(VIDEO) Op/Ed: Chapter 9 Bankruptcy Filing before State Sanctioned Emergency Management Is Another Opinion For Detroit

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IU News & Talk Op/Ed

Good versus evil. Monarchy versus Republic. Plutocracy versus Democracy. That's what we are dealing with in Michigan as Governor Rick Snyder on Friday, March 1, 2013 boldly declared Detroit, Michigan has a "Financial Emergency".

Mr. Snyder was a businessman sat on Gateway's Board of Directors and for a time as Intern CEO from 2001 until 2007, according to Wikipedia. During this period and afterwards, the private computer manufacturing firm moved a "substantial portion" of its operations overseas. Next, one year later the company "re-organized" under the name of MPC Computers, went bankrupt.

Although Rick Snyder was not on MPC Computers or Gateway's Board of Directors in 2008, Gateway as a "Critical Vendor Creditor" of MPC fought tool and nail to be paid debts under Chapter 11 due by its' former company; then equality raised a fuss when MPC in 2010 decided they did not desire a Chapter 7 total liquidation of its' organization and yes you read this correctly.

"Since October 1, 2008,  Gateway has reduced its workforce from 900 to 340 employees.  
MPC-Pro, LLC acquired Gateway in October of 2007.  As a result of this aquisition,  the Debtors' revenue rose to $895 million.  Six months after the aquisition, Debtors decided to stop manufacturing at their Tennessee facility and outsource a substantial portion of its manufacturing to Flextronics at its Juarez, Mexico facility.   
The Flextronics' facility came online slower than planned and with limited production.  On October 28, 2008, Flextronics informed the Debtors that it was discontinuing its supply of products and services to Debtors.  As stated in the Akey Declaration, MPC's purchase of Gateway, followed by the unsuccessful outsourcing to Flextronics and the overall lack of liquidity led to the present bankruptcy filing", as noted on Delaware Bankruptcy Litigation website November 7, 2008 written by Jason Cornell, ESQ
Bankruptcy was good for his former computer Gateway via renamed MPC Computers, but for some reason Governor Snyder believes bankruptcy is not the right answer for a City he has declared on March 1, 2013 has a "Financial Emergency", of Detroit, Michigan. Quite ironic don't you think.

The truth is Detroit is bankrupt. Crime is out of control. City services like garbage collection, fire protection, working street lights, a viable public transportation system, clean and safe City Parks all are not working properly in Detroit anymore. The funding necessary to pay for these vital services do not exist presently in a City of approximately 700,000 residents and has not existed for at least the past three years.

A municipality filing for bankruptcy is a rare event. Also, over four hundred residents being murdered on City Streets, homes and landholdings are equality rare events.

Residents living within the boundaries lines of Detroit are Citizens of the United States of America. Detroit is a City were 411 Men, Women and Children lost their lives during 2012, while Detroit Police Officers are mandated by the Mayor to work twelve hour days and Precincts close at 4:00 PM ET everyday. Residents wait on an average anywhere from thirty minutes up to the next day in many cases to receive law enforcement response on any possible crime that is not involving an case of murder where a person is no longer of this Earth.


Noting the above, a Chapter 9 municipal bankruptcy is the correct action for Detroit Mayor Dave Bing (D) and the Elected City Council Members to take at this time.
"There's no real question that federal law trumps state law when they are inconsistent, stated Jonathan Holtzman one of the lead attorneys on Stockton, California's bankruptcy filing in an 2012 article on Governing Institute. 
"The way a Chapter 9 bankruptcy works, the city proposes a plan of adjustment, which then must to be approved by the bankruptcy court. Only the city can propose a plan of adjustment. Although the capital market creditors argue the city should abandon its....obligations, creditors don't have the right in Chapter 9 to propose a plan of adjustment."
In this case, the City of Detroit would propose a plan of adjustment to pay creditors, vendors and debts owed by entity to a Federal Bankruptcy Judge. The Judge would have to approve, reject or alter the plan to protect interest of citizens and taxpayers first before bond or shareholders.

Knowing this to be true, why again was bankruptcy good for Gateway Computers under Chairman of the Board Rick Snyder's advisory position in the 1990's but now in this opinion not the best mode of action for Detroit at this time? Frankly, it makes no sense unless Detroit Assets: Water, Landholdings and Other Entities will be sold to potential investors for pennies on the dollar.


Again, it's not a new, unknown event that Detroit has been facing financial difficulties since at least 2008, when technically the United States of America nearly went bankrupt, itself.
"Filing for bankruptcy is a legal event, with a public declaration occurring on a precise date. Insolvency, however, is a financial condition that creeps in unannounced," written by Dr. Mark Funkhouser, Director of the Governing Institute. Funkhouser served as mayor of Kansas City from 2007 to 2011. 
Detroit has been broke for awhile as corruption, underhanded deals and filing ones' bank account with taxpayers money has been action of late. Former Detroit Mayor Kwame Kirkpatrick (D) is facing Federal bribery, wiretapping and extortion charges and awaits a jury decision on if he will take residence in a U.S. Government penal institution for many years to come.

But, should the residents be first to "fall at the sword" for the actions of a inept Government or should the Government now step up and protect the interests of its' residents? We'd say its' time for Detroit City Elected Leaders to step up and in this case defy Governor Rick Snyder's intend of placing an "Emergency Manager" in place to operate the city's assets, operations and inherent interests for the wants, desires and demands of bondholders before its' taxpayers.
"Citizens bear little responsibility for the financial crisis in their cities and states. They're not paying attention to government finances; they're working to pay the bills and take care of their families, and they trust their elected representatives to manage those fiscal affairs. As for public employees, they're no different from anyone else," said David Crane, a lecturer in the Public Policy Program at Stanford University who is president of the advocacy group Govern for California and a member of the Volcker-Ravitch State Budget Crisis Task Force in an 2012 article on the Governing Institute.

"Of course they want to be well compensated, and they're going to take whatever they can convince the politicians to give them, but they can't control whether politicians set aside enough money to pay for the promises they make. Once a city is in deep trouble, the only way citizens are going to be protected long-term is through bankruptcy. When a city declares bankruptcy, citizens can begin to get their services back. In bankruptcy, the city can determine the "net present value" of a reasonable stream of taxes and fees and then spread the pain among bondholders, employees and citizens to bring expenditures in line with that value," Crain noted.

"Local-government finances are complex and are impacted not only by decisions within the government itself but also by conditions in the community and by the larger regional, state and national economies. Bond ratings tell you virtually nothing about whether or not a city is on the verge of service-level insolvency. A government's bond rating is a lagging indicator of its financial condition. Waiting for a downgrade to adopt more prudent financial practices is like waiting until your car slams into a tree before you hit the brakes."
Detroit, Automobile Capital of our World, the car for lack of a better term, is destroyed. The People who provided an environment to manufacturers to make cars, are not to blame. Line Police Officers, City Employees, Residents and Tax Payers are not to blame.

A honest review of State Government mandated and control "Emergency Management" in other Michigan cities have resulted in mixed or outright failed results.


Benton Harbor & Ecorse-- Failed Emergency Management Experiment since 2008 and 2011:
"Benton Harbor and Ecorse have fewer than 10,000 people," Candidate for Detroit Mayor Mike Duggan said to the Detroit News on February 27th. "If you can't get Ecorse and Benton Harbor solved in three or four years how are you going to solve (the problems of) 700,000 people?"
Flint -- Failed Emergency Manager Experiment since 2011:
"A Holly-based golf cart company claims former Flint Emergency Manager Michael Brown overstepped his authority when he terminated its contract as part of outsourcing operations of the city's four public golf courses," reported in a March 1, 2013 article on MLive.com. 
“The Emergency Manager has decided that it is in the best interests of the City to terminate the contract with Pifer, Inc.,” Brown wrote in the order, adding that the contract posed "a financial disincentive” for outside companies seeking to take over operations of the city’s courses.  
Adding further insult, Pifer claims in the lawsuit that the city gave the company less than a week to pick up the 100 golf carts and that three were missing when it went to go get them.  
The missing carts, as well as heavy damage to other carts, resulted in a nearly $73,000 loss for the company, according to the lawsuit. City Attorney Pete Bade declined comment on the case as it is ongoing. The city has yet to file a response to the lawsuit filed Feb. 22."
Detroit Public Schools -- Failed as schools are still a mess under State-Sponsored Corporate Charter School Control of the Educational Achievement Authority:
"Detroit’s elected school board will have short-lived authority over some key decisions.A Wayne County judge ruled Wednesday that the district’s emergency financial manager had exceeded his authority on some issues", noted in a February 20, 2013 article on Michigan Radio.
Judge Annette Berry said Roy Roberts must consult with the school board on school closings, security, and some other issues. Roberts is supposed to share authority with the school board. He oversees finances, while the board supervises academics. But the two are hard to separate, and both sides have brought court cases over how that should work in practice. Detroit school board President Lamar Lemmons says the ruling granting board members a partial injunction proves Roberts overstepped his authority.
"He’s used the fact that he’s had financial authority to, if you will, bully the staff into cooperating with him,” Lemmons said.  “And for all intents and purposes, ignoring the board and its designated superintendent.” 
The arrangement will be short-lived, though. A new emergency manager law kicks into effect on March 28th, once again giving Roberts broad powers over the whole district. Lemmons says the board plans a court challenge to the new law."
Along with this:
"The state’s new reform district for the lowest performing schools doesn’t have enough computers for its much-touted online curriculum, and some of its schools are suffering Internet glitches that interrupt online lessons", noted in a January 11, 2013 Detroit Free Press article. 
The executive committee of the Michigan Education Achievement Authority is requesting a $2 million advance from its monthly state funding allocation to fix the problem. The money also will be used for a data warehouse that is supposed to allow staff to share and monitor student information districtwide.
Hamtramck -- Totally Failed Experiment at least twice in the past seven years with Emergency Management:
State Treasurer Robert J. Kleine announced (October 12, 2006) that the Local Emergency Financial Assistance Loan Board (ELB) is recommending that the declaration of a local government financial emergency in the city of Hamtramck be revoked. Under a resolution signed by the ELB in September, conditions for revoking the declaration of a financial emergency in Hamtramck have been satisfied. With the city's latest audit report expected to show a General Fund surplus, the board is recommending that Governor Granholm lift the financial emergency declaration, once that report is filed with the Department of Treasury. 
"This has been a lengthy, but very important process," Treasurer Kleine said. "The residents of Hamtramck should be very pleased, in fact, very proud, that their elected representatives may soon be in a position to assume full control of the city's finances and operations." 
The city of Hamtramck was under the authority of an Emergency Financial Manager from November 2000 until February (of 2006). Upon Louis Schimmel's resignation, the Department of Treasury conducted an evaluation to determine if the Financial Emergency would remain in place. Through that process, the city's administration demonstrated that not only are the city's finances balanced, but knowledgeable financial management and sound financial practices are in place.
On February 27th Hamtramck Acting City Manager Kyle Tertzag said this to Fox 2 News- Detroit:


Fox 2 News Headlines

Muskegon Heights Public Schools - Under Mosaica the Private School Corporation hand picked by the Governor Rick Snyder (R) has not fared any better:
Last year the state of Michigan took over the struggling school district in Muskegon Heights. With a promise of "dramatic changes" ahead, the state-appointed emergency manager announced, "[W]e're off to the healing process." He then laid-off the school district's entire staff, and hired a private, for-profit company to run the reconstituted charter system", as noted on The Maddow Blog on February 14, 2013. 
Michigan Public Radio reports that as of last month, just over 10 percent of the Muskegon Heights teachers it checked through public records were not certified to teach. That could be costly for the district, which was already broke. 
From Michigan Public Radio: 
"A little quick math and salary records obtained through a Freedom of Information Act request show those fines could add up to more than $100,000 in Muskegon Heights for these eight teachers. Not only that, but the contract between Mosaica Education and Muskegon Heights’ charter school says the company has to follow state laws, including a specific mention of the need for teachers to hold a valid certificate. If it doesn’t, it could be grounds to revoke the 5-year contract worth at least $8.75 million dollars."
But it’s not at all clear that’s something the charter school board, that’s been appointed by Muskegon Heights Public Schools’ Emergency Manager Don Weatherspoon, is considering."
Pontiac -- Failed Former Emergency Manager of Hamtramck Louis Schimmel (see above) is trying to take away an fully-funded Pension Plan, from former Pontiac's City Employees who are retirees:
"Oakland County Circuit Judge Rae Lee Chabot might not receive a Valentine’s Day card from Pontiac Emergency Financial Manager Lou Schimmel. Chabot granted a preliminary injunction Wednesday that reverses Schimmel’s reorganization of the city’s largest pension board, noted in a February 14, 2013 article in the Oakland Press.
“That’s what it looks like — it looks like a dictatorship where the (emergency financial manager) said, ‘look, I’m going to turn over the board so there is no opposition,’” she said. 
At the hearing, attorney Alec Gibbs said the pension board is outside the scope of Schimmel’s power. 
“Any action taken by the emergency financial manager (toward the pension board) will not affect the local financial conditions, because the city doesn’t make contributions (to the pension board),” Gibbs, who represents the retiree group, said. 
Stephen Hitchcock, who represents the city and Schimmel, told the judge that Schimmel “thought it was necessary to take immediate action.” 
The attorney argued that the city has a financial interest in the pension plan “because (it) put money in the pension for a long period of time.”   
Schimmel’s reorganization of the pension board came less than two weeks after it voted against studying the possible use of the pension plan’s surplus to pay for retiree health care. The emergency financial manager also cited at least $5.5 million in failed board investments and $81,042 spent on trustee travel and lodging in 2011 and $63,779 in the first 10 months of 2012 as reasons for the ordinance. 
An investment made in Onyx Capital Advisers that lost $3.8 million is the subject of two civil suits and a criminal indictment in U.S. District Court, and, prior to that, the pension fund lost $1.7 million on a real estate investment.   
“In the end, I guess, in order to financially take care of the problem, retiree health care is more in jeopardy as a result of this than it otherwise was. But, I’m not at the end of the train ride yet, but certainly this is a blow to my efforts to try to financially deal with the structural problem for the city,” Schimmel said. 
The city’s projected structural deficit in coming years is $6 million annually, equal to the city’s annual retiree health care obligation. The pension fund has about $435 million in assets as of Jan. 16 and is approximately 153.5 percent funded.
Detroit Elected City Officials, for the love of God on Sunday, do the right thing and file a Chapter 9 Municipal Bankruptcy no later than next week!

As we can see clearly by the examples cited above, Emergency Management, Consent Agreements or wheels and deals by Governor Rick Snyder (R), former Gov. Jennifer Granholm or any so-called trained "Emergency Manager" therefore, has not worked to fix the structural problems on how to fund localities government operations for needs of the taxpayers within these communities.

This problem is bigger than the State of Michigan can or are able to manage, and its' high time for a Federal Bankruptcy Judge to step in. 


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