HP: Snyder pushing to merge city with Detroit
By T. Kelly
The Michigan Citizen
HIGHLANDPARK — Highland Park city officials are determined the city will not be dissolved into Detroit. That, they say, is the true motivation behind Gov. Rick Snyder’s announcement Jan. 30 that a financial emergency exists. “We are the third and last domino,” said Councilperson Rodney Patrick in an interview. “Hamtramck and Detroit are under emergency managers. If we get one, the governor has all three and the merger is a done deal.”
After 19 years of state oversight and three emergency managers, Highland Park city officials are determined they will not submit to a fourth state takeover of the city. Instead, by unanimous council vote Feb. 3, the city is seeking to resolve fiscal differences with the state through “neutral negotiation.” Under PA 436, a financially distressed community has four choices: bankruptcy, emergency manager, consent agreement or neutral negotiator.
Snyder refuses to let the city enter bankruptcy, Patrick said. Snyder wants bankruptcy under an emergency manager, not the city. Also, the city will not enter a consent decree, Patrick said. “We saw what happened with Detroit; a consent decree is a way to emergency manager.”
Instead the neutral negotiator has no ties to city or state government, Patrick said. Such negotiations should resolve differences between allegations of the state and the claims of the city. State Sen. Bert Johnson said he believes a negotiator will agree bankruptcy is the route for Highland Park to take to rid the city of debt, but the state will not have control of the process as they do in Detroit.
In testimony before State Treasurer Kevin Clinton Feb. 11 to rebut the state’s findings, Johnson said former State Treasurer Andy Dillon revealed the merger with Detroit was the real issue in the financial discussions around Highland Park. He said Dillon asked him at a recent meeting “how will the citizens feel about dissolving Highland Park?” Johnson then urged Clinton to “get away from looking at the city in a disingenuous manner and help with true economic development. That will make the governor happy, the treasurer happy and the citizens satisfied they have a functional government.”
“Take a drill down look and ask Dillon if he didn’t say that,” Johnson told the new treasurer. “He’ll be hard pressed to deny it.”
At the Feb. 11 hearing, Fred Headen, Michigan department of treasury’s local government services and a member of the Highland Park financial review team appointed by Snyder, presented a summary of the team’s findings. He said the city owed $18.2 million to Detroit for water and sewer; it owed $311,308 to DTE; $225,000 to Wayne County for assessment services and prisoner handling; $101,284 to the state for past emergency loans; and additional sums to Hamtramck for tax collection services. Headen acknowledged the state’s oversight and control of Highand Park finances for two decades. “The emergency managers have not resolved the city’s financial situation, but neither did they cause it,” Headen said. The city’s biggest debts and much of its future instability are connected to the city’s water plant.
Mayor Deandre Windom is facing a recall for shutting down the city water plant and purchasing water from Detroit at the state’s direction but without council approval. The state and community criticize Windom for his administration’s failure to issue water bills timely. Only two billings have gone out in the three years since he took office, leaving some residents with bills in the thousands of dollars and some residents with no bills. The accuracy of the bills is also questioned.
On Nov. 22, Detroit sued Highland Park for past due water and sewer accounts. HP officials maintain the amounts Detroit is billing are “unsubstantiated.” It is an item they want the neutral negotiator to tackle. They also want the state to help bring the city’s water plant back. Last year, the state loaned Ann Arbor $120 million to update its water plant. However, the city of Highland Park “needs only a tenth of that amount, $12 to $15 million to get its plant functioning,” Patrick said. He said the city has been approached by suburban governments eager to “get off Detroit water” to purchase water from Highland Park. If the city’s plant were functioning it would generate revenue.
In the hearing Feb. 11, Highland Park Mayor Deandre Windom presented a rebuttal to many of the state claims of city insolvency. State officials noted the city’s “likely inability to continue existence.” In fact, treasury officials pointed to the city’s current audit prepared by CPA Gregory Terrell. The auditor wrote in his findings the city’s problems with billing and collecting for water and its debt to Detroit Water and Sewer Department “raises substantial doubt about the City’s ability to continue as an ongoing concern.”
Mayor Windom rebutted Treasurer Clinton’s claims the city owes $20 million for current payables. The figure includes an “unsubstantiated” $18 million billed by DWSD, $45 million in unfunded pensions and $49 million in long term debt. For example, during testimony, it was revealed that Clinton was unaware of the millage approved by Highland Park voters in 2008 to fund pensions. When Johnson testified that over the next 20 years the city will raise $75 million for pension payments, Clinton asked how the city planned to do that.
Johnson told Clinton about the millage, that the city had collected $3.4 million last year for pensions and added, as retirees die, the current demand for pension funds will decline with passing years. Currently the pension money is held in a custodial account by Fifth-Third Bank and, at this time, amounts to approximately $7 million. Johnson testified that “it’s curious that within two days following a meeting in the governor’s office, Fifth-Third declared the city in default and transferred the $7 million to its own account. “
Clinton said he “took offense” at the implications Johnson was making that someone in the Treasury was linked to Fifth-Third. The city filed suit to stop the bank and currently the city and bank are in court ordered negotiations facing a Feb. 14 deadline to report a solution to the court.
Windom said the city, under emergency management in 2008, had been “forced (by the state) to take the deal with Fifth-Third,” but the bank charged excessive fees. The mayor said he was in favorable negotiations with Key Bank to get out of the Fifth Third deal until the state’s moves forced a stop to those discussions. “We were in negotiations with Key Bank. We could have restructured the pensions,” Windom testified, “until the governor appointed the review team and halted them.”
Financial Director Ernestine Williams said she had just finished working with the accounting firm of Ernst and Young, which was hired by the state to study city’s finances. Ernst and Young “did the same review as the state’s financial review team,” she said. The firm projects a general fund cash balance of $4 million at the end of the current fiscal year on June 30.
Headen who said he had served on 21 financial review teams, written 21 review reports and currently was on his fourth round of review teams for Highland Park, said, “There is no more compelling case for an emergency manager.”
City officials disagree. They listed ways the state has contributed to the city’s demise: 19 state-hired consultants forced on Highland Park over the first seven years of emergency management cost the city $5.4 million; closing of the city water plant, a potential revenue source; seizing control of the city’s code enforcement department which has provided the state $6 million in income — an amount the state budget now includes and state officials won’t relinquish; state failure to help revitalize the Woodward corridor; and loss of state revenue sharing. “We have solutions, the state has never asked for solutions,” Patrick said.
PA 436 is the emergency manager law rushed through the legislature in Dec. 2012 with no public hearings. It includes a prohibition against a public referendum meaning only the legislature can overturn it. The new EM law was passed a month after Michigan voters repealed the existing EM law, PA 4, saying no to emergency management. With PA 436, Snyder and the Republican lawmakers reinstated the state’s ability to take over and control struggling cities and school districts.