Emergency manager looms for Allen Park

Sunday Times Newspapers

ALLEN PARK — An emergency financial manager is likely on the horizon for the city after an Aug. 8 recommendation from a state treasury financial review team.

In a letter to Gov. Rick Snyder the six-member team cited “incoherent decision making” and other actions by a “manifestly dysfunctional” city council among its reasons for recommending an emergency financial manager rather than a consent agreement, under which a city employee would be given powers similar to those of an emergency financial manager but could not act without Treasury permission, for the financially struggling city.

In its letter, the team said they considered a consent agreement, but decided against it as “it would not afford an efficacious remedy” for the city.

“There is nothing magical about a consent agreement,” the letter said, “many of the provisions of which do no more than impose upon local officials conditions already required by state statues, if not by common sense.”

Further, the letter said there is little evidence to show city officials have acted in accordance of those basic requirements, including adopting a realistic budget and amending it as necessary, avoiding deficit spending, not using funds restricted for specific purposes for other reasons, and “exercis (ing) the same degree of care and due diligence in handling the affairs of their unit of local government that one would expect a prudent person to exercise in respect to his or her personal finances.”

The letter went on to list concerns about the city including its failed movie studio property, which it subsidizes to the tune of $2 million each year from the general fund; its decision to outsource police and fire operations to another city and budget only $3 million to do it, despite having no offers from neighboring communities to take on the responsibilities, forcing the city to continue to pay for those services out of the general fund without a budget appropriation for them; and lack of staffing in key positions, including an interim city administrator, and a part-time human resources director, as of the time of the review team’s visits July 18 to Aug. 2. The latter position recently was bumped to full time, but the letter says that move did not “alter (its) conclusion” about the city’s financial condition.

One of the concerns centered on an emergency state loan the city had planned to apply for to pay back a $2 million tax anticipation loan it received earlier this year to avoid running out of cash. That failed action, the letter said, worsened the deficit by $2 million. Though the emergency loan would have been repaid over 30 years, it would have zeroed out the city’s debt on paper in the eyes of the Treasury, Plante and Moran’s Carl Johnson said at Tuesday’s meeting.

“The state would have been able to write you off for another year,” Johnson told the council, “and said ‘Hey, Allen Park zeroed their deficit, now we don’t have to start our review with them.’”

Councilman Dennis Hayes took issue with that section of the letter, calling it “erroneous.”

“It’s ironical and it doesn’t even make sense,” Hayes said. “They are telling us to reduce the deficit by borrowing money. I just reject it and I think their report is in error.”

If Snyder agrees with the team and appoints an emergency financial manager, that person will be paid up to $160,000 a year from the city’s general fund. Until recently, emergency financial managers under Michigan Public Act 4 had powers to void contracts and dismiss elected officials. But with an Aug. 3 Michigan Supreme Court decision that the issue must go on the November ballot, many of those powers are on hold and uncertain, Johnson said.

“They won’t have the tools to be able to immediately break contracts like they would have two weeks ago, because of Act 4 being suspended,” Johnson said. “So, what can they do that you wouldn’t be doing right now? That person is going to have the same daunting task you have.”

The letter mentioned that the emergency financial manager should consider filing for Chapter 9 bankruptcy, because of factors including the continued annual $2 million subsidy by the city to its failed movie studio, continued cash shortages and the “decimation” of city services by expenses from the police and fire departments, retirement expenses, and debt service to the former movie studio.

Johnson, however, said that path seems unlikely. It requires approval by the governor and no governor since the act was passed has ever agreed to it, as it substantially impacts the state’s credit rating. Johnson, who works with other emergency financial manager-affected cities like Ecorse and Highland Park, said even with deficits up to $5 million above their annual revenues, those cities did not file for bankruptcy. Allen Park’s deficit is $6 million, $9 million less than its annual revenues.

What is more likely, he said, is that the city borrow more money to be paid back over a number of years, or that taxes dramatically increase.

“You could have done the same thing yourself,” Johnson said. “But now it will be in someone else’s hands.”