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Thursday, October 24, 2013

The Problem with Detroit Bankruptcy and by Extension Michigan Politics

Photo Credit-ABC
(L)-Michigan Gov. Rick Snyder (R) and (R)- Detroit Emergency
Manager Kevyn Orr at, Orr's EM Appointment Press Conference.
Michigan Emergency Manager Law known as Public Act 436 of 2012 and previous version P.A. 4 of 2011 were formed by the legislation's core intentions to drive the State largest City of Detroit towards bankruptcy.

Before imposing Governor's Rick Snyder mandate of managed public assets takeover by authority of the state, the legislation required testing in other locations around Michigan that were smaller in population but in racial and fiscal demographics similar, to the City of Detroit.

The Home City Rule Act of 1909

The Home City Rule of Act of 1909 is a important document of state statutory law defining how a Michigan city can incorporate and govern. Elected officials enacting the Home City Rule Act, near turn of the 20th century, never could have envisioned a sitting Governor would possess near sole authority to takeover a Michigan City, Township, Village, School District or County by an Emergency Manager appointment.

As written, the purpose of this Act recited below is to:

"THE ACT to provide for the incorporation of cities and for revising and amending their charters; to provide for certain powers and duties; to provide for the levy and collection of taxes by cities, borrowing of money,and issuance of bonds or other evidences of indebtedness; to validate actions taken, bonds issued, and obligations heretofore incurred; to prescribe penalties and provide remedies; and to repeal acts and parts of acts on specific dates." 
History: 1909, Act 279, Eff. Sept. 1, 1909;Am. 1911, Act 203, Eff. Aug. 1, 1911; Am. 1913, Act 5, Imd. Eff. Mar. 11, 1913; Am. 1973, Act 81, Imd. Eff. July 31, 1973; Am. 1981, Act 175, Imd. Eff. Dec. 14, 1981;Am. 1986, Act 64, Imd. Eff. Mar. 31, 1986; Am. 1998, Act 150, Eff. Mar. 23, 1999.
The Home City Rule Act was amended in 1988 to include a provision for Emergency Management. Two years later former Democratic Governor James Blanchard signed into law Public Act 72 of 1990. Blanchard's law today is widely touted by Republican Governor Rick Snyder as the seed of declaring any Michigan City, School District, County, Village or Township insolvent.
"Why was this Act Adopted (Public Act 72 of 1990)?  
The State Legislature determined the following: 
-That the public health and welfare of the citizens of this state would be adversity affected by the insolvency of units of local government, including certain school districts.  
-That the survival of units of local government was vitally necessary to the interests of the people of this State to provide necessary government services. 
-That it was vitally necessary to protect the credit of this State and its political subdivisions. 
-And, that it was a valid purpose for this State to take action and assist units of local government in a fiscal emergency situation to remedy such an emergency situation by requiring prudent fiscal management."
In reality former Governor Blanchard's law provided oversight by the State in localities facing a financial crisis. A huge difference exist between oversight and an complete takeover of an City, Township, School District, Village or County, by rendering the Elected Leadership of a locality completely incompetent to manage its' fiscal affairs.

Chess Pieces Move Slow But Precisely Across the Glove

Photo Credit- Voice of
Michigan State Representative (Front)Al
Pscholka (R) and (back) Governor Rick Snyder. 

Instead of assisting Elected Leadership of a locality or school district find its' way back to fiscal prudence, Governor Rick Snyder's plans less than four months of being sworn into office as Michigan's Chief Executive comprised of total takeover, plain and simple.

Little else can be reliability determined since as described above, Governor Snyder had legislation on the books of Michigan law in place since 1990, available to his disposal, the Governor's sole purpose was for the State to work as partners with a local governmental unit on a pathway back to fiscal stability.

The small Michigan Community of Benton Harbor, Michigan was P.A. 4 of 2011 first test case model. Infuriated by Benton Harbor's African-American majority City Council blocking attempts to take land assets off the shore of Lake Michigan of this depressed community for years, State Representative Al Pscholka (R-St. Joseph) elected in 2010, was the initial sponsor of P.A. 4 of 2011. 
"For years we have allowed cities and schools to be on the verge of bankruptcy without any intervention," Pscholka said to Reuters on March 15, 2011. "When the state finally does arrive, in many cases we find the financial records in disarray and leave emergency managers with very few good options to balance the books."
Photo Credit-IU News & Talk
Former Detroit CFO Jim Bonsall
In reality Michigan State Government had the authority for at least ten years before Representative Pscholka made his statement to Reuters to assist fiscally struggling communities and school districts back to solvency with Public Act 72 of 1990.

Michigan State Constitution requires before any Michigan City, Township, Village or County elected leadership could declare bankruptcy, that the State Treasurer and Governor must approve such an action.

Appointed Detroit's Emergency Deputy Manager and Interim Chief Financial Officer -- after former C.F.O. Jim Bonsall forced resignation two weeks ago-- Gary Brown told WJR-AM 760 during an interview, that takeover by state governor of Detroit would make Wisconsin look like a tea party if legislators allowed emergency financial managers to void union contracts by declaring bankruptcy in 2011.

"I think the push back that you see in Wisconsin will look like a tea party compared to what you'll see in Detroit with our strong union representation marching on Lansing -- if the intent is to break union contracts," Former Detroit City Councilman, now Deputy Emergency Manager/CFO Gary Brown on WJR-AM 760 in February 2011.

Photo Credit-
Former Detroit City Councilman, Detroit City Police
 Officer, Current Deputy Emergency Manager
and Detroit CFO, Gary Brown
After Benton Harbor was taken over, Emergency Managers were quickly imposed in accelerating fashion based on population and majority ethic demographics in Detroit Public Schools, Muskegon Heights Public Schools, Hamtramck, Ecorse, Pontiac and Flint, Michigan.

The current list of cities and school districts in Michigan under a form of Emergency Management or a forced Fiscal Consent Agreement is located on the State Treasury website.

Flint, Pontiac, Hamtramck, Benton Harbor and Detroit Public Schools had state oversight with an Emergency Financial Manager appointed in each of the localities under former the former legislation Public Act 72 of 1990, at different times over the previous ten year period. All of these communities experienced severe decline in taxable revenue for the entities General Operations budget as businesses moved to other areas and residents to property values dipped by 40-60% on an average starting in 2007.

Detroit -- A Textbook Case of State Managed Fiscal Takeover

Photo Credit-Google Images
Former State Treasurer Andy Dillon

Kevyn Orr, a former Bankruptcy Attorney with the Washington, D.C. based Jones Day Law Firm was hired by Governor Rick Snyder to be Detroit's Emergency Manager in March 2013.

Prior to Orr's appointment, Detroit was declared to be fiscally insolvent by former State Treasurer Andy Dillon's Financial Review Board query. Governor Rick Snyder ordered Dillon to impose the Financial Board review about Detroit's ability to pay its' debtors.

The State originally entered into a Financial Stability Agreement with Detroit on April 10, 2012 was widely touted at its formation a means to avoid appointment of a Emergency Manager in Michigan's largest city. Governor Snyder and former State Treasurer Dillon found Detroit defaulted in meeting terms for fiscal solvency less than eight months later in January 2013 after the official search for Detroit's Emergency Manager begun steering the City towards bankruptcy.

From the Michigan Citizen August 1, 2013:
"January 2013 - Five law firms make airport presentations to Snyder’s team in bid to become restructuring counsel for Detroit (Jones Day, Foley and Lardner, McKenna Long and Aldrige, Stutman Treister and Glatt, and Weil Gotshal & Manges). 
Jan. 30, 2013 - Snyder’s office privately expresses interest in appointing Kevyn  Orr as Emergency Manager."
Public Act 436 of 2012, passed into law less than three weeks after Michigan voters repealed P.A. 4 of 2011 by a 52 to 48% margin. The measure was primarily enacted to force the States' largest City into Bankruptcy Court to dissolve its unionized contracts and sell off Detroit's assets to private bidders and organizations.

From the Michigan Citizen July 25, 2013:
"The e-mails, beginning in January 2013, highlight detailed conversations between Mayor Dave Bing’s office, the Snyder administration, Kevyn Orr and Jones Day regarding bankruptcy, the emergency manager appointment and the Jones Day contract. 
According to the Snyder administration, at a Feb. 18, 2013, meeting, Orr would act as “agent of the state.” This was before the Detroit City Council approved the Jones Day contract or the RFPs were sent to law firms to bid on Detroit’s restructuring. Jones Day may have had access to information other bidders were not privy to, which undermines the integrity of the process and creates credibility issues for the governor and emergency manager. 
The e-mails also reveal the new emergency manager law, Public Act 436 — passed in a December 2012 lame-duck session — follows the steps for a Chapter 9 filing. In a statewide vote, November 2012, over two million Michigan voters defeated the former emergency manager law, Public Act 4. When PA 436 was rushed through the legislature, without hearings, many saw it as a calculated move by the Snyder administration to pave the way for an EM-led bankruptcy filing."
Candidate for Detroit Mayor Mike Duggan, former CEO of Detroit Medical Center and Secretary of highly controversial Michigan's Educational Achievement Authority (EAA) Board, was asked by the State Authority to consider advise on, and consider a job of Emergency Manager if needed, as revealed October 22nd Detroit Free Press report.
"(AFSCME Council 25 Attorney Robert Davis) accused Duggan and Snyder of conspiring to keep the information from the public to shield Duggan’s involvement in the decision to appoint an emergency manager.

Duggan has said repeatedly he was never a candidate but said he was consulted by top Snyder officials and lobbied vehemently against appointing an EM, who would not be elected by voters or directly accountable to them."
The Detroit Free Press reports counteracts Detroit Mayoral Candidates' Mike Duggan's assertion later in the same article.
"(Duggan) has said he was approached by the Snyder administration about whether he would be interested in the job and said no because he opposed appointing an emergency manager."
The Michigan Citizen, an African-American orientated news resource in Detroit, revealed
Photo Credit-MLive
Former CEO of the DMC, fmr.
Secretary of the EAA, current
Candidate for Detroit Mayor
Mike Duggan.
in July 2013 Duggan was to that point the only Mayoral candidate whom engaged in email discussions with Governor Snyder's Emergency Manager consultant, former NERD Fund employee Richard Baird about a E.M. for Detroit during February 2013.
“Duggan’s advice weeks ago when (name withheld) came up was that there is a role for him but not the top spot,” writes Treasurer Andy Dillon. 
Dillon went on to discuss the unnamed candidate that Duggan didn’t believe was capable: “This is the third call I got from him. (Name withheld) argument is he will sell well and he knows Detroit government so well it will be hard for insiders to sabotage him.” 
Baird wrote that Duggan is a “turnaround leader” and the administration would “take some time over the next week or so to explore (Duggan’s) concerns and determine whether his long term vision for the city is incongruent with the steps we need to take under a centralized decision authority model. I would ask your forbearance for a bit longer while the financial review team completes its work and engages Mike (Duggan).” 
When Duggan was removed from the ballot in June because of residency issues he made the following statement: “They are going to have a hard time getting the emergency manager out. I could have successfully moved the EM out.” 
It is unknown to date names of all the Emergency Manager candidates considered by the Snyder Administration for Detroit but, if a ruling October 22nd ruling Wayne County Circuit Judge Maria Oxholm stands over Michigan's Attorney General Bill Schuette's appeal to the States' Appeals Court, the public will finally have information on all persons' considered for the position.

As for Detroit's current financial status, Federal Judge Steven Rhodes will have the final say if what appear to be on a lament viewer surface a well-orchestrated scheme to drive Michigan Motor-City bankrupt, takes place.

Fox 2 News Headlines

Babette Ceccotti, an attorney for representing the United Auto Workers (UAW), in the Detroit's Federal Bankruptcy Court proceedings, continues to pose the question if due diligence and sound financial management of Governor Rick Snyder, former State Treasurer Andy Dillon, Emergency Manager Kevyn Orr and Deputy Emergency Manager/CFO Gary Brown existed in the attempt to declare Detroit bankrupt.

According to Attorney Ceccotti, the State is using the measure of declaring Detroit Bankrupt to deny what's owed to debtors currently and union workers retiree pension in future obligations. Emergency Manager Kevyn Orr, Ceccotti alleges, only granted Detroit's union 30 days to negotiate ways to restructure the City's obligations to its' current and future retirees before filing Detroit's Bankruptcy petition on June 15, 2013.

“What it all adds up to is a fairly deliberate plan to use Chapter 9 to find a way to undermine the state constitution through bankruptcy,” Ceccotti stated to the Christian Science Monitor on October 23rd.
Michigan's State Constitution states a municipally may not nullify pension obligations due payees under defined pension contribution plans.
"Aquilina said the Michigan Constitution prohibits actions that will lessen the pension benefits of public employees, including those in the City of Detroit. Snyder and Orr violated the constitution by going ahead with the bankruptcy filing, because they know reductions in those benefits will result," Michigan Circuit Judge Rosemarie Aquilina recited in a July 19, 2013 ruling. 
The Michigan Constitution provides further clarity on this on-going debate. 
"The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof, which shall not be diminished or impaired thereby."
All such benefits arising on account of service rendered in each fiscal year shall be funded during that year and such funding shall not be usable for financing unfunded accrued liabilities," stated in Article IX, Section 24 of the 1963 Michigan Constitution.
Federal Judge Steven Rhodes is widely expected to rule by mid-November 2013 if Detroit will be granted protection in a process similar to a Chapter 13 reorganization plan to negotiate debts owed or, if the City must bargain with its creditors.

If the latter action is ruled by Judge Rhodes, Detroit's Bankruptcy could set records for litigation, lasting for years or decades into the future. 

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