Democracy Tree: How Gov. Snyder pitted city vs. city in water wars

Of all the departments in the City of Flint, why was the water supply fund strategically targeted to find cost savings by Gov. Snyder’s emergency managers, possibly more than other struggling departments?

This is an important question, especially in light of the wall-to-wall media frenzy of blame-games politics. Conspiracy theories abound. Thus far, Republicans are taking the bulk of the heat, but right-wing media types are pushing back — placing fault for the city’s crisis on elected Democrats. Just this week in the National Review, there was an article defensively titled Flint is Not a Republican Scandal which attempted to pin the blame on incompetent Democrats for running Flint’s finances into the ground.

That premise is dubious at best, given the actual circumstances under which Flint became the “canary in the coal mine,” as many have tagged the city — with its infrastructure issues and ominous debt reflecting what is surely to come for other communities — and not just the predictable rust-belt cities.

What happened in Flint is a familiar story to other declining manufacturing meccas in the Midwest — loss of jobs, loss of population, loss of property values, all led to a dramatic decline in tax revenues. Pile on the real estate bubble of the Great Recession, arguably caused by the deregulation fever gripping the financial sector during the Reagan years and beyond, and we find Flint and Detroit, among others, in a fiscal death spiral that no local official could possibly have cut their way out of – Democrat or Republican.

It doesn’t take a financial wizard to note that dramatically declining expenditures could never have kept pace with the free-fall of revenues during those years leading up to Flint’s receivership:

Recession-era Flint, just prior to the 2011 state-appointed emergency manager, found local leaders scrambling to cover budgetary gaps. They tapped heavily into one of the few funds that were “unrestricted,” meaning it was not locked-in for that purpose — in this case, the water supply fund. From the state Financial Review Team report provided to Gov. Snyder in November of 2011:

“The City relies upon transfers from the water supply fund and the sewage disposal fund for general City operations… This amount of annual appropriation was not a loan and was not expected to be repaid to these funds… In addition to the transfers out, both the water supply fund and the sewage disposal fund had lost money in their operations, the latter having lost over $61 million since 2001, and the former having lost almost $10 million since 2009. City officials recently [2011] had implemented a 35 percent increase in water and sewer rates.” (emphasis mine)

The state report clearly demonstrates how the water supply fund was raided during the height of the recession. During fiscal years 2010 and 2011 it racked up a $15 million deficit. The Flint general fund drained the water supply fund dry — but it wasn’t nearly enough to stave off the inevitable.

Flint leaders had no other choice. There were no new revenues and no assistance was expected from the state. They went from being financially wobbly, along with every other Michigan city, to tipping well over the brink in a matter of months.

Unbeknownst to them, their source of clean water was about to potentially become unaffordable. Lake Huron water, via Detroit, was at risk of price hikes due to the fiscal crisis brewing in Detroit.

In a highly suspicious move in early 2013, just as the Motor City was about to get its own emergency manager, the U.S. District Court abruptly terminated its oversight of the Detroit Water and Sewerage Department (DWSD) — an arrangement that had been in place for 35 years due to repeated EPA violations. The move ceded operations back to the city’s purview — and the newly assigned emergency manager, who could potentially discover untapped assets and revenues there to shore up the struggling city.

At that time, the DWSD Board passed a resolution expressing grave reservations about the scope of authority of the incoming emergency manager. There was speculation that the emergency manager would part-out Detroit assets for a quick sale, including the DSWD. Not an unreasonable speculation – Detroit’s emergency manager, Kevyn Orr, also threatened to put priceless artworks at the Detroit Institute of Art on the auction block. The DWSD resolution specifically asked for clarification on a number of critical points, among them:

• Whether the City Council will continue to have a role in approving contracts under the DWSD procurement policy in light of the fact that the EFM can exercise legislative functions under state law?
• Whether the DWSD is required to remain a department of the City of Detroit as envisioned by the Nov. 4, 2011, court order or whether it is subject to sale by the EFM with approval of the State Treasurer as detailed within the new EFM law?

No matter how favorable were any potential contract terms DWSD offered the City of Flint, Orr likely had the power to negate them under the provisions of the Emergency Manager Act — he could raise the rates at will, contracts be damned. He was all-powerful, and Flint knew that, having already had years of experience under Snyder’s law. Darnell Earley, Flint’s emergency manager, was in contact with DSWD regarding terms, but opted instead to draw water from the Flint River. How high up the food chain that decision went in Lansing, is still a matter of speculation — a question which may only find an answer through depositions.

Michael Pitt, a trial lawyer leading a number of class action lawsuits against the State of Michigan over the horrific lead poisonings in Flint was on WKAR Off the Record this week, calling out state leaders, including the governor, over their feigned ignorance. Pitt also revealed, as part of his argument, why Flint felt so urgently compelled to switch water systems to the yet-to-be-built Karegondi Water Authority pipeline, and to stick with the decision a year later — before problems with the Flint water had surfaced. Although not yet constructed, the pipeline seemed the better prospect over the potentially skyrocketing rates anticipated if they stayed with DSWD. Flint officials were rightly alarmed about the potential for reckless actions of the state-sanctioned emergency manager to their south — in the City of Detroit, whose financial imperatives were sure to vastly eclipse any concerns for the welfare of the people of Flint.  In Pitt’s words:

“Now keep in mind what was going on in Detroit in April of 2014, when [Flint] made the switch. Bankruptcy. There was an emergency manager in Detroit. His name was Kevyn Orr. What was Kevyn Orr trying to do with the City of Detroit water department in 2014? What was he doing? — He had it up for sale. He had put it out for investors to come in and buy the City of Detroit water department.”

Atty. Michael Pitt appearing on WKAR Off the Record

Flint’s decision to move to the KWA pipeline wasn’t the problem, it’s those decisions that occurred in the wake which proved to be so disastrous. The move away from DWSD may have been solid fiscal policy given the knowledge they had at the time, emergency manager or not, regardless of political affiliation.

The uncertainty created under Gov. Snyder’s emergency manager model of governance fostered dangerous fear-based public policy decisions — an atmosphere where conspiracy-based politics are now the norm, and transparency is a casualty. Michigan municipalities were pitted one against another — facing trial by fire — of the cut-throat corporate variety. As much as the governor wished them to be, the fiscal woes of Flint which triggered his Emergency Manager Law were not a result of dereliction of local leaders.

The foremost expert on Michigan municipal finance, Michigan State University economics professor Eric Scorsone, specifically studied Flint in an exhaustive 2011 report — Long-Term Crisis and Systemic Failure: Taking the Fiscal Stress of America’s Older Cities Seriously — Case Study: City of Flint, Michigan — a report that apparently was not fully consulted by Lansing. Dr. Scorsone revealed the following:

• Flint’s revenues from property taxes, income taxes, and state revenue sharing had been cut nearly in half.
• With $775 million in unfunded legacy costs, each remaining Flint resident would have to pay $8,000 a year for three decades to satisfy the debt.
• Flint would require the equivalent of five GM-sized companies, creating 40,000 jobs, to bring the city out of the woods.

Scorsone noted this of the revenue-side of the problem:

Few businesses would survive the revenue losses that cities like Flint have sustained. Yet “going out of business” is not an option for the City. The core purpose of a city is to provide for the safety, health, and welfare of the community. Restructuring the revenue side of the municipal budget equation can happen overnight by legislative action.

Though not likely to happen, legislative action is an imperative — the only remaining option is bankruptcy, as exercised by Detroit. Appointed dictators cannot balance the budget through their only tool: cut back management. That’s why Flint and Detroit Public Schools have grown worse under Snyder’s law, and will never get better without legislative support.

Source: Michigan Municipal League

Unfortunately, lawmakers not only refuse to increase revenue sharing, but Lansing has become addicted to robbing cities of their due revenues. Last year, the Michigan Municipal League reported that Lansing has diverted billions in revenues since 2003 — taking money away from statutory revenue sharing for local units of government to bolster other state spending priorities. Referring to the diversion of funds as a “heist”, the author of the report explained:

This data begs the question: did municipalities ignore their duty to manage or did someone else change the rules of the game and then throw a penalty flag at them? I see yellow flags all over the playing field.

The figures, based on Michigan Department of Treasury data, adjusted for inflation, found that an estimated $6.2 billion had been robbed from Michigan cities from 2003-14. Currently, the annual take is about $700 million.

Many in the world of Michigan media daily mourn the loss of Bonnie Bucqueroux, missing what her insights might have been in this time of crisis. She left us a rich legacy though — she saw this one coming. In a three-part interview she conducted with her colleague Dr. Scorsone back in early 2011, Bucqueroux offered this prophetic wisdom :

“One of the arguments [against] the emergency manager is that the governor might be well advised to scale back on his tax cuts for business in order to use some of the new revenue he wants to generate in order to be able to share more with cities — [they] wouldn’t be in this financial stress if the state were more willing to use the revenues that it could take in to share with cities.”

Five years later, even if Snyder where to come around and acknowledge the error of his ways, he’s squandered all of his political capital, and the short-sighted GOP leadership in Lansing isn’t in the mood to hear him out.

Like any addict, Michigan leaders must hit rock-bottom before any meaningful changes occur. They’re pretty close now, pretty damn close.