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March 24, 2015
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Getting Ready to Rumble. Today is likely to be D-Day for Atlantic City: emergency manager Kevin Lavin is expected to issue his report and recommendations with regard to whether he and Kevyn Orr will recommend to New Jersey Governor Chris Christie whether or not the city should file for federal chapter 9 municipal bankruptcy protection. A spokesperson for the New Jersey Department of Community Affairs said he thought it was unlikely the report would recommend a declaration of bankruptcy, noting: “It is my understanding that Kevin Lavin and Kevyn Orr were sent here to help [Mayor] Don Guardian restructure short-term and long-term debt so we can find a long-term solution and not a band-aid fix,” adding that he had spoken with Mr. Orr in recent days: “Obviously their goal is to restructure the debt, analyze the city’s ratable base, and ensure the city’s finances are stable without hitting hard-working families over the head with a tax increase or a municipal bankruptcy.”

York Distress. Pennsylvania Auditor General Eugene DePasquale yesterday, standing next to York Mayor Kim Bracey, warned that York, known as the White Rose City, will need to come up with $10 million by the end of this year to meet its minimum pension payment obligations. Like other Pennsylvania municipalities, the AG noted the city has fallen behind on its required annual payments: based upon its most recent audit, Mr. De Pasquale reports the municipality owes more than $4.13 million to its employee pension funds for missed payments for the last two years—and, another $5.7 million is due by the end of 2015―$3.4 million for the police fund, $1.5 million for the firefighter fund, and $757,667 for the non-uniform fund. Failure to make up the payments, the AG warned, could trigger withholding of state aid. Nevertheless, the Attorney General noted that, “[D]espite Mayor [Kim] Bracey’s best efforts, York simply does not have the money, and there is no realistic way the city will ever catch up without help.” Mayor Bracey asked for state help, stating: “The system is simply broken. Unfortunately, our situation in York is not unique.” She and the AG urged the legislature to act on a bill which would shift new state hires to a cash-balance hybrid pension plan, and require the calculation of pensions based on base pay and a small percent of overtime to curb the practice of “spiking,” or increasing final average salary with excessive overtime and unused sick or vacation days.

Municipalities in Crisis. In response to a request from House Judiciary Committee Ranking Member John Conyers (D-Mi.) of Detroit and Sen. Gary Peters (D.-Mi.), Rebecca O’Connor and Peter Del Toro of the U.S. Government Accountability Office submitted a report, http://www.gao.gov/products/GAO-15-222, Municipalities in Crisis, advising Congress that municipalities in fiscal crisis confront diminished abilities to manage federal grants because of: workforce reductions, decreased financial capacities, and outdated information technologies. The report was compiled after interviews with grant administrators at the federal, state, and local levels; local officials in Detroit, Flint, Camden, and Stockton, as well as academic researchers and practitioners (including this author) with expertise on the topics of local government administration, local fiscal distress, and Chapter 9 municipal bankruptcy. In the GAO report, the dynamic duo examined eight federal grant programs in housing, transportation, and public safety to better understand the repercussions of municipal fiscal distress on their ability to access and utilize such federal grants—finding, for instance, that in Detroit, Flint, and Stockton, downsizing directly affected staffing responsible for grant management and oversight―Detroit’s Planning and Development Department, which administers CDBG and HOME Investment Partnerships Program grants received by the city, lost more than one third of its workforce between 2009 and 2013, according to the report, undercutting the ability of the remaining staff to carry out all of the grant compliance and oversight tasks; similarly, staff attrition created by the respective municipal fiscal distress led to “grant management skills gaps” in the Detroit, Flint, and Stockton workforces: in Detroit and Stockton, turnover in senior and mid-level staff particularly created challenges―the skills shortages sometimes led to violations of grant agreements or unspent grant money in Detroit and Flint. In both cities, according to the report, decreased financial capacity undercut the municipalities’ abilities to apply for certain federal grants. To the extent there were lessons learned, the GAO noted that Flint, Stockton, and the Motor City have consolidated management processes—especially writing that under Kevyn Orr in Detroit, Mr. Orr had directed Detroit’s CFO to establish a central grant-management department. The GAO report also found that Detroit, Flint, and Camden have collaborated with local nonprofit organizations to apply for federal grants, helping them deal with limited staffing. The duo also examined eight federal grant programs: they reported these programs “used, or had recently implemented, a risk-based approach to grant monitoring and oversight.” When federal officials of such grant programs found deficiencies, they often required grantees to take corrective actions, but the municipalities did not always take these actions. The report also determined that a White House Working Group on Detroit and individual federal agencies had taken steps to improve collaboration with municipalities in fiscal crisis: “These actions included improving collaboration between selected municipalities and federal agencies, providing flexibilities to help grantees meet grant requirements, and offering direct technical assistance.” Nevertheless, the report notes that federal agencies have not formally documented and shared the lessons learned from the federal efforts to help Detroit, adding: “If these lessons are not captured in a timely manner, experiences from officials who have first-hand knowledge may be lost,” recommending that OMB mandate federal agencies involved in the Detroit working group to collect good practices and lessons learned and share them with other federal agencies and local governments.

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