Majority white communities avoid Emergency Financial managers with help from Republicans Denby and Rogers – UPDATED


Ah. So THAT’S how it works.

As majority African American communities in Michigan are forced to live under the rule of unelected dictators, formerly called Emergency Managers and, now, once again called Emergency Financial Managers, efforts by two Republicans in the heart of Republican Livingston County are hoping to avoid the same fate for their own, mostly white, communities. Fiscal troubles that can be laid largely at the door of state legislators Cindy Denby and Bill Rogers would be conveniently remedied by a new law that Rogers and Denby co-sponsored. Even though these communities are in trouble due to fiscal mismanagement on the part of their government leaders, they, unlike Benton Harbor, Flint, Pontiac and other Michigan communities, would receive a state bailout, not a takeover of their town by a state-appointed dictator.

The story begins about a decade ago when Denby was the supervisor of Handy Township in Livingston County and Bill Rogers was the Livingston County Commission chair. Municipalities in Livingston County, which was, at the time, Michigan’s fastest-growing county, were borrowing scads of money to pay for water and sewer projects for new, private developments springing up all over the area. They created Special Assessment Districts (SADs) for each development. As folks moved into the new homes, they would be charged a special assessment on their property taxes to pay back the bonds. Many of the bonds enjoyed backing by the County that allowed them to get lower bond interest rates.

It’s worth noting that this isn’t always how it’s done. Many counties expect the developers themselves to shoulder the risk, putting in the water and sewer infrastructure that they would recoup when they sold the homes in the development. Not so in most of Livingston County.

Under then-Supervisor Cindy Denby, Handy Township approved a variety of SADs, often approving new ones before previous developments had been completed. And Livingston County itself, under the “leadership” of then-Commission Chair Bill Rogers, went along, allowing the County to back the bonds which resulted putting the County on the hook if the bond payments were not made.

Then came the recession and the collapse of the housing industry in 2008-2009. Many of the developers in Livingston County walked away from their developments. It was easy for them to do: they had much less money tied up than they would have had they been forced to pay for water and sewer infrastructure. The developments sat, mostly empty; vacant lots with unused water and sewer services.

And a large pile of debt.

The extent of the problem went largely under the radar of most Livingston County residents. Although they had upwards of $100 million in debt that the County was now responsible for, Bill Rogers and the County Commission kept it very quiet.

Then, in 2010, Bloomberg News published an article that drew national attention to the ticking time bomb in this Republican stronghold:

Michigan’s auto-industry collapse, which led to the worst home-price drop among U.S. states, has forced some of its wealthiest and fastest-growing communities to seek state aid to prevent municipal bond defaults. {…}

“We’re trying to stem the bleeding,” said Representative Bill Rogers, a Livingston County Republican and cosponsor of some of the legislation. “There’s no way they could pay these [bond payments] with no income coming in.” {…}

“As soon as they would fill one development they’d start another, and then one day it just stopped,” [County Treasurer Dianne] Hardy said. “Now the ground is not worth what it cost to put the infrastructure in.” {…}

“The township’s very weak sewer system operations could have a negative effect on general fund operations if it does not collect a large portion of special assessment delinquencies,” S&P said in its report.

The “state aid” that is mentioned in the Bloomberg article was House Bill 6181 (pdf), legislation co-sponsored by Denby and her Livingston County partner in mismanagement, Bill Rogers, both now state legislators. When that didn’t pass, they tried again in 2011 with Denby sponsoring House Bill 4148 (pdf). Not surprisingly, Rogers was once again a co-sponsor.

Denby and Rogers were unsuccessful in getting their second bill passed, as well, legislation that would have created a state fund to bail out communities like Handy Township and other Livingston County municipalities struggling due to poor decisions made in the past. Poor decisions made, in fact, by the co-sponsors of the bill. Notably, this legislation included only debt resulting from SADs and so would have been unavailable to communities like Benton Harbor, Flint, Pontiac, and other cities under the thumb of an Emergency Manager.

Denby and Rogers, along with newly-elected Republican Mark Ouimet, took another bite at the apple this year, introducing a package of tie-barred legislation, House Bills 5566-5570. This time, they also included Benton Harbor Republican Al Pscholka as a co-sponsor. In order to make the legislation more palatable, they included school districts as well as government entities, not restricting it to debt from SADs. Third time was a charm as they say and this time they were successful. The bills became Public Acts 284-288 of 2012, signed into law on August 1st by Governor Rick Snyder.

What this all boils down to is this: Cindy Denby and Bill Rogers made major mistakes, in the form of bad financial decisions, when they were in charge of Handy County and Livingston County governments. In order to clean up their messes and avoid having their municipalities taken over by Emergency Managers, they came up with an idea for having the state bail them out. In their first two attempts, they restricted it only to debt from SADs, which made the bailout specific to more affluent communities. Like the ones they mismanaged into near-bankruptcy. Only when they couldn’t get their bills passed did they extend it to include other areas.

In a Livingston County Press & Argus article in mid-August (now behind a paywall), Rep. Cindy Denby is quoted saying, “The main thrust of the new law isn’t the size of the fund but expanded access to it to help local governments pay off assessment debt and avoid receivership, Denby said. Loan dollars can only be applied to special-assessment debt incurred before the bills were passed.” In other words, despite having included a wider array of potential beneficiaries of their new law, Denby still sees it as being in place to clean up the mess she was responsible for.

According to one person I spoke with, Denby was quoted as saying that Public Act 4 — the Emergency Manager Law — “not intended for places like Livingston County”. Can’t be having these nice white communities under the rule of an Emergency Manager like those “other” cities, right, Cindy?

I spoke with Livingston County Democratic Party Chair Judy Daubenmier, who helped provide some of the research for this piece. She had this to say:

Eight townships [in Livingston County] were affected the most. They have dealt with it various ways – cutting services to the bone, laying off people, approving new millages so they could continue police and fire while existing taxes had to go to pay for the bad debt.

But Handy Township, sooner or later, is going to be unable to make its payments on the bonds. It recently refinanced some of the bonds to stretch out the payments but, in a couple years, even that won’t help.

Howell Township is expected to miss a bond payment next year and would go into receivership. That may be why local Republicans are shying away from Howell Township government. No Republican filed for township treasurer and only two of the four trustee positions had Republican candidates, meaning our two Democratic candidates will automatically win in November. This is unheard of in Livingston County, where Republicans hold every public office except one position in Unadilla Township.

This special assessment debt was entirely a self-inflicted problem. The townships and county did not have to get involved in financing water and sewer for private developers. They chose to. This is unlike a school district that has seen its property tax collections fall because of home foreclosures, for example. Livingston County chose to do this and got caught. Now they want a bailout so none of its townships is taken over by an emergency manager.

After reading this, it should come as no surprise that Handy Township was first in line with its hand out for the state funds:

Handy Township officials are hoping to “hear back ASAP,” according to Supervisor Hank Vaupel, after becoming the first Livingston County municipality to ask for state emergency financial relief under an expanded law.

The township is asking for $5 million under the the recently revised Emergency Municipal Loan Act, Vaupel said. The law was expanded in August through legislation sponsored by state Rep. Cindy Denby, R-Handy Township.

“Even with the refinanced bonds, Handy Township doesn’t have enough funds coming through to cover bond payments and chargebacks to the county,” Vaupel said. {…}

Vaupel said bond payments for the next 10 years will average $570,000, while only $150,000 is being collected annually.

In March, the township refinanced with the county its 2003 and 2005 bonds for a wastewater-treatment plant and construction of sewer lines, reducing payments by about $400,000 this year, with savings varying in future years.

However, the municipality still owes $2.9 million to the county for chargebacks and interest at the beginning of 2014.

Joe Harris, Emergency Financial Manager for Benton Harbor (and friend of Rep. Al Pscholka who co-sponsored the new version of the legislation that finally was passed into law) has his hand out, too. Benton Harbor is asking for a $7 million loan of its own.

Harris’ plans include a 5-year deficit elimination plan and an application for a $7 million loan from the Michigan Department of Treasury. The loan is part of House Bill 5566 that provides low interest loans to struggling cities. If accepted, it would eliminate Benton Harbor’s deficit and pay off debts to vendors and pensions.

“It would be a game-changer for the city,” said [Benton Harbor Mayor James] Hightower, who likened the loan to paying off credit card debt with a student loan. “This bill was actually created with Benton Harbor in mind.”

What Hightower doesn’t seem to realize is that, if Denby and Rogers had been successful with their first attempt, Benton Harbor would have been out in the cold. So would have all of the other majority African American communities who are ruled by a state-appointed dictator.

But not Livingston County’s townships. Because, as Cindy Denby put it, Emergency Managers aren’t for places like Livingston County.

UPDATE: The day I posted this piece, Handy Township learned that it would NOT receive a loan from the state government:

9/27/12 – Handy Township has been turned down in its bid for emergency financial relief from the Michigan Department of Treasury. Supervisor Hank Vaupel tells WHMI they received word late last week that their request for $5 million under the recently revised Emergency Municipal Loan Act was denied. The municipality has been struggling to repay existing bonds and charge-backs tied to sewer assessments that developers previously defaulted on. He says while there’s not enough money to cover future payments, the denial was due to the fact that they currently don’t have a deficit, which was a requirement of the program. In total, the township will owe $2.9 million to Livingston County for chargebacks and interest at the beginning of 2014. Vaupel says they’ll now have to go back to the drawing board and discuss a potential millage to help cover at least some of the debt. He says they plan a series of town-hall meetings to get more input from residents and may also re-apply for the emergency assistance once an actual deficit exists. The township is also waiting on the outcome of several lawsuits involving local developers and property owners over disputed sewer assessment charges.

The question now becomes if they are unable to meet their financial obligations imposed on them by decisions made while Cindy Denby was the Township Supervisor, will they receive an Emergency Financial Manager? Stay tuned…