the same time, increasingly hard to finance—but also difficult to ascertain fiscal equity—or as one of the litigants put it to the court: “The plaintiff in this case has clearly established on this day that there is much more than doubt as to whether the Department of Education is in effect applying this line in a fair and impartial manner.” Judge Osorio responded that “this court appreciates the evidence presented so far that the action of the Department of Education regarding the closure of schools borders on arbitrary, capricious, and disrespectful;” he also ruled that the uncertainty he saw in the testimonies of the case had created “irreparable emotional damage worse than the closing of schools,” as he ordered Puerto Rico Education Secretary Julia Keleher to appear before him a week from today at a hearing wherein Secretary Keleher must present evidence of the procedures and arguments that the Department took into consideration for the closures.  

Meléndez León, the mother who appears as a plaintiff in the case, stated she had resorted to this legal path because the Department of Education had never provided her with concrete explanations with regard to why Laurentino Estrella School in Camuy, which her children attend, had been closed—or, as she put it: “The process that the Department of Education used to select closure schools has never been clarified to the parents: we were never notified.” At the time of the closure, the school had 186 students—of which 62 belonged to Puerto Rico’s Special Education program—and another six were enrolled in the Autism Program. Now, she faces what might be an unequal challenge: one mother versus a huge bureaucracy—where the outcome could have far-reaching impacts. The Education Department, after all, last April proposed the consolidation of some 265 schools throughout the island.

Breaking Up Is Hard to Do.

eBlog, 03/06/17

Good Morning! In this a.m.’s eBlog, we consider the trials and tribulations of really emerging from the largest chapter 9 municipal bankruptcy in American history; then we turn to an alternative to municipal bankruptcy: dissolution.

The Hard Road of Exiting Municipal Bankruptcy: A Time of Fragility. Christopher Ilitch, the Chief Executive Officer of Ilitch Holdings Inc., companies in Detroit which represent leading brands in the food, sports, and entertainment industries (including Little Caesars, the Detroit Red Wings, the Detroit Tigers, Olympia Entertainment, Uptown Entertainment, Blue Line Foodservice Distribution, Champion Foods, Little Caesars Pizza Kit Fundraising Program, and Olympia Development), notes that “We are at a critical time in Detroit’s history,” speaking at the Detroit Regional Chamber’s Detroit Policy Conference: “There’s been no community that’s been through what Detroit has been through. Through the depths, there’s been a lot of choices.” Indeed, as the very fine editor of the Detroit News, Daniel Howeswrote: “There still is, and how they’re made could meaningfully impact Detroit’s arc of reinvention: despite a booming development scene spearheaded now by the Ilitch family’s $1.2 billion District Detroit, Quicken Loans Inc. Chairman Dan Gilbert’s empire-building, more effective policing and a burgeoning downtown scene, four words loom: “We’re not there yet.” Mr. Howes notes that the cost of new construction projects still cannot be fully recouped through commercial and residential rents, adding: “The business climate, including taxes and regulation, still is not as attractive as it could be. And longstanding residents in the city’s neighborhoods worry that the reinvention of downtown and Midtown risks leaving them behind.” Or, as Detroit City Council President Brenda Jones puts it: “We have been talking about downtown and Midtown so much, and we know downtown and Midtown are important…If we are going to subsidize development, we would like to see something in it for us as well.” That is, exiting chapter 9 bankruptcy is not a panacea: one’s city still confronts a steep hill to execute its plan of debt adjustment—and a hill the scaling of which comes at higher borrowing costs than other cities of the same size. That is to say, long-term recovery has to involve the entire community—not just the municipal government. Or, as Mr. Howes notes: “Business leaders stepped in to acquire new police cruisers and EMT trucks, even as some of them finance ‘secondary patrols’ of downtown districts. The moves by General Motors Co. and Gilbert’s Rock Ventures LLC, to name two, to employ off-duty Detroit police officers are supported by Detroit Police Chief James Craig…The partnership has been bipartisan and regional. It’s been public and private, city and suburb. It’s required Republicans to act less Republican and Democrats to act less Democratic. That’s not because either side is suddenly non-partisan, but because the long history of confrontation and suspicion chronically under-delivers.” But he adds the critical point: “[A]s the city moves into an election year, as the memories of recessionary hardship dim, as the construction and investment boom continues. None of it is guaranteed, including collaboration forged by leaders under difficult circumstances…If there’s any town in America that can make its virtuous circle become a vicious cycle, Detroit is it. Remembering what’s worked, what hasn’t, and how inclusion can improve the chances for success remains critical…It’s a tricky balance that depends most on leadership and transparency so long as the macro-economic environment remains positive. If there are two themes connecting the reinvention of Detroit with its present, they are that a) experts expect the building and redevelopment boom to continue and b) neighborhood concerns are real and should not be dismissed.” In Detroit, it turned out going into chapter 9 municipal bankruptcy—a slide enabled by criminal behavior of its Mayor, and the profound failure to make it a city on a hill—a city which would draw families and businesses—was easy. That means getting out—and staying out—is the opposite in this fragile time of recovery, or, as Moddie Turay, executive vice president of real estate and financial services at the Detroit Economic Growth Corp., notes: “There’s a ton that’s happening here. We’re just not there yet…We have another five or so years to go. We are at a fragile time — a great time in the city, but still a fragile time.”

Disappearville? Breaking Up Is Hard to Do. Mayor Margaret J. Nelms and her Council Members in Centerville, North Carolina have voted to dissolve the town’s charter and become unincorporated in the wake of voters’ rejection, in January, of an effort to raise property taxes. The municipality (town), founded in 1882, in the rural northeastern corner of Franklin County had a population of 89 as of the 2010 census, a ten percent decline from the previous census: this is a municipality without a post office or a zip code—or, now, a future. It was incorporated during the same time period as the dissolution of the nearby town of Wood in 1961, roughly 80 years after first settlement. Unlike elected officials of other Franklin County municipalities (as well as the county itself) which have four-year terms, in Centerville, the Mayor and its three-member Town Council are elected every two years. The city’s downtown consists of two small old-fashioned country stores—Arnold’s and The Country Store, with one also the local gas station. The City has its own volunteer fire department: there is no police department, so Centerville—like the surrounding unincorporated area—is patrolled by the Franklin County sheriff.

Sen. Chad Barefoot (R), whose district includes Centerville, the sponsor of the state legislation [Senate Bill DRS45094-LM-35 (02/16)] to dissolve the municipality, noted: “There are a lot of towns like Centerville in North Carolina…What they’re doing is pretty courageous. They’re acting like adults. It’s something very hard to do, but it’s very responsible.” His proposed bill, the Repeal Centerville Charter, will allow the dissolution of the town, except that the governing board of the Town of Centerville would be continued in office for days thereafter for the sole purpose of liquidating the assets and liabilities of the Town and filing any financial reports which may be required by law, with any remaining net assets to be paid over to the Centerville Fire Department, which would be directed to use those funds for some public purpose. (In Centerville, the main municipal services provided to residents are: streetlights in the town center; Centerville also pays for an annual audit and holds municipal elections, although only a dozen citizens voted in the most recent municipal election, in 2015.) Centerville will continue to exist as a community, but any local-government services will be provided by the county: any remaining municipal funds left over after the town is unincorporated will be donated to the local volunteer fire department, according to the legislation. Dissolution is a painful choice: Frank Albano, the owner of an antique store in Centerville, rued the city did not consider other fiscal options, such as charging businesses like his an $100 annual operating fee, or asked $5 per float in the New Year’s Day parade. He notes: “The more local the government is, the better.”

The decision to dissolve is, however, not new: it was nearly a century ago that Farrington Carpenter, a Harvard-educated rancher in Colorado, noted that—at the time—there were 20 counties in the Mile High state with populations under 5,000. Municipalities—and their voters—rarely agree to give up their identities, leading him to query: “How can such small counties afford the cost of a complete county government?”  On the other end of the country, in Pennsylvania, home to more municipalities than any state in the union, running the gamut from metropolitan cities to first, second, and third class townships, it has long been a vexing governance conundrum how such a governing model is sustainable. Indeed, James Brooks, my former colleague from when I workd at the National League of Cities, where he serves as Director of City Solutions, reports that according to NLC’s 2015 report examining the economic vitality of cities, the smallest cities have generally been slower to recover—or, as one commentator describes it: “They can’t solve their problems themselves…Wealth has left these little cities to such a degree that they’re basically bankrupt.”

The Daunting Road to Recovery from the Nation’s Longest Ever Municipal Bankruptcy

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eBlog, 12/09/16

Good Morning! In this a.m.’s eBlog, we look back on the long and rocky road from the nation’s longest municipal bankruptcy back to solvency taken by the City of San Bernardino, a city in a Dillon Rule state, which we described in our original study as the former gateway from the East to Midwest of the L.A. basin and former home to Norton Air Force Base, Kaiser Steel, and the Santa Fe Railroad, but which in the 1990’s, with the departure of those industries and employees, fell into hard times. By the advent of the Great Recession, 46% of its residents were on some form of public assistance—and nearly one-third below the poverty line. By FY2012, the city faced a $45 million deficit; its fund balance and reserves were exhausted—leading the city to file for chapter 9 municipal bankruptcy (note California codes §§53760, 53760.1, 53760.3, 53760.5, and 53760.7—and where, effective on the first day of this year, new statutory state language specifically created a first lien priority for general obligation debt issued by cities, counties, schools, and special districts, so long as the debt was secured by a levy of ad valorum taxes pursuant to California’s Constitution.) As we have noted, in the 18 states which authorize chapter 9 filings, states have proscribed strikingly different legal mechanisms relating to the state role—varying from a state takeover, such as we have described in the case of the nation’s largest municipal bankruptcy in Detroit, but to a very different regime in Jefferson County and San Bernardino—where the elected municipal officials not only remained in office, but here the respective states—if anything—contributed to the severity of the fiscal challenges. Then we turn to what might be Congress’ last day in town this year—and whether funding to help the City of Flint might be enacted: Will Congress pass and send to the President a bill to provide emergency assistance to Flint?

Back to a City’s Viable Future. San Bernardino leaders this week issued a detailed statement on the arduous road to recovery they have travelled and what they intend for the road ahead, albeit noting the city is already well along its own blueprint for its recovery, as it awaits formal approval from U.S. Bankruptcy Judge Meredith Jury from its chapter 9 municipal bankruptcy early next year. In its statement, San Bernardino reported it had implemented about 70 percent of its recovery plan. That’s turned once-dire projections for the future upside down—a virtual u-turn from when the city’s fiscal analysts three years ago projected that in FY2023, the city would have a deficit of $360 million if dramatic changes were not achieved. But today, the city instead projects an unallocated cash balance for FY2023 of $9.5 million, or, as the statement reads: “Now, the city is on the cusp of emerging from bankruptcy as a changed city with a brighter future.” The municipal statement is primarily focused on the governance and fiscal changes made to create a virtual u-turn in the city’s fiscal ship of state since entering what became the nation’s longest municipal bankruptcy—a change in fiscal course without either state aid or state imposition of an emergency manager or a state takeover. The statement notes: “Given the emergency nature of its filing, it took the city several months to assess its financial condition—until April 2013, at which time the city adopted a final budget for fiscal years 2012-13 and 2013-14…The city’s initial financial assessment, however, only reflected further concern over its financial future. In September 2013, Mayor [Pat] Morris announced that absent fundamental modernization and change the city faced a 10-year deficit of a staggering $360 million. The future of San Bernardino looked bleak.”

The statement itemized what appeared to be the key steps to recovery, including achieving labor agreements—agreements which resulted in savings in excess of $100 million, and involved the termination of virtually all health insurance subsidies coverage for employees and retirees, writing that the city calculated the resulting savings to amount to about $44 million for retirees and $51 million for current employees. The statement notes some $56 million in other OPEB changes. A key—and hard-fought change—was achieved by contracting out for essential public services, with one of the most hard fought such changes coming from the annexation agreement with the San Bernardino County Fire Protection District: an agreement under which the county assumed responsibility for fire and emergency medical response—a change projected to save San Bernardino’s budget nearly $66 million over the next two decades just in public pension savings, but also as much as $5 to $6 million in its annual operating budget—and that is before adding in the parcel tax revenues which were incorporated in that agreement. San Bernardino also switched to contracting out for its trash and recycling—an action with a one-time franchise payment of $5 million, but increased estimated annual revenues of approximately $5 million to $7.6 million. The switch led to significant alterations or contracting out for an increasing number of municipal services. Or, as the paper the city released notes: “Modern cities deliver many services via contracts with third-party providers, using competition to get the best terms and price for services…The city has entered into a number of such contracts under the Recovery Plan.”

Governance. The city paper writes that the voters’ approval of a new city charter will allow San Bernardino to eliminate ambiguous lines of authority which had created a lack of authority, or, as U.S. Bankruptcy Judge Meredith Jury put it earlier this week: “(City officials) successfully amended their charter, which will give them modern-day, real-life flexibility in making decisions that need to be made…There was too much political power and not enough management under their charter, to be frank, compared to most cities in California.”

Rechartering San Bernardino’s Public Security. San Bernardino’s Plan of Debt Adjustment calls for increasing investment into the Police Department through a five-year Police Plan—a key step, as a study commissioned to consider the city’s public safety found the city to be California’s most dangerous municipality based on crime, police presence, and other “community factors.” The study used FBI data and looked at crime rates, police presence, and investment in police departments as well as community factors including poverty, education, unemployment, and climate: The report found a high correlation between crime rates and poverty—with San Bernardino’s poverty rate topping 30.6 percent. Thus, in the city’s Police Plan portion of its plan of adjustment, the report notes:  “The Mayor, Common Council, and San Bernardino’s residents agree that crime is the most important issue the city faces,” the city says in the Police Plan, submitted to the federal bankruptcy court as part of its plan. The plan calls for $56 million over five years to add more police, update technology, and replace many of the Police Department’s aging vehicles.

The Cost of Fiscal Inattention. Unsurprisingly, the fiscal costs of bankruptcy for a city or county are staggering. The city estimates that the services of attorneys and consultants will cost at least $25 million by the time of the city’s projected formal emergence from chapter 9 next March—albeit those daunting costs are a fraction of the $350 million in savings achieved under the city’s pending plan of debt adjustment—savings created by the court’s approval of its plan to pay its creditors far less than they would have otherwise been entitled: as little as 1 cent on the dollar owed, in many instances. Or, as the city’s statement wryly notes: “In addition, the city’s bankruptcy has allowed the city a reprieve during which it was able to shore up its finances, find greater cost and organizational efficiencies and improve its governance functions…Thus, all told, while the city’s exit from bankruptcy will have been a hard-fought victory, it was one that was critical and necessary to the city’s continued viability for the future.”

Out Like Flint. The House of Representatives on what it hopes to be its penultimate day yesterday approved two bills which, together, would authorize and fund $170 million for emergency aid to Flint and other communities endangered by contaminated drinking water. The emergency assistance came by way of a stopgap spending bill to keep the federal government operating next April in a bipartisan 326-96 vote and, separately, a water infrastructure bill which directs how the $170 million package should be spent by a 360-61 vote. Nevertheless, the aid for the city is not certain in the U.S. Senate: some have vowed to stop it, at least in part because the bill includes a controversial drought provision which would boost water deliveries to the San Joaquin Valley and Southern California.

Democracy & Municipal Insolvency

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eBlog, 12/05/16

Good Morning! In this a.m.’s eBlog, we consider tomorrow’s mayoral recall election in the insolvent municipality of East Cleveland, after which we consider a stern editorial from the Richmond-Times Dispatch about the ongoing challenges to recovering from insolvency in the historic city of Petersburg, Virginia. Finally, with the Obama Administration preparing to vacate the White House by the end of the month, we look at a new report detailing its role in Detroit’s recovery from the nation’s largest chapter 9 municipal bankruptcy in American history.

Democracy & Insolvency. Tomorrow is Election Day in East Cleveland, a small municipality which has been seeking authority from the State of Ohio to file for chapter 9 municipal bankruptcy for nearly a year. This special election is to decide whether Mayor Gary Norton and Council President Thomas Wheeler will keep their jobs or be recalled. The Mayor is campaigning by claiming he has done a good job keeping the struggling suburb afloat, pointing to a big pay-down of debt and money saved by cutting overtime and converting to self-funded health care; he also claims a new Salvation Army Center, with programs for young people and seniors, will be a needed addition. Third, he boasts of the first new shopping space built-in the city in decades. In contrast, those supporting the recall argue he is undermining residents’ confidence in their city by pushing an annexation plan (with Cleveland)—even as the Mayor states the city’s long-range financial picture is unsustainable. Critics claim his lack of oversight of the department has led to misconduct by officers and costly settlements of lawsuits. Mayor Norton says the special election is a waste of money for the cash-strapped city, especially with a scheduled election coming next year. Tomorrow’s special election comes as the status of annexation with the neighboring city of Cleveland is on hold while Cleveland seeks an expert opinion with regard to what the impact would be on the city’s finances and operations.

Inflammatory Municipal Governance? The Richmond-Times Dispatch last Friday, in an editorial, (“Petersburg needs sunshine to restore”) wrote that  Previous Next Petersburg’s financial collapse has inflamed the citizenry: “The city’s response to its budget crisis has not restored trust. The editorial notes that the Virginia American Civil Liberties Union faults Petersburg officials for secrecy, a lack of openness. It cites special meetings called at the last-minute and held not only at inconvenient times but in cramped quarters: “The circumstances discourage public participation. Residents want to know. They have a right to know.” The editorial notes that Petersburg citizens have shown up at meetings with tape over their mouths, wryly noting: “This is not the image the city ought to project.” The Times-Dispatch thus applauded the hiring of the Robert Bobb Group to help Petersburg climb out of its deep fiscal abyss; however, writing: “The manner of the organization’s ascension troubles us, nevertheless. The process was not as open as it ought to have been. Jurisdictions should pursue a degree of openness greater than the law stipulates: Petersburg’s despair has implications for every citizen. Almost every function of government will be affected. Essential services have fallen under siege. Citizen cooperation remains key. Listen to the civic-minded people eager for engagement. Follow the ACLU’s advice. Let the sun shine.”

The White House Role in Detroit’s Recovery from the Nation’s Largest Municipal Bankruptcy. The Obama Administration has detailed in a nearly 60-page report, “Building and Restoring Civic Capacity: The Obama Administration’s Federal-Local Partnership with Detroit.” The report, released over the weekend, writes that a federal and local partnership commenced five years ago which used financial, technical and other support to help the city which emerged two years ago from the nation’s largest municipal bankruptcy. Federal staff was assigned to City Hall to work with community, business, and philanthropic leaders to identify resources to assist in Detroit’s recovery: financial assistance included more than $260 million in federal funds to demolish 6,000 vacant houses and a $25 million grant to improve Detroit’s bus system. HUD also guaranteed construction or rehabilitation of more than 1,400 houses across the city; while technical assistance from the Department of Energy helped install nearly 65,000 street lights.

The Hard Challenges of Fiscal Sustainability

eBlog, 11/29/16

Good Morning! In this a.m.’s eBlog, we consider the ongoing—and evolving–state role in addressing municipal fiscal distress in Atlantic City: what is the role of a state and the impact on fiscal sustainability? Then we turn to the grim fiscal and governance situation in East Cleveland, Ohio—where state un-governance and next week’s looming Mayoral election appear to bode fiscal ills. Then we head south to the challenge of determining whether and how there might be promise in the implementation and unrolling of Congress’ recently enacted PROMESA legislation—the quasi chapter 9 for the U.S. Territory of Puerto Rico.

Not the Moody Blues. Moody’s Investors Service was uncharacteristically unmoody in determining that the state takeover of Atlantic City was a “credit positive” for the city, citing the unlikely threat of immediate default through 2017 as the largest contributing factor in its outlook. The credit positive comes during the first month of Gov. Chris Christie’s appointment of Jeffrey Chiesa to oversee the city: under his appointment, he has wide-ranging fiscal authority—indeed, as Moody’s described it: “While the state has not officially guaranteed Atlantic City’s debt, [the State] intends to prevent any default.” The state takeover comes as the city confronts a $2.3 million payment this week, followed by a $4.8 million debt payment on December 15th—but in the wake of the New Jersey Local Finance Board’s unanimous vote to grant its director, Timothy Cunningham, far-reaching governing powers over the beleaguered city under the authority granted by the state’s Municipal Stabilization and Recovery Act, was the worst-case scenario for the city, which has been fighting a takeover for the last year, even as it barely escaped going broke; Moody’s described Mr. Cunningham’s expressed “willingness to go to the state treasury for assistance if necessary to pay debt service” as a credit positive—or, as Moody’s described it: “While the state has not officially guaranteed Atlantic City’s debt, Director Cunningham has said the state intends to prevent any default.”

Trouble in River City. In the wake of last month’s hefty fine ($114,100) by the Ohio Election Commission of East Cleveland, Ohio Mayor Gary Norton over incomplete, late, and missing fundraising reports—fine nearly quintuple last year’s—with this year’s levied in response to complaints from the Cuyahoga County Board of Elections that the Mayor failed to file a 2015 annual report, turned in his 2014 report late, and has yet to resolve issues with his 2013 reports. In a series of letters, the board of elections asked Mayor Norton to fix a number of discrepancies in his 2013 reports—including incorrect fundraising totals and missing addresses; the board has now also requested proof of mileage, bank fees, phone expenses, and other spending for that year. In response to the reports, the Mayor—and December candidate for re-election, responded: “I am aware of the situation regarding delinquent campaign finance reports…All required reports will be completed and filed. The decision of the elections commission will be appealed. Campaign finances and reporting are completely separate from city finances. No city or public funds are involved.”

It’s not as if the fiscally insolvent city is new at this game: Mayor Norton also faced complaints in the wake of several missing finance reports from years prior to 2013, according to elections commission case summary records. Many of those reports have since been submitted and posted on the county board of elections website. Last year, the Ohio elections commission imposed a $20,000 fine on the Mayor in connection with many of those cases. The problems come at an inopportune time: Mayor Norton faces a recall election next Tuesday.

Is There Promise in PROMESA? At a third session of the PROMESA oversight board, Puerto Rico Gov. Alejandro García Padilla warned the Board he will not cooperate with it to administer a fiscal plan which subjects his constituents to greater sacrifice, but offers no federal financial assistance. The response comes in the wake of last Friday’s warning by Board members that the solution to the U.S. territory’s problems will have to include deep government spending cuts and structural changes. None of the Board members emphasized the importance of paying Puerto Rico’s debt. Indeed, several board members emphasized that substantial federal aid was neither likely, but rather impossible. In the wake of last month’s implicit and at times explicit rejection of the fiscal plan presented by Gov. Alejandro García Padilla last month, PROMESA Board Member Ana Matosantos noted that “deep” restructuring was necessary—adding that additional reforms and spending cuts would also be necessary, warning that federal assistance was unlikely and that without it, there would have to be an additional $16 billion in spending cuts “before you pay a dime of debt service.” Indeed, Board member Andrew Biggs noted that the PROMESA Board will have to put together a recovery package which does not assume a federal bailout; but he also noted that in cases of sovereign debt crises, most attempts to turn the situation around fail, because they fail to examine and address the “big questions.” Thus, he warned: the successful turnarounds question the existence of the big social programs. PROMESA Board Chairman José Carrión III warned that he believed it unlikely Puerto Rico would receive all of the fiscal assistance the Governor was seeking—especially vis-à-vis health care, where the U.S. territory is not treated on a par with states—noting that the board must come up with multiple scenarios, and the Board would have to be bold and use the plan to encourage economic growth.

The PROMESA Board December 15th deadline would seem, as our colleagues at Municipal Market Analytics note, “in peril,” but also raise the specter of the legal authority of the PROMESA Board should a new gubernatorial regime prove unwilling to comply with or carry out mandates from the PROMESA Board. MMA notes, also, the near term impossible straddle between addressing its structural debt whilst making projected debt payments, adding that “an acceptable plan’s likely need for sweeping layoffs, service austerity, and, potentially, pension payout reductions increases the potential for social unrest on the island.”

Finding Hope in Flint. Brian Willingham, for the New York Times last week wrote of his services two decades ago with the Flint Police Department “because I believed I could make a difference,” asking: “How can a city fall so far that we lose sight of the possibility of solutions?”  Noting that wages and benefits in the city have been reduced by more than 25% since 2011—a period during which he was laid off and rehired thrice—he noted the police force today is one-third of its former size—adding that while the national average is three officers for every one thousand citizens, in Flint is half an officer for that number of citizens, writing: “In one of America’s most dangerous cities, the people who secure the city are less secure than they’ve ever been. Yet we continue serving, as we did through the loss of General Motors, through the crack cocaine epidemic and, most recently, through the mass lead poisoning of Flint citizens. The crisis around Flint’s poisoned water points to a larger issue of structural racism and poverty in urban society. How can citizens in Flint trust the police to protect them when they can’t even trust their government to provide them with clean water? This is the kind of question that has placed police officers and African-Americans on a collision course. Police officers are seen as outsiders in urban America. White officers are seen as racist, while black officers like me are seen as traitors to our race.”

Threatened Municipal Insolvencies

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eBlog, 10/14/16

Good Morning! In this a.m.’s eBlog, we consider the threatened insolvency of the small municipality of Wayne, Michigan; then we puff our way West to consider the puffy revenue options confronting San Bernardino voters next month with regard to legalizing marijuana—as the city nears exit from the longest municipal bankruptcy in U.S. history; then we offer an editorial from the Stockton News with regard to next month’s election in post-municipally bankrupt Stockton, before zooming to the small, virtually insolvent municipality of Petersburg, Virginia as it considers spending its way out of insolvency, before—finally—heading northeast to Atlantic City, where Mayor Don Guardian is seeking to stave off municipal bankruptcy through the sale of some nearly 500 abandoned buildings. Wow.

Where Is Batman? Moody’s has lowered the credit rating of Wayne, Michigan, a city of just under 18,000 just west of Detroit in Wayne County, where the median age in the city is under 40, into junk territory: the small city is on the brink of insolvency with the State of Michigan opting not to help.  Moody’s, in its downgrade, noted: “The downgrade of the city’s issuer rating reflects a very stressed financial position given an ongoing structural imbalance with few options to make timely expenditure cuts or revenue enhancements.” The fiscal challenge comes in the wake of the voters’ rejection last August to approve joining the South Macomb Oakland Regional Services Authority, a scheme hatched by Hazel Park and Eastpointe to allow the two communities to circumvent state constitutional limits on property taxes: indeed, had the measure passed, it would have enabled Wayne to more than double its local property taxes. While Michigan state law strictly caps the amount of taxes a single community may levy, it allows two or more communities to create authorities for providing police and fire services, and levy a separate tax. For instance, neighboring Eastpointe and Hazel Park add an extra 14 mills. The rejected tax levy would have imposed an estimated $354 per household on the winter tax bill alone—but might too have raised sufficient revenue to stave off a chapter 9 municipal bankruptcy filing if it had passed. The municipality has been hard hit by falling property values and rising legacy costs; it has been doing cost-cutting, but will have to deal with how much of its budget goes to support benefits for current workers, and especially, retirees. Some have suggested the municipality should consider consolidation with a neighboring community, especially as the city has limited flexibility to raise revenues elsewhere. In early August, it requested a state financial review, but last week the state said the city retains options to address its structural gap such as making further reductions to retiree healthcare coverage and so direct state oversight is not warranted. For its part, Moody’s wrote that, based on the state review, it concluded that the city has sufficient liquidity to cover operations this year, but will fall short next year without operating adjustments. At the beginning of the week, the city council met to discuss selling the city’s recreation center and retiring approximately $2.8 million of bonds sold through the local building authority which are tied to the center. City leaders are also mulling over a fourth attempt at getting voters to pass a levy increase to fix its structural imbalance as well as additional reductions to retiree healthcare benefits: Wayne began charging retirees 30% of their healthcare premiums last month; however, savings from the change have fallen short of the requisite amount needed to offset the current operating gap. The small city’s request for the state financial review followed voters’ rejection in August of the city’s proposal to join a suburban authority and levy a tax to fund fire and rescue services; voters similarly rejected the proposal to join the South Macomb Oakland Regional Services Authority, which was created by the nearby cities of Eastpointe and Hazel Park last year—as well as a millage proposal that would have raised approximately $5 million to help the city’s strained liquidity. The additional revenue would have enabled the city to stabilize its general fund balance to $2.9 million, according to Moody’s. On the cost side, where expenditures have exceeded revenue by roughly $2 million over the past few years, Wayne balanced its books for the current fiscal year by draining other funds, including its internal service fund and a retiree healthcare trust. City budget officials report closing FY2016 with near depletion of the city’s OPEB trust and a $400,000 draw on general operating reserves. The city expects to draw another $1.6 million of general fund balance in fiscal 2017 and estimates likely depletion of fund balance by December 2017.

Puffing Up Revenues? As San Bernardino nears its exit from the longest municipal bankruptcy in U.S. history early next year, the city’s voters are huffing and puffing over a proposed revenue proposal at the ballot next month: Measure N allowing marijuana in the city is projected to raise more than $18 million in net revenue to the city, several times more than either of the competing marijuana measures, according to a study released by the campaign for Measure N: that study, prepared by Whitney Economics on behalf of the committee for Measure O, concluded Measure O would bring between $19.5 and $24.8 million in revenue. In contrast, New ERA calculates Measure N would bring in $18.2 million, Measure O would bring in $2.4 million, and Measure P would bring in $4.8 million, after the costs related to each measure are accounted for. The huffing and puffing and fiscal visions related to possible estimated revenues which might be generated from sales tax, permit fees, and other assessments stipulated in each initiative, as well as job creation potential from retail, manufacturing, and cultivation allowed by each initiative. Indeed, the confusing array of psychedelic revenue options for voters in a city where marijuana is technically prohibited—but where there are currently 22 dispensaries, is certain to toke voters as they enter the polls to opt between three different measures on November’s ballot—each of which would replace the current ban with a different approach to regulation: if more than one of them gets higher (a pun) than 50 percent of the vote, whichever measure has more “yes” votes will become law in the city. The three options for voters:

  • Measure N, submitted by San Bernardino citizen Katharine Redmon, would establish a 5 percent tax on gross receipts and allow at least 20 medical marijuana dispensaries, if at least 20 apply.
  • Measure O, submitted by citizen Vincent Guzman, would establish an application fee of $250 and annual fees of $5 per square foot of canopy for cultivation, $5 per square foot occupied by the business for manufacturing/test, $100 per vehicle used in transportation, $5 per square foot of dispensary and $1 per square foot of canopy for nurseries.
  • Measure P, prepared by the city attorney’s office, was intended by the City Council as a way to maintain more control over marijuana businesses if residents are inclined to allow them. Because of that, state law would allow fees equal to the cost of enforcement.

Gross receipts for dispensaries are based on the maximum dispensaries allowed under the restrictions of each measure—20 under Measure N, 5 under Measure O, and 10 under Measure P, with the demand at each dispensary estimated based on Palm Springs. That would then be combined with the gross receipts tax, with some $2.3 million expected for Measure N, zero for Measures O and P, and sales tax revenue of $930,027, $744,022 and $837,025, respectively. There are similar calculations for cultivation, manufacturing, and distribution. For instance, proposed Measure P allows the most cultivation, with expected output totaling more than 500,000 pounds of product and employing 840 people, according to one study: Measure N compares at 155,000 pounds and 380 employees, while Measure O would be close to 116,000 pounds and 285 employees in cultivation, according to the study. In contrast, Beau Whitney of Whitney Economics in Portland provided the City with a four-page study which criticizes Measure N for exempting cooperatives and nonprofits, which is how existing illegal dispensaries in the city are organized; ergo, he notes, Measure P offers limited revenue potential: “Other proposals put forth by comparison, either have limited amounts of revenue generation or provide protectionist policies and carve outs for special groups.” Both authors also anticipate significant positive indirect economic impact, dismissing critics’ concerns that dispensaries would hurt property values and other aspects of the economy. Marijuana opponent Darren Espiritu, of the San Bernardino Chair of Citizens Against Legalizing Marijuana, said revenue forecasts in Colorado fell short of industry promises—advising that Colorado state officials now expect about $150 million per year in marijuana tax revenue, out of the state’s $10 billion general fund. He adds: “No amount of revenue can replace a child’s life…Marijuana is ending up in the hands of children at an increasingly younger age. Marijuana use has dramatic negative impacts on the growing brain up to the age of 25.”

Hard Choices for a City’s Fiscal Future. Michael Fitzgerald, a columnist for the Stockton Record, yesterday wrote:  “Stockton voters have one major piece of unfinished business left over from the (chapter 9 municipal bankruptcy), one last gotta-do so the city can move forward: ousting Mayor Anthony Silva…Silva is a loose end of the bankruptcy in the sense that he came in through the side door of that extreme and unprecedented event. Were it not for the electorate’s outraged determination to punish incumbents, he never would have been elected. Which is not to say disadvantaged voters who felt ignored by City Hall were not justified in voting for someone who listened. But it has long been clear Silva is an epic mistake…The only two substantial policies Silva championed, the fiscally suicidal Safe Streets crime-fighting plan and a reduction in building fees, were handed to him by developers…Politically, he botched his first six months so badly, denouncing fellow council members, exhorting his supporters to harangue them, he ensured he’d never command a council majority. He marginalized himself:

But then it appears Silva did not understand the office for which he ran. He has been publicly shocked and perturbed by the statutory limitations placed on the mayor’s power.

Ethical lapses followed. Silva promised if elected not to work two jobs. But he did. He promised not to take a mayor’s salary until crime tumbled. But he did. There were more.

What did not follow was policy. It became clear that “The People’s Mayor” had no real ideas for governing and no real interest in the hard work that goes into civic improvements.

When I asked him what his position on growth was — on sprawl vs. infill — he looked at me as if I had spoken to him in Mandarin.

His treatment of the homeless issue is typical. First he did publicity stunts, sleeping in a box overnight as TV cameras rolled. Next, he used a homeless man as a prop at his State of the City address, then left the poor man to become homeless again.

Finally he proposed the city purchase a hotel. His proposal included no realistic idea of cost, funding or affordability. He ignored entirely how the hotel should link to county/private services to transition homeless people into permanent housing

To top it off, he proposed “any person who refuses our services and simply just wishes to live where they want … will (be) escorted to the city line.” Which is illegal. The proposal was DOA.

Then there was Silva’s farfetched “Stockton Proud” agenda. This plan calls for terraforming beaches onto the waterfront, building a space needle “100% funded by private money,” attracting cruise ships, and other ideas so unrealistic it could have been dreamed up by Michael Jackson for Neverland Ranch.

Administratively, Silva is no better. He leaked the name of a city manager hire, sabotaging the process, leading to the hire of next-in-line Kurt Wilson; yet he complains about Wilson, oblivious that his bungling put Wilson in the job.

But it is as a distraction from the serious business of governance where Silva has been a Hall-of-Famer. I doubt anyone will ever surpass him.

It’s not only the things he intended to do, such as his Chicken Little act over adding chloramines to the water (after he voted to do it!); he brought in Erin Brockovich and her alarmist sidekick who frightened the public with wildly irresponsible warnings of brain-eating amoeba.

It’s also his inadvertent, soap-opera string of goofs, scandals, brushes with the law and strange, almost creepy-clown behavior.

I am not going to rehash those. It is tragic, though, that while Sacramento made bold progress under (badly flawed) Mayor Kevin Johnson, and Fresno gained national recognition for its progress under Mayor Ashley Swearingen, Stockton stuck itself with Silva.

Worse, Silva is refusing to cooperate with investigators trying to understand how his stolen gun came to be used to kill a 13-year-old. And he has been indicted on felony and misdemeanor charges related to his alleged participation in an alcohol-fueled strip poker game with teens.

He deserves his day in court.

Hating City Hall is part of Stockton’s civic culture. But if it must be done, it must be done wisely. Hate incompetence. Hate failure to adequately serve the city’s disadvantaged. Above all, hate the charlatans, because they hold the city back.

Spending When a City Has No Money to Spend. The Petersburg City Council has voted 5-1 to spend more than a quarter-million dollars, as the municipality teeters on insolvency, to enter into emergency negotiations with the Robert C. Bobb Group, claiming the purpose was intended “to preserve the interests of the City to maintain the proper functioning of the government,” with the vote coming in the wake of two closed-door sessions. Mr. Bobb is a former Richmond city manager who also served briefly as an emergency financial manager for the Detroit Public Schools—where, under his watch, DPS’s deficit tripled—in no small part because of a series of arrangements with armies of “consultants,” as he sought, under Michigan’s emergency manager law,  to address DPS’s $327 million budget shortfall by closing nearly half of Detroit’s schools and increasing class sizes in the remaining ones to as high as sixty—even as he submitted an AMEX bill with more than $1 million in travel charges, but proposed closing half the district’s schools and increasing class sizes up to 60 children in a classroom and cutting all general bus service—and proposed putting DPS into chapter 9 municipal bankruptcy. Nevertheless, Petersburg Mayor W. Howard Myers noted: “We felt that this is an emergency situation, because of the situation the city is in,” even as he declined to state how much the contract would cost the insolvent municipality—already confronted with the effects of a $12 million shortfall in the current fiscal year’s budget even as it is desperately trying to pay down nearly $19 million in debts identified at the close of the previous fiscal year. For his part, Mr. Bobb said: “Our goal is not to be the permanent solution, but to help stabilize them and help recruit permanent leadership.” It remains unclear what the decision might mean with regard to the municipality’s request for state assistance. Virginia Sen. Rosalyn R. Dance (D-Petersburg) voiced concern about the cost and timing of the proposal, noting: “We just committed to spend some money, and I don’t know how much money we’ve committed to spend…If we have extra money to spend, it should be going to the schools.” There was no public comment period; the Council first took 90 minutes to discuss personnel measures related to the performance of the interim city manager. Afterward, the members broke for discussion of procurement and pending litigation.

Mayor Myers said the city faces several possible lawsuits but declined to elaborate. He said money to fund the Bobb Group’s work will come from savings the city has incurred from not filling open positions. For his part, Mr. Bobb declined to comment on his firm’s fees, citing ongoing negotiations; however, he noted he planned to take an active role in assisting the city, although the day-to-day work will be conducted mostly by other staff members of the Washington, D.C.-based business. Indeed, at the request of Petersburg Commonwealth’s Attorney Cassandra S. Conover, Petersburg Circuit Court Judge Joseph M. Teefey has signed an order directing Chesterfield County Commonwealth’s Attorney William W. Davenport to expand his ongoing probe of the Petersburg Bureau of Police—and, widening the scope, to include “any and all” issues involving the City of Petersburg’s finances: the investigation now will include “allegations regarding financial improprieties of the City of Petersburg which warrant investigating and/or any prosecutions resulting from any charges placed pursuant to said investigation.” Counselor Davenport was appointed last December after the Commonwealth Attorney requested a special prosecutor to look into a case of money alleged to have disappeared from the police evidence room. (The Virginia State Police and the FBI have been assisting with that probe.) Ms. Conover reports she met with representatives of several state and federal agencies last week, including the Virginia State Police, to discuss the status of that investigation as well as questions related to Petersburg’s finances, noting that, as a result of that meeting, she had submitted an order calling for an expansion of the investigation “to include all financial matters/improprieties of the City of Petersburg.” Meanwhile, a team of auditors and other financial experts led by state Secretary of Finance Ric Brown subsequently reported that Petersburg’s system of accounting for revenue and spending had numerous shortcomings, including more than 30 “exit points” for city funds – individuals or departments who or which were allowed to write checks without specific authorization: as a result of the system’s flaws, the state team said, city officials literally did not know exactly how much annual revenue the city had received or how much it had spent until after the end of the fiscal year, when an outside consultant “reconciled” the various departments’ income and spending ledgers.

Tempus Fugit. Atlantic City Mayor Don Guardian yesterday the city would use tax liens, emergency condemnation, or eminent domain proceedings to take control of nearly 500 abandoned buildings and sell them to developers who would either repair or raze them, demarking the city’s latest effort to raise revenues to avert a state takeover. According to Mayor Guardian, in addition to being a fiscal boost, the move could address a longstanding gripe among visitors about the seaside gambling resort: “It has frustrated the community for decades that it seemed almost impossible to do anything about these abandoned properties.” The proposal appears to stem from the Mayor’s efforts this year to successfully enlist six neighborhood associations to walk their communities and come up with a list of properties which appeared to be abandoned—an outreach that has resulted in identifying some 598 properties—albeit, since then, the owners of more than 100 of them have begun repair work on their structures after the city threatened to take possession of them, according to Mayor Guardian. (Atlantic City differentiates between buildings in good shape which are simply currently vacant versus properties in unsafe or uninhabitable condition, many of which have not generated taxes in months or years.) Mayor Guardian said he does not have a target figure in mind in terms of how much revenue the city might bring in by selling abandoned properties, yet notes that every little bit helps as it tries to cobble together a financial plan to stave off a threatened state takeover of its assets and major decision-making powers by next month.