Retirement Benefits

Dane County Judge Juan Colas overturned portions of the new Wisconsin law, Act 10, affecting local governments as part of a lawsuit filed by unions in Milwaukee and Madison. The judge determined they violated free-speech rights and the equal protection clause of the state constitution, because safety personnel unions were excluded. Now, Moody’s has opined that the state court ruling overturning portions of Wisconsin’s controversial law curtailing collective bargaining rights could negatively impact local governments if it stands, Moody’s Investors Service warned. As enacted, the new law sharply limited collective bargaining rights at the state and local government level. Concurrently, the Badger State increased pension and health care premium payments for employees and cut local aid to governments to help eliminate the $3.6 billion deficit in its two-year $66 billion budget, relying on the collective bargaining changes at the local level to offset the cuts in aid. The changes were projected to save around $1 billion annually in spending by municipalities. The law stripped non-public safety unions of their right to bargain over salary and benefit issues with the exception of base wages that were capped at growth in the consumer price index. Before passage of the law last year, those issues were subject to negotiation. In its report, Moody’s noted: “Ultimate repeal of these provisions of Act 10 would be a credit negative for Wisconsin local governments, because it would slow the process of reducing public employee benefit costs by requiring negotiations with public sector unions to achieve cost savings.” While many local governments are still obligated to pay such benefits at levels set in existing contracts, Moody’s noted that many local governments have already realized significant savings during the past year. Wisconsin Attorney General J.B. Hollen appealed the Dane County decision and is asking the court to stay the lower court ruling during the appeals process. Moody’s warns that if the ruling is upheld on appeal, “Wisconsin cities, counties, villages, and school districts will have to return to traditional bargaining in order to manage personnel expenditures, a category which represents the majority of local government spending,” Madison Teachers et al v. Scott Walker, #11CV3774, Wisconsin Circuit Court, September 14, 2012.

Chocolateville

The Bill & Melinda Gates Foundation has its eye on the Central Falls public schools and area charter schools once again, touring the school district and meeting with the leaders of the charter schools. Central Falls was one of three districts to receive support from the Gates Foundation last fall to collaborate with area charters to improve student achievement. The public schools are partnering with the Learning Community, Blackstone Valley Prep, the Segue Institute for Learning and the International Charter School. Gates is exploring whether to provide grants to this partnership for, in this case, capital improvements.

Jefferson County

After approving a fiscal 2013 budget this week, Jefferson County, Ala., advised holders of its general obligation warrants they would not be paid. The county, still in bankruptcy, reported in a in a disclosure that it plans to default on the GO warrants until they are restructured under a plan of adjustment in its Chapter 9 case. Jefferson County has about $95.5 million of outstanding fixed-rate GOs insured by National Public Finance Guarantee Corp.; another $105 million of GOs are in variable-rate mode. The $15 million that would have been paid on the GO warrants in the coming year is expected to help the county pay its bankruptcy attorneys, according to published reports. Jefferson County also disclosed to investors it did not make the required payment to the Jefferson Public Building Authority for the 2006 lease revenue warrants that were sold to build a county courthouse, jail, and a 911 emergency call system; the reserves will be used to make the interest payment, the county said. It is not clear if any principal payment is due. The lease warrants are insured by Ambac Assurance Corp. The county had planned to reject the lease through the bankruptcy process. In recent weeks, attorneys said in court filings that the county was negotiating with Ambac. County Commissioners this week passed a resolution agreeing to a term sheet that would reduce annual lease payments and extend maturities.

Comin’ to you from LA, Baby

The Los Angeles City Council unanimously adopted a new retirement plan under which spouses of retired workers will no longer be eligible for city-funded healthcare. City employees will see their take-home pay reduced in years when their retirement fund takes a hit in the stock market, and employees who retire at the age of 55 after 30 years of city employment will receive pensions that are roughly one-third the amount provided to existing employees. The changes will only apply to newly hired civilian workers and will not affect the retirement benefits of police officers, firefighters, and employees at the Department of Water and Power. It will need a second vote within 30 days to go into effect. In the nonce, the council instructed city negotiators to meet with union leaders to try to find common ground and to avert a lawsuit.

Municipal Blues

U.S. District Judge Marvin J. Garbis has struck down a key provision of Baltimore Mayor Stephanie Rawlings-Blake’s overhaul of the fire and police pension system. The decision could force the city to pay tens of millions of dollars more to retirees each year. Judge Garbis held that the city’s decision to change the method for determining annual increases for retirees — resulting in less money for many — was “unconstitutional” and not "”reasonable and necessary to serve an important public purpose.” The provision was one part of a 2010 ordinance that also delayed retirement for many police and fire employees and increased their contributions to the pension system. If the ruling stands, the total cost to the city is unclear. When Mayor Rawlings-Blake introduced the pension overhaul in 2010, she said it would head off imminent fiscal crisis, saving the city at least $64 million a year. Under the adopted—but now struck-down—plan, firefighters and police officers would have been required to increase their contributions to the pension fund. Those who had worked for the city for fewer than 15 years were told they would no longer be able to retire after 20 years, but would have to work for five additional years. Retired workers also would have lost what was called the “variable benefit,” an annual increase tied to the stock market. Instead, the youngest retirees received no annual increase, and older retirees received a 1-2% annual increase. In his decision, Judge Garbis said that the law’s cost-of-living adjustments were unconstitutional in that they harmed younger retirees too severely: [The plan “had the pernicious effect of eliminating and/or reducing annual increases from retirees under 65 at the time of enactment and, consequently, significantly reducing their pensions when they became 65…it was not reasonable…There was an important public purpose to be served by the restructuring of the Plan so as to restore it to actuarial soundness and sustainability….; [H]owever, the City did not have total freedom to disregard its contractual obligations altogether.”

Pensionary Tales

The investment holdings of the 100 largest state and local public pension systems fell 1.5% from $2.76 trillion to $2.72 trillion in the second quarter of 2012, according to a U.S. Census Bureau survey released yesterday. The total cash and security holdings of these pensions, which comprise more than 89% of activity amongst public employee pension systems, fell 2.2% from the $2.78 trillion of pension fund holdings in the second quarter of 2011. Prior to the second quarter of this year, pension holdings had risen for three consecutive quarters. Total contributions to these pension systems also fell following three consecutive quarterly increases, dipping from $33.4 billion to $31.6 billion, a 5.4% decline. Total payments dropped slightly, from $54.9 billion in the first quarter to $53.4 in the second quarter, a 2.7% decline.

Bumps in the Road?

Fiscal year (FY) 2013 marks the third consecutive year that state officials are forecasting state tax growth compared with the previous fiscal year; nevertheless, it is unclear whether such growth is sustainable. According to the Nelson A. Rockefeller Institute of Government, following five quarters of declines brought on by the Great Recession, total state tax collections have risen for 10  consecutive quarters (since the first quarter of 2010); growth, however, has slowed in the last four. Overall, the state revenue situation continues to improve, but at a more tempered—and uncertain pace. Projections for FY 2013 reflect this slow growth trend as officials in nearly three-fourths of the states and the District of Columbia anticipate total tax growth between 1 and 4.9%--only two states—Georgia and Oklahoma—have forecast tax growth of more than 5% for all of the three major categories—personal income, general sales and use, and corporate income—this fiscal year. The Institute notes that there have been few notable state tax changes, which largely affect collections in FY 2013. So far, 2012 features the smallest aggregate tax cut (0.2 percent) in NCSL’s 32-year history of collecting this data.

Harried in Harrisburg

Judge Bonnie Leadbetter of the Pennsylvania Commonwealth Court last week agreed to reconsider the bitterly contested 1 percentage point increase in the earned income tax she had ordered last month as part of the city’s receiver’s Chapter 9 recovery plan. But in response to a joint plea on behalf of the receiver, city council, and mayor; the judge has granted a reprieve.

Pensionary Tidings

State treasurers at their annual meeting this week voted to urge Moody’s to carefully consider the consequences of its proposed changes to analyzing public-sector pension data, warning it would muddy already complicated pension issues for the public and financial markets. The resolution noted that NAST has “severe reservations” about Moody’s proposed changes. Moody’s would allow the pension obligations of state and local governments to be compared and would treat pension liabilities like debt so that it can better analyze the long-term liabilities of governments:  “Moody’s reporting of new and different pension liability and cost information at the same time that public plans are beginning to transition to the new GASB pension accounting standards will create confusion among members of the public, investors and policymakers.” NAST also agreed to send a four-page comment letter to Moody’s in response to its proposed changes. There is apprehension that even if the changes are just for accounting purposes, it will be confusing for states that have different pricing and operating pension plans while they are beginning to comply with the new GASB rules. Moody’s first announced the proposed adjustments in July, which would nearly triple, from $766 billion to $2.2 trillion, the unfunded pension liabilities reported by state and local governments in 2010. The adjustments would highlight the weakest funded pensions and could result in rating downgrades for local governments, the agency said. In its letter, NAST noted: “NAST is concerned that the proposed methodology will produce misleading results that could in fact negatively impact the accuracy of financial reports in many cases and distort comparisons across state and local governments…This methodological approach may achieve standardization at the cost of accuracy and thereby distort market pricing of state and local government borrowing.” The resolution stated that NAST believes it “would be more appropriate to employ a discount rate which recognizes the fact that public sector pension plans are significantly different from their private sector counterparts.” 

Chocolateville

Model, Luck, State Leadership, or Luck of the Draw? Central Falls, R.I., exited from municipal Chapter 9 bankruptcy in13 months—leading U.S. Bankruptcy Judge Frank Bailey to state last week that the Central Falls municipal bankruptcy process could serve as a national model.  That, of course, would be a stretch. Chapter 9 is a unique provision in federal law which only permits federal bankruptcy protection for a municipality if a state enacts legislation—something that not only not all states have done, but also something which states have chosen to enact with different parameters. Moreover, not everyone—by any stretch of the imagination—would agree that the exit from bankruptcy by Central Falls is necessarily an unparalleled success, certainly not the city’s retirees. Third, there are circumstances unique to each city and county that confronts default. In almost no two instances will we find the same set of facts and circumstances. Jefferson County, Alabama is a prime example—where, as U.S. House Financial Services Committee Chairman Spencer Bachus (R.—Al.) stated this week, “[I]f this legislation (on imposing a federal fiduciary responsibility on Municipal Advisors) had been in place,” Jefferson County would not be where it is today.”

A key issue is not just the differences in state municipal bankruptcy authorizing legislation (if the state has even enacted such), but also what that legislation provides. It’s also that the facts and circumstances in almost every city and county are distinct. One friend likens what happened in Jefferson County to a criminal activity, whereas Central Falls and other cities have clearly fallen victim to severe, recession related drops in assessed property values—and others have borrowed beyond their means. Moreover, as we have seen, how states have chosen—or not chosen—to address severe fiscal distress in municipalities is a critical factor. In some instances, the problem involves bonds issued by the county or city backed by the full faith and credit of its taxpayers. In others, there have been different kinds of bonds—or singular backroom mismanagement. In Stockton, there were pension bonds. In Central Falls, the key involved deep cuts in pensions: the city  exits Chapter 9 with a six-year plan that includes balanced budgets, but at a cost of retired police officers and firefighters taking pension benefits of 55%, while bondholders remained whole and the city has made its bond payments on time. The resolution does not change the underlying poverty and distress in the city—and lack of a manufacturing base. It remains unclear whether a city of one square mile can long endure, or, as Judge Bailey wrote: “We’re writing on a tabula rasa here…” And Lawrence Goldberg,who has served as special counsel to some of the members of the Central Falls City Council, noted: “A lot of this Chapter 9 is terra incognita…Little is known about what needs to be done or what should or should not be done.”

It has been important to all the cities in distress—either in bankruptcy or in danger of default—that the state has taken an active partnership role. Or, as Judge Bailey wrote: “I have to give credit to state officials in Rhode Island,” citing laws enacted by the Governor and legislature that created an intervention system for distressed municipalities and gave bondbolders priority in a Chapter 9 filing, with many giving special credit to Gov. Lincoln Chafee and revenue director Rosemary Booth Gallogly. Judge Bailey: “What made Central Falls unique was the involvement by the governor, the revenue director, and the General Assembly. That made it easier for us to go into the case with clearly defined goals.” In contrast, both internal disagreements and inability to work together and a less supportive state relationship appear—at least so far—to have produced remarkably less successful outcomes in some states, notably Pennsylvania, where its state capitol, Harrisburg, along with Scranton, and 25 other communities labeled distressed - have come under fire for their handling of local matters. As one expert commented: “There are a lot of states in which the governor will say, ‘This is your problem.’”

Note to Chris Mc., Dan, Jim Spiotto, and others—this is an extraordinarily critical issue, so your feedback, perspective, etc. would be especially appreciated.

Getting Ready to Rumblardino

The City Council in San Bernardino, Calif., approved a “pre-pendency” plan outlining some $22 million in spending cuts to help the city reduce its $45.8 million deficit that led it to declare bankruptcy in July. The council retained plans to cut 100 city positions, outlined in the city management’s original plan, but with adjustments. The plan, which will be the basis for San Bernardino’s budget during its bankruptcy case, still leaves a $16.4 million projected deficit for this fiscal year requiring further cuts, according to interim city manager, Ms. Andrea Travis-Miller. During meetings that stretched over a two-day period, ending with a 4-to-2 midnight vote in favor of the plan, some aspects were swapped to get at the $22 million in cuts included in the plan. Council members postponed until next week a proposal by acting fire chief Paul Drasil to cut his department costs by rotating closures of the city’s least-used fire stations. At that time, the council will consider an alternative plan proposed by Councilman Chaz Kelley to cut management positions. The council also directed Ms. Travis-Miller to release a request for proposals for public-private partnership leasing opportunities for the city’s garbage operation and report back in two weeks on the success of the RFP. Bankruptcy documents filed by city staff demonstrate how difficult a challenge the municipality confronts. To add to it, the city has city experienced almost total turnover in its fiscal management staff over the last year. Newly hired staff were brought into the middle of a fiscal and financial mess. Finance director Jason Simpson, named to his position on March 28, discovered a financial quagmire during this year’s budget process—enough so that in court documents, Mr.Simpson explained how San Bernardino issued $90 million in pension obligation bonds in 2005 to reduce unfunded pension liabilities. The bond issuance reduced the city’s annual pension costs by $2 million annually, but that ground gained was lost when the CalPERS pension portfolio took a hit in the financial markets. The city’s annual $3.3 million debt payment on its pension obligation bonds is anticipated to nearly double by fiscal 2012-22. Moreover, notwithstanding the personnel cuts made over the past four years, the city’s expenses continue to increase, even though the city’s revenues have not recovered following the steep declines of the Great Recession and housing bubble burst. On top of the $90 million of outstanding pension debt obligations, the city’s decision to be the successor agency for its now-defunct redevelopment agency means additional debt obligations of around $200 million. City leaders have, so far, offered no proposal to cut the city’s $1.76 million in debt service payments for fiscal 2013, or the $3.4 million of pension obligation bond payments: or as the city’s acting Assistant City Manager puts it: “Adoption of the modified pre-pendency plan does not entirely solve San Bernardino’s cash-flow problem this year or provide the long-term fixes needed to ensure the city’s fiscal health going forward…What the plan does allow the city to do is start making the spending cuts that must be made to bring the city’s spending into line with its expected revenues for this fiscal year.” Creditors objecting to the bankruptcy have until Oct. 24th to file a petition. A status hearing has been scheduled by U.S. Bankruptcy Judge Meredith M. Jury for Nov. 5th in the court’s Central District of California, Riverside Division.

Harried in Harrisburg

Harrisburg bankruptcy receiver William Lynch this week announced Harrisburg would miss $3.4 million worth of GO bond interest payments due tomorrow. The payments involve Series D bonds and Series F notes issued in 1997, both refundings, according to an official statement released at the time. They totaled $51.5 million. This would mark a second missed payment, the other, a $5.3 million payment, was due last March 15th. Harrisburg will, instead, use the funds to pay salaries. The missed payment comes as the city awaits the expiration of its state-imposed restriction barring filing for Chapter 9 federal bankruptcy protection on Nov. 30th. The city is overwhelmed with $320 million of debt, most of which is connected to its incinerator retrofit project, but also by intracity disputes, not to mention the different perspectives from the state with regard to priorities between local employees, local taxpayers, and bondholders—or, as City Council member Brad Koplinski stated: “While we never want to not pay our debts, it is vital that we pay the hard working employees of this city who maintain the health, safety and welfare of our citizens.” Meanwhile, Mr. Lynch, who is projecting a $12.6 million structural deficit, said last month that Harrisburg could run out of money by the end of September. The receiver’s financial recovery plan includes increasing the city’s earned-income tax to 2% to 1%, a plan to which the City Council has objected—and an issue the Commonwealth Court of Pennsylvania will revisit next month—albeit, as one person noted: “Increasing the property tax is like squeezing blood out of a rock…People don’t have the money. Harrisburg is poor and has been poor for a long time.”

Toying with Troy

With a default looming next year on nearly $17 million of junk-rated tax-increment financing (TIF) bonds issued by a development authority in Troy, Mich., the bonds’ insurer, a subsidiary of MBIA, is threatening to pursue litigation or state intervention if the city does not step in to ensure the obligation is repaid. Even though the bonds are limited obligations of the Troy Downtown Development Authority payable solely from TIF revenue--they do not have a pledge from the city of Troy, a triple-A rated municipality in top-rated rated Oakland County; nevertheless, the Troy Downtown Development Authority projects it will run out of funding for debt service by a year from November. The subsidiary has advised both Troy and Michigan officials it would file a lawsuit or seek state intervention if Troy or the Downtown (remember the song?) Development Authority does not pledge to repay the insurer over time if it is forced to cover the obligation. Troy officials have indicated they are weighing their options ahead of the default, with meetings on the issue set for the next two weeks. The problem, as with many TIF districts across the country, is that the Troy district has failed to generate projected revenue due to falling property values. The city picked the wrong time in the real estate cycle: the district has seen 12% drops in real estate or property tax revenues over the last two years with more erosion feared in the future. The city’s own five-year forecast has projected that the authority will not have sufficient money to cover the debt by November 2013. The insurer has suggested that the authority put the $6.6 million remaining in its general fund and debt-service reserve fund to help pay down the outstanding debt and refund the remainder, unhelpfully writing: “Unfortunately the DDA sleeps while the city burns;” and the letter threatens it will pursue litigation if necessary to argue its position that if it takes over payments it becomes, in effect, a bondholder that must be paid. The insurer also said it would be forced to go to the Michigan treasurer, where the currently suspended emergency management law allows the treasurer to declare a fiscal emergency and take over the DDA. According to the Michigan Treasurer’s office, however, it is “not clear what authority or obligation the firm is referring to” when it said default could precipitate a state intervention. Troy officials have not responded to the letter or decided their next action; the Authority meets next week to discuss the matter and the City Council will convene Sept. 24.

Rising Revenues

The Federation of State Tax Administrators this month reports that, with 33 states responding, the monthly revenue survey shows total median state revenues increasing by 5.8% in July, over the previous year. Revenues increased at a median rate of 4.6% and 5.0%, during the past 12- and 3-month period, respectively. During the past 3 months, individual income tax collections grew at a median rate of 5.8% over the previous year, while withholding taxes increased by 4.9%. Sales and corporate taxes grew by 4.1% and 4.4%, respectively. However, there may be signs of slowing. Sales and withholding taxes have seen slower growth when compared to the trend 3 months ago. Indeed, several states are estimating flat or declining trend growth in sales or withholding taxes. 

Manifestly Dysfunctional?

Michigan Gov. Rick Snyder late last week declared the city of Allen Park to be in a state of fiscal emergency due in part to its struggle to pay bonds issued for a now-failed film studio—giving Allen Park officials until next Monday to request a hearing to appeal the decision. Allen Park faces a chronic general fund deficit, severe cash-flow problems, and political infighting that the state review team said rendered the City Council “manifestly dysfunctional.” In his declaration, the Governor said: “We are committed to helping Michigan's struggling communities, and while declaring a financial emergency in Allen Park is not a decision we like to make, it is a necessary one to restore the city’s financial stability and put it on a path to success.” Absent a successful appeal, Allen Park would become the eighth local government to be placed under the state-controlled fiscal distress program. Three other jurisdictions, including Detroit, operate under consent agreements with the state. Allen Park is a formerly wealthy suburb of Detroit that, like many other Michigan cities, has suffered from declining property values and high unemployment over the past several years. Governor Snyder announced his decision ahead of a highly anticipated ballot referendum in November that asks residents to overturn Public Act 4, the controversial emergency management law that governs how the state deals with fiscally stressed municipalities. If overturned, the previous emergency management law, which lacks many of the powers of the new statute, will become law.

Referenda

The Michigan Supreme Court this week ruled that three out of four controversial referendum proposals can appear on the November ballot, ending months of legal wrangling over the measures. The court ordered that a referendum requiring a vote on a $4 billion, largely bond-financed international trade bridge to Canada should appear on the ballot. That marks a setback for Gov. Rick Snyder and other powerful supporters of what would be one of the country’s largest public-private partnerships. Also appearing on the ballot will be a referendum to make collective bargaining rights part of the state constitution, another question opposed by Snyder and state Attorney General Bill Schuette, who argued that the referendum would change too many state laws to be understood in the 100-word ballot language. The court also ruled that a measure calling for a two-thirds supermajority vote for the Legislature to pass any tax increases should be on the ballot. A proposal authorizing eight new casinos across Michigan will not appear on the ballot. The court, which heard oral arguments on the four proposals last week, had previously approved a referendum to repeal the state’s emergency management law for fiscally stressed municipalities. It will be one of the most crowded ballots in recent history and many of the measures could have long-term impacts on Michigan’s future. The Board of State Canvassers, which has deadlocked on many of the referendums, meets today to finalize the ballot. Voters could decide six proposals in November after the Michigan Supreme Court on Wednesday ordered collective bargaining, tax and bridge questions onto the ballot.

The court blocked a contested proposal that would have asked voters to OK the construction of eight casinos across the state. The court also clarified the process groups and the Board of State Canvassers must follow to get initiatives on future ballots. The decision paves the way for many voter choices, including the five constitutional amendments and a referendum on the emergency manager law. The Board of State Canvassers is set to meet today to finalize language for the ballot questions. The court’s ruling and the board’s ultimate approval will allow the board to meet the deadline for getting proposals added to the November general election ballot. A central issue on the four ballot proposals decided was whether they violated part of the constitution that says a petition must republish provisions that will be altered or abolished. The court said an amendment that does not alter a provision could still annul part of the constitution if it rendered the entire or part of a provision wholly inoperative. The majority of justices ruled the language in the petition to add casinos contained a “fatal” flaw in bypassing the constitutional authority of the Michigan Liquor Control Commission by stipulating the eight casinos would be entitled to a liquor license. The proposal would have authorized casinos on specific properties in Detroit, Romulus, Pontiac, Clinton Township, DeWitt Township, Grand Rapids, Birch Run, and Clam Lake Township near Cadillac. Already on the ballot is a referendum on the emergency manager law, and proposals seeking regulation and limited collective bargaining rights for home health care aides, and a 25 percent renewable energy mandate for utility companies. Michigan Alliance for Prosperity v. Board of State Canvassers, Director of Elections, and Secretary of State, No. , 09/05/12; Citizens for More Michigan Jobs and Robert J. Cannon v. Secretary of State, Board of State Canvassers, and Director of Elections, No. 145754 & (4), 09/05/12; Citizens for More Michigan Jobs and Robert J. Cannon v. Secretary of State, Board of State Canvassers, and Director of Elections, No. 145754 & (4); 09/05/12; The People Should Decide v. Board of State Canvassers, Director of Elections, and Secretary of State, No. 145755; 09/05/12; and Protect our Jobs v. Board of State Canvassers and Citizens Protecting Michigan's Constitution, No. 145748, 09/05/12.

Proposals Michigan voters will decide on the Nov. 6 ballot

Require public vote on new bridge

Purpose: To stop new bridge over the Detroit River by requiring a public vote before construction of international bridges or tunnels.

Status: ON. By order of the Supreme Court today.

Collective bargaining

Purpose: Protect and expand bargaining rights; repeal limits enacted in 2011; block right-to-work.

Status: ON. By order of the Supreme Court today.

Repeal emergency manager law*

Purpose: Repeal Michigan’s emergency manager law that broadened the managers’ powers.

Status: ON. By order of Supreme Court on Aug. 3.

Home health care workers unionization

Purpose: Create registry of home care workers; authorize unionization and bargaining rights for workers.

Status: ON. By order of Board of State Canvassers on Aug. 15; no court challenge.

Tax hike supermajority

Purpose: Require two-thirds majorities in Legislature to raise taxes.

Status: ON. By order of the Supreme Court today.

25 by '25, renewable energy

Purpose: Require utilities to generate 25% of Michigan’s energy from renewable sources by 2025.

Status: ON. By order of Board of State Canvassers on Aug. 15; no court challenge.

* The emergency manager proposal is a referendum on a state law. All of the others are proposed amendments to the state constitution.

Off the ballot

Casino expansion

Purpose: Authorize eight new casinos at specific locations around Lower Michigan.

Status: OFF. By order of the Supreme Court today.

California Schoolin'

Assuming California Gov. Jerry Brown signs off, a Los Angeles-area school district with an enrollment of 15,000 students will receive a state loan it needs to remain solvent. California state legislators voted unanimously on Friday, the last day of their session, to approve $55 million in emergency funding for the Inglewood Unified School District. The district passed a resolution saying the school would be insolvent by December, which led hometown state Senator Roderick Wright to craft the legislation. “The county superintendent and state financial analysts agreed that they were in financial trouble,” said Wright, an Inglewood Democrat. The IUSD is expected to have an operating deficit of $4.86 million for fiscal 2011-12. Based on current trends, that gap would grow to $24 million in 2013-14 and $36.29 million by 2014-15 without the emergency funding, according to a report from the state’s fiscal analysts. The bailout legislation now goes to Governor Brown, who has 30 days to sign the measure, along with 200-plus other bills. As with previous school districts that required state emergency loans to remain solvent, the state superintendent of public instruction would assume the duties of the Inglewood school board, which would take on an advisory role. The school’s superintendent would be replaced by a state-appointed administrator appointed by state superintendent Tom Torlakson. The bill would appropriate $29 million for an emergency loan to the school district and authorize an additional $26 million of lease-bond financing through the California Infrastructure and Economic Development Bank. Currently, the Oakland Unified School District, Vallejo City Unified School District, and King City Joint Union High School District have emergency loans outstanding, according to the analysis of SB 533. The school district has $139.7 million in long term debt including general obligation bonds, certificates of participation and capital leases, according to the district’s audited financial statement dated June 30, 2011. In November, the IUSD plans to ask voters to approve Measure GG, a $90 million bond proposal to finance renovations and new construction on facilities, which have an average age of 65 years old, according to Jon Isom, the school district’s financial advisor, and a principal of Urban Futures Inc. The funds would enable the district to make the buildings more energy-efficient, capturing savings, construct new science and computer labs, and replace 100 portable classrooms.

Chocolateville Success!

The U.S. Bankruptcy Court for the District of Rhode Island yesterday afternoon approved the Chapter 9 municipal bankruptcy reorganization plan and consequent exit from bankruptcy Central Falls, just 13 months after the city filed for bankruptcy. U.S. Bankruptcy Judge Frank Bailey stated he would issue an order later formally implementing the restructuring plan. Only two of the 239 creditors voted against the plan, which would take effect in 44 days, after an appeal period. In issuing his decision, Judge Bailey stated: “Rarely does the shoe fit quite as cleanly as the shoe fits in this case, where we have had a community of pain for 13 months. From pain, it’s my sincere hope that from the confirmation of this plan of adjustment, the parties will be able to join together now in a healing process with a healthy financial community…This case was filed 13 months ago. In my limited knowledge, this is the fastest case to go in this history of Chapter 9, of real municipalities, to go from filing to confirmation…This is a record time and record efficiency. In a way, I think that this is an example not only for Rhode Island but maybe the nation on how to run a Chapter 9.” Under the agreement, Rhode Island, which seized control of the 19,400-population city more than two years ago, would transfer operations back to local officials in January. State officials could still intervene if the city fails to meet budgetary benchmarks (Rhode Island enacted fiscal distress legislation establishing a three-tiered intervention system for distressed municipalities and granting bondholders priority in a bankruptcy filing.) In addition, the U.S. Bankruptcy Court retains jurisdiction for the first five years. In the wake of yesterday’s decision, Rhode Island Governor Lincoln Chafee said: “As a result of this plan, the city will have a balanced budget until 2017 including a sustainable pension and healthcare system for retirees.”

Wolverine Recovery?

In this year’s annual survey, the University of Michigan finds that a growing number of local governments in Michigan are beginning to experience greater fiscal stability for the first time in years, despite ongoing falling property-tax revenues and rising infrastructure needs continue to plague many jurisdictions, especially larger cities in the southeast part of the state around Detroit. Nearly half of communities with more than 30,000 residents reported a declining ability to meet their fiscal needs in 2012 compared to more than 60% in 2011. Nevertheless, local officials across the state are the most optimistic about their future fiscal health since the report began being issued four years ago. Michigan ranks high in terms of fiscally stressed local governments. Seven local governments are currently in state-declared emergency management, and three more operate under consent decrees with the state. Adding to the fiscal misery are cuts in property tax revenue and state aid and high retirement-related debt. The survey, which tallies how local officials respond to stress, notes that more are relying on their general funds to cover shortfalls, as well as shifting costs of health care benefits to employees, and trimming or outright eliminating services.

Key findings: One-third of local government officials said they will be somewhat or less significantly able to meet their fiscal needs this year compared to last year — a drop from last year’s figure of 48% and 61% in 2010; just under one quarter said they are somewhat or significantly better able to meet their fiscal needs this year compared to last year, up from 16% last year and 9% in 2010; 27% predict good financial times in 2013 while 22% foresee bad. The number of local officials who said they were less able to meet their fiscal needs this year was 33% — a drop from 61% two years ago. Nevertheless, nearly two-thirds of local governments realized reduced property tax revenues this year compared to last; and 46% of governments reported declining state aid this year. Among municipalities with more than 30,000 residents, 47% reported a declining ability to meet their fiscal needs in 2012 compared to 2011, down from 61% last year, and compared to 34% among smallest jurisdictions. Larger communities also reported greater property-tax declines — 75% of cities with more than 30,000 reported they

The survey indicates that both larger and smaller cities are turning more toward collaboration and privatization to deal with fiscal challenges. Among the larger municipalities, 36% said they expect to increase privatization of services next year, a still-large number that is down from 58% in 2011. Many local officials said they plan to rely on general fund balances and rainy-day funds to manage through problems, with 46% of mid-size governments saying they plan to increase their reliance on their general fund balances and 21% saying they plan to increase their reliance on rainy-day funds. Some half of all jurisdictions also said there was no change in their ability to repay debt this year, including 77% of counties saying there had been no change and 66% of cities saying the same. But 15% of cities reported a somewhat decreased ability to repay debt this year compared to last. Looking forward, most local governments said they do not expect to take on more or less debt next year, with 15% saying they plan to somewhat decrease the amount of their debt, including 22% of cities. Another 12% of local governments, including 25% of cities, said they plan to somewhat increase their levels of debt next year.

Like governments across the country, Michigan’s communities face problems tied to pension and retiree benefit costs that will continue to pose problems in the future. The university survey notes that one common response to fiscal stress in 2012 was to shift more health care costs to employees. Among the jurisdictions that offer benefits — most of which are larger — 62% plan to have employees cover more of their own costs next year, including 81% of the largest governments. Trimming or cutting services is another common response, and the survey reported that 22% of the state’s largest municipalities completely eliminated a service last year and 21% plan to do so next year. Calling this an “extreme action,” the report says that the cuts “indicate a continuing retrenchment for many local governments across Michigan in 2012.”

Looking ahead, the report found there were a number of factors that could affect local government fiscal stability over the next few years, including Gov. Rick Snyder’s efforts to eliminate the personal property tax, a revenue stream that is dedicated almost entirely to local governments.