Flint Poisonings Haunt Mayor Whose Town Faces Michigan Takeover

  • In wake of lead debacle, Detroit suburb inches to insolvency
  • State struggles for balance between democracy and stability

Susan Rowe watched with alarm as Flint, Michigan, discovered its drinking water had been tainted with lead after an emergency manager’s botched economizing. Rowe, the mayor of the struggling Detroit suburb of Wayne, was determined not to put her residents at the mercy of the state. Her chances of success are dwindling.

Flint’s water crisis has sharpened animosity toward Michigan’s 26-year-old municipal-rescue law, which critics compare to a civic death sentence. With trepidation, Rowe believes that Wayne, a city of 17,000, will become the first since Flint to be placed in emergency financial management.

"I think it will happen, and I think it would be devastating," says Rowe.

The balance between democracy and financial stability remains a conundrum as Michigan municipalities still struggle with depressed housing values, tax limitations and cuts in state revenue-sharing. Wall Street welcomes the emergency law’s bottom-line efficiency, as it provides protection against default and bankruptcy. Residents loathe the imposed austerity and, after the poisonings, question whether it’s a rescue at all.

Reductions in aid to Michigan cities, villages and townships totaled $5.5 billion between 1998 and 2016, according to a May report from Great Lakes Economic Consultants. After deep cuts in spending, Wayne voters last week rejected a tax proposal to support police and fire protection. That hastens the approach of insolvency next year, along with state control, Rowe said.

"People tell us to live within our means, but we can’t shut the doors. We can’t say we’re not going to have police or fire or trash collection," said Rowe, a self-described conservative Republican who has overseen a 50 percent reduction in public safety spending. "We just have no way of bringing in any more money."

QuickTake Q&A: Flint’s Water Crisis and Its Many Different Costs

The Flint debacle prompted the introduction of a bill in the legislature earlier this year to repeal the nation’s most aggressive financial-rescue law, though few expect it to succeed. Opponents say the state balances the books at the expense of civic life.

The law enables the state to intervene in financially struggling municipalities and school districts, rendering mayors and city councils powerless. It also allows managers to break union contracts if negotiations fail, similar to the power in municipal bankruptcy proceedings.

"They go in, they come out, and the cities become a less desirable place to live," said Tony Minghine, chief operating officer of the Michigan Municipal League. "The only tool they’re given is to cut."

Helping Hands

Detroit was under the jurisdiction of an emergency manager before filing a record $18 billion municipal bankruptcy case in 2013. The city emerged in December 2014 and, based on a spurt of downtown economic activity, the restructuring has been heralded as a success. Detroit’s example is unique, though, in that key services, such as the purchase of police cars, are bankrolled by corporations and foundations. With a population of 677,000, people continue to leave and tax revenue has flat-lined.

Most of the dozen Michigan towns and cities that have been under the direction of an emergency manager continue to lose population, and their poverty rates remain between 20 percent and almost 50 percent, according to U.S. Census data. In Flint, garbage collection stopped Aug. 1 after a contract dispute.

"The law’s pretty much a Band-Aid, because it never really addresses the fundamental issue -- it’s mostly a lack of tax base," said Robert Kleine, who served as Michigan’s state treasurer from 2006 to 2010.

Thirty states have some way to monitor local government finances, said James Spiotto, of Chapman Strategic Advisers LLC in Chicago. He said Michigan might be better served changing the law to allow local officials input into decision-making and reducing the "heavy hand" of an emergency manager.

"Local government is representative of the people and you don’t want to lose sight of that," Spiotto said.

When first enacted in 1990, the law was designed as an early warning system to ward off defaults and bankruptcies. Under Republican Governor Rick Snyder, who was first elected in 2010, the pace of state intervention increased as the recession ate into local tax revenue.

Voters repealed the measure in 2012 after forcing a statewide ballot question. Less than two months later, though, the Republican legislature approved a similar law with a provision that prevented it from being overturned by a referendum.

Dirty Water

Flint, the birthplace of General Motors Co., has seen half of its population leave since 1970, after the wide-scale closing of auto assembly plants and it slipped into state supervision in 2011.

In a cost-saving move, emergency manager Ed Kurtz approved shifting the city’s water source from Detroit’s municipal system to the Flint River. Residents soon began complaining in 2014 about the color, odor and taste from the lead-tainted water, but the city continued using the river as its water source.

Six state employees were criminally charged last month, accused of trying to cover up the poisoning of Flint’s drinking water. Three other government workers were charged earlier. Kurtz hasn’t been accused of criminal wrongdoing.

"What happened in Flint has just increased the overall distrust of government," said Kleine, the former treasurer.

Snyder publicly apologized in March for the contamination but said the law has been a success. He’s open to improving it, he said, but not repealing it.

"It’s a failure-driven model," said Senator Jim Ananich, a Democrat from Flint. "They leave you with a city that’s impossible to run."

There is no clear path forward, short of increasing state revenue-sharing and other assistance, said Eric Scorsone, who directs the Center for Local Government Finance and Policy at Michigan State University.

"Part of the problem is policy, and part is economic reality," said Scorsone, who used to counsel local officials on how they could avoid emergency management.

For Mayor Rowe, a 66-year-old retiree who earns $3,000 a year leading the city, the squeeze is almost inescapable. Housing values cratered during the recession and revenue has plunged more than 40 percent since 2010. The city lost a property-tax appeal with Ford Motor Co., its largest employer. State limitations prevent local property taxes from increasing at a rate higher than annual inflation.

The tipping point came Aug. 2 when Wayne voters resoundingly rejected a tax increase that would have enabled the city to share public-safety expenses with two other municipalities. Rowe said people are frustrated and she doesn’t hold the vote against them.

"People have seen what’s happened in Detroit and Flint, and this is a hefty chunk of change for residents already in a depressed economy and fighting to save their homes," Rowe said. "Still, I’m trying to save a city."

Rowe and Wayne’s city council sent a letter Monday to the state treasurer’s office, asking that analysts review the city’s books. She already knows what they’ll find -- not enough money.

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