Michigan to withhold $10M in aid to Detroit

[corktownyuppie]

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Bing stated in the recent press conference that Miller Cnafield is his law firm and not the city's law firm [[Corporation Counsel is the city's legal representation) and thus he shouldn't have to provide any information he doesn't want to in regards to the contract. But if that's the case, Bing should pay for the law firm out of his own pockets and not the citizens of Detroit if he refuses to provide the necessary details within the contract beyond the rate.

That's a fair point and one worth further discussion.

As far as the extortion, I think stasu was referring to the fact that the Bing/Michigan is coercing the city into signing contracts for desperately needed money, which by definition is extortion. Extortion is a criminal offense, but it would take someone with enough balls/time/money to go through the proper channels to makes the charge [[which will mean it all ends up in the Federal Supreme Court).

From wikipedia...

Extortion [[also called blackmail, shakedown, outwresting, and exaction) is a criminal offence of unlawfullyobtaining money, property, or services from a person, entity, or institution, through coercion....

I think the key term here is "unlawfully". What Bing is doing may -- I emphasize "may" -- be coercion. But it's a stretch to say that it is unlawful. What Kwame did was unlawful...in large part because it was secret. If he and Ferguson wanted to just state publicly that working with Ferguson was a prerequisite to city contracts, then it wouldn't be unlawful. It would've just been unpopular.

Same with all of the bid-rigging accusations. It wasn't unlawful for Ferguson to win all the bids. It was unlawful for him to win bids by paying other bidders -- in secret -- to overinflate their bids...also in secret...in exchange for secret payments.

...The term extortion is often used metaphorically to refer to usury or to price-gouging, though neither is legally considered extortion. It is also often used loosely to refer to everyday situations where one person feels indebted against their will, to another, in order to receive an essential service or avoid legal consequences.

The above language is more accurate, IMHO, in describing the current situation. It maybe considered coercive, but it doesn't fit the legal description of extortion.

As far as the extortion, I think stasu was referring to the fact that the Bing/Michigan is coercing the city into signing contracts for desperately needed money, which by definition is extortion.

I do agree that Detroit is pressured...perhaps even coerced...into signing contracts in exchange for desperately needed money. But until that coercion crosses the line from legal to illegal, I can only call this "metaphorical extortion", not "illegal extortion".

Good point, though, about it being Bing's attorney being paid with City funds. I'd like to hear more about why it is this way.

[stasu1213]

BTW, it's not just the questionable agenda of Miller Canfield that's the issue [[with the repeal of PA4 and the conflict of interest between the city/state).

Bing stated in the recent press conference that Miller Cnafield is his law firm and not the city's law firm [[Corporation Counsel is the city's legal representation) and thus he shouldn't have to provide any information he doesn't want to in regards to the contract. But if that's the case, Bing should pay for the law firm out of his own pockets and not the citizens of Detroit if he refuses to provide the necessary details within the contract beyond the rate.

As far as the extortion, I think stasu was referring to the fact that the Bing/Michigan is coercing the city into signing contracts for desperately needed money, which by definition is extortion. Extortion is a criminal offense, but it would take someone with enough balls/time/money to go through the proper channels to makes the charge [[which will mean it all ends up in the Federal Supreme Court).

You are right. I was referring to the illegal contracts that council is forced to sign in order to get some of the money that the State had owed the city for some time. It is not money that the city is borrowing from the State. I compare this situation to Kilpatrick's doing is for there were small businesses who were allegedly forced to pay to play with Kilpatrick and his father in order to stay in businesses or do business in the D. Not to metion the no bid contracts. I know that these allegations are being proven to be true of false in court. Bing is openly going against the charter. He and Snyder are openly strong-arming the council into signing an illegal contract that goes against what the charter say. It would be a different story if the state didn't owe the city millions of dollars. Correction; it would still be the same crime. extortion. Corporation Council has the power to escalate this "strong arming' by the State and Mayor to the courts including the Feds. I don't trust council including Pugh to do it

[corktownyuppie]

You are right. I was referring to the illegal contracts that council is forced to sign in order to get some of the money that the State had owed the city for some time. It is not money that the city is borrowing from the State. I compare this situation to Kilpatrick's doing is for there were small businesses who were allegedly forced to pay to play with Kilpatrick and his father in order to stay in businesses or do business in the D. Not to metion the no bid contracts. I know that these allegations are being proven to be true of false in court. Bing is openly going against the charter. He and Snyder are openly strong-arming the council into signing an illegal contract that goes against what the charter say. It would be a different story if the state didn't owe the city millions of dollars. Correction; it would still be the same crime. extortion. Corporation Council has the power to escalate this "strong arming' by the State and Mayor to the courts including the Feds. I don't trust council including Pugh to do it

Let's take as fact that the state owes the city all of this money. By conservative estimates...even if the state paid the city every dime people claims it is owed...that money would last less than 12 months at the rate we spend it.

So let's fast forward to 11/24/2013. Here we are again, out of money. What -- do you believe -- should the city do next?

[p69rrh51]

Its time to stop screwing around! Bankruptcy is what is in order!!!!!!!

[Honky Tonk]

Whether or not the State owes the City any money is debatable, from what I've read. The City never totally fullfilled it's requirements to get said money. The City has made a total financial mess, well, out of the City. They had to give back 11 mil set aside to knock down abandoned structures, they couldn't outfit poor families in clothing and that money was returned, $350K just disapears out of the tax cash drawer, the DPL, [[think about this, the LIBRARY), is under FBI investigation. The list just goes on and on. You seriously don't expect the State, or anyone, else to just hand over more cash, carte blanche. What if you pissed away your tuition money on woman, booze and drugs. not once, but multiple times. Would your family hand over more without putting your feet to the fire?

[313WX]

Its time to stop screwing around! Bankruptcy is what is in order!!!!!!!

No doubt about it.

[Wesley Mouch]

...illegal contracts that council is forced to sign in order to get some of the money that the State had owed the city for some time. It is not money that the city is borrowing from the State.

Did I miss something, or isn't this really bondholder money?

extortion

?????
When someone does something you don't like, particularly holding one to a higher-standard, its not extortion.

[mam2009]

I think the other side would say he has the right to choose the lawyers he wants as long as he is paying for them out of his own pocket, like regular citizens do. Otherwise, if it's City funds, he needs to follow the process that is in place. And if there are questions about the contract, he needs to be transparent in his dealings with Council.

Again, I am not defending the City Council, which all too often does things that seem indefensible. I'm just pointing out that Bing needs to follow the process that is in place. It's already bad enough that his conflict with the City's Corporation Council has led him to spend some of the City's scant resources on an outside firm.

Also, lost in this story is that with John Johnson we already had a lawyer making decisions that were in the best interest of the Mayor to the real detriment of the City. I'd just like everything to be above board with this.

DITTO! DITTO! I don't think there is anything wrong with the State requiring the City to accomplish some goals toward fiscal & operational reform as a condition to the City being allowed to withdraw funds from the City's escrowed bond sale proceeds [[please remember this is NOT the State's money; it is Detroit's proceeds from its selling of bonds earlier this year [[with the encouragement & permission of the State).

But tying the receipt of our $10 million to the participation of a particular vendor...well that does NOT pass the smell test. If the Mayor wants his own lawyer who will advise him rather than the Law Department attorneys, he should find another way to pay for them other than the use of tax dollars if he: a) didn't want to have the contract competitively bid, b) isn't comfortable sharing invoices to the taxpayers or the taxpayers' elected representative body, and c) was so short-sighted as to try to put approval of the MC contract into the the Milestone Agreement knowing how Council has felt about the pending MC contract for months!

Competitive bidding is required by the Charter & by ordinance. And City Council's approval is similarly required for all contacts. And when City Council asks got more info about a contract as part of their due diligence it is provided by the Administration/Mayors Office, etc., but for THIS contract he won't follow the process. Without a good explanation for not bidding this out or knowing exactly what MC is going to be doing for this money, the Council would be breaking the law & violating the Charter [[& violating what little of the public's trust they still have).

[SWMAP]

Your premise for all this ridiculous and uneducated legal arguing is wrong. The City could not, on it's own credit and credit-worthiness, borrow $10 million dollars. The State made the creditors the promise to repay that money if Detroit's Tax income came in lower than anticipated or in any other way, could not repay. That has happened, by the way. Proceeds were quite a bit down in October.
Thus, as the guarator, the State has some demands of the City before it let's the money out from the draw account.

[Honky Tonk]

Your premise for all this ridiculous and uneducated legal arguing is wrong. The City could not, on it's own credit and credit-worthiness, borrow $10 million dollars. The State made the creditors the promise to repay that money if Detroit's Tax income came in lower than anticipated or in any other way, could not repay. That has happened, by the way. Proceeds were quite a bit down in October.
Thus, as the guarator, the State has some demands of the City before it let's the money out from the draw account.

"Can you say acountability"? I thought you could.

[townonenorth]

"Can you say acountability"? I thought you could.

Obviously you can't write it.

Accountability is a great thing though. Detroit's heading for a real messy bankruptcy, and that will make any EM look good by comparison.

[313WX]

Your premise for all this ridiculous and uneducated legal arguing is wrong. The City could not, on it's own credit and credit-worthiness, borrow $10 million dollars. The State made the creditors the promise to repay that money if Detroit's Tax income came in lower than anticipated or in any other way, could not repay. That has happened, by the way. Proceeds were quite a bit down in October.
Thus, as the guarator, the State has some demands of the City before it let's the money out from the draw account.

You're confusing agreements. I don't recall any catch about the income tax revenue in the CA [[but by all means please post some proof), rather I just recall that the state guaranteed the bond payments in the event Detroit couldn't pay them at all because its cash reserves aren't high enough [[whether from not cutting services enough or not increasing revenues enough).

The agreement I think you're referring to is the one from 1998 in which the state of Michigan agreed tp make up Detroit's decrease in income tax revenue from the lowering of its tax rate [[from 3% to 2%) by sending a set amount of increased revenue sharing.

Because of a legal loophole in the state constitution, it was the state that reneged on its end of this agreement. Meanwhile, because the fascists in Lansing wanted to "stick it to Detroit", they refused to put a stop to Detroit's lowering of its income tax. So now that Granholm's temporary freeze has expired [[due to economic hardship), the city must continue to lower its income tax rate by 0.1% each year without the match in revenue sharing the state of Michigan agreed to provide the city with.

http://www.freep.com/article/2012071...tax-cut-sticks

...The rate cut -- from 2.5% to 2.4% for residents and 1.25% to 1.2% for nonresidents -- will cost the cash-strapped city government about $8.5 million a year...

...Detroit's tax rate, the highest in the state, is required under a 1998 law to decline fractionally every year, unless the city meets several criteria for financial distress. The city didn't meet the criteria last year because overall income tax revenue actually increased between 2010 and 2011.

http://www.mlive.com/news/detroit/index.ssf/2011/12/michigan_may_have_broke_its_pr.html

...Thirteen years ago, then-Gov. John Engler and Mayor Dennis Archer struck a deal: Detroit would steadily lower its income tax rate if the state agreed to keep revenue sharing levels steady through 2007.

Detroit followed through, lowering its income tax rate for residents and non-residents. But Michigan, facing its own budget problems, has cut revenue sharing levels across the state in recent years...

[Honky Tonk]

Obviously you can't write it.

COFFEE please!!!!!! Honestly, I don't think bankruptcy will ever happen. It would make the State look bad. No, worse then bankruptcy, Detroit will somehow finagle the money, and the SS Dysfunction will continue sailing along.

[Wesley Mouch]

Are these just 'general obligation' bonds? Who in their right mind would buy those -- unless they are guaranteed by the State? Or...?

[coracle]

I don't understand how issuing Bonds helps Detroit in the long run; it seems to delay the inevitable and make the inevitable get worse with passing time. I imagine that in Detroit's current monthly outgoings there are Bond repayments on Bonds floated to finance to where they are today;then when they get the $10/$20 Million to finance 2013 they'll have to start making payments on those out of what they are then borrowing. Unless of course it's all a ploy and Detroit is financially more than sound and they just don't want to spend the money yet. Who pays the Bond Holders if the City defaults and do the bond Holders get their purchase money back?
[[PS on a more humorous note I looked up what bonds I could buy on Detroit and the first ones on the list were Bail Bonds!)

[Packman41]

Hard to say if they are a general obligation bond. The article below cites the funds are to be used to cover the cost of REFORMS – not business as usual.

From the Detroit Free Press:
http://www.freep.com/article/2012082...refinance-deal

Terry Stanton, a spokesman for state Treasurer Andy Dillon, said Monday the bond sale should close Thursday, and Crittendon is expected to sign off on the deal. Last month, Stanton said Crittendon refused to sign the necessary documents.

"The Michigan Finance Authority assisted the city with the transaction, which is a key piece of the financial stability agreement designed to address Detroit's financial crisis," Stanton said in a statement. "Under the FSA, proceeds from the transaction will be held in escrow and are to be used to cover the cost of reforms and other necessary expenses, and not to fund the status quo."

And nobody in their right mind would buy the bonds without the guarantee of the State of Michigan taxpayers. If it were not for them guarantying the bonds, then they would have not been sold in the first place.

If the City of Detroit cannot find the revenue to pay the bond interest or principal, then the guarantor [[State of MI taxpayers) are required to step up and pay the interest/principal.

By the way, your typical muni bond buyer is someone that wants some tax-free income. They are willing to accept the lower interest rate of a muni in exchange for the income being tax-free. A lot of small investors hold munis in their bond portfolio because of this.

[Hermod]

By the way, your typical muni bond buyer is someone that wants some tax-free income. They are willing to accept the lower interest rate of a muni in exchange for the income being tax-free. A lot of small investors hold munis in their bond portfolio because of this.

As do a lot of pension funds and school endowments.

[coracle]

Thank you for the lucid explanation Packman41. I've never looked at Bonds for investing; they have always seemed a bit "boring". But in these days of super low interest rates, stagnant Markets and the potential for increased tax rates they may be a vehicle worth looking at to conserve Principal if the guarantor is reliable.

[Wesley Mouch]

Hard to say if they are a general obligation bond. The article below cites the funds are to be used to cover the cost of REFORMS – not business as usual.
<snip>
Terry Stanton, a spokesman for state Treasurer Andy Dillon, said Monday the bond sale should close Thursday, and Crittendon is expected to sign off on the deal. Last month, Stanton said Crittendon refused to sign the necessary documents.

"The Michigan Finance Authority assisted the city with the transaction, which is a key piece of the financial stability agreement designed to address Detroit's financial crisis," Stanton said in a statement. "Under the FSA, proceeds from the transaction will be held in escrow and are to be used to cover the cost of reforms and other necessary expenses, and not to fund the status quo."
<snip>

Wow! So in other words, the money to finance the reforms is only available if the city commits to the reforms.

The State sending the money to Detroit in advance of the right legal structure would be irresponsible and probably illegal.

[Packman41]

Hermod said:
“As do a lot of pension funds and school endowments.”

That would be incorrect.

While it is true that pension funds and school endowments do invest in [[buy) bonds, they do NOT buy municipal bonds. Munis pay a lower interest rate because the income earned is tax free. Because Pension Funds and School Endowment Boards do not pay taxes on the income earned for the pensioners there is no need for them to accept a lower interest rate. So they buy corporate bonds.

Coracle said:
“I've never looked at Bonds for investing; they have always seemed a bit "boring". But in these days of super low interest rates, stagnant Markets and the potential for increased tax rates they may be a vehicle worth looking at to conserve Principal if the guarantor is reliable.”

Bonds may be boring, but they also carry some risk besides the credit risk of the issuer. Bonds are a “debt instrument” that is, you lent money [[principal) to the issuer of the bonds. They promise to: [[1) periodically pay you a fixed [[boring) interest rate during the term of the bond and [[2) at maturity repay the total principal you first lent them.

Now for the potential risk part – conserving principal. Let’s say the interest rate on the bond is 3.0% for 10 years and you bought a $10,000 bond. You would receive $300 per year for the next ten years. What happens if inflation kicks in and in 2 or 3 years from now the going interest rate for bonds has moved up to 5.0%. Trouble is you are locked in for 10 years at 3.0% and higher interest rates/inflation eat into that $300 per year. So you decide to sell the old bond and buy a new one at 5.0%. When you go to sell the 3.0% bond you will not get back your full $10,000 – it will be “discounted” back using Net Present Value calculations and you will receive much less than the $10,000 principal you first paid in. After 3 years into the bond you would get only $6,066 if you sold the 3.0% bond. Principal is not conserved if interest rates rise and you have to sell the bond before maturity.

In today’s market I would suggest that there is a LOT more room for interest rates to increase as opposed to stay level or fall. How long do you think interest rates will be kept this artificially low?

[coracle]

Useful info again Packman41. You remind me why I don't like Bonds!
As regards artificially low interest rates, we know for sure they will be kept at the current derisory low level for two years because the administration announced it several months ago. In my opinion they didn't have the balls to tell us the truth which is they will be kept at this level through the next 4 years so that everybody that has money will loose about 4% per year [[inflation rate) to "make it fair". After the two years is up they will announce they need another two years "to make it work". What happens after that depends on who takes over. But I'm operating on the basis that because of our excessive rate of spending on nothing we'll not see Bank interest rates circa 5% for the next 10 years. [[I'm a skeptical realistic pessimist)

[mam2009]

Ok. So yesterday the Mayor called an Emergency City Council Meeting so that he could try once again to get the City Council to approve the Miller Canfield contract, but the Council did not vote because the Mayor's Office did not properly notify the public of the meeting which is a violation of the State's Open Meetings Act. So, do you think City Council was wrong not to vote yesterday?

[corktownyuppie]

Ok. So yesterday the Mayor called an Emergency City Council Meeting so that he could try once again to get the City Council to approve the Miller Canfield contract, but the Council did not vote because the Mayor's Office did not properly notify the public of the meeting which is a violation of the State's Open Meetings Act. So, do you think City Council was wrong not to vote yesterday?

"Wrong" is a tough word to use. Right now there seems to be a debate about which is more important, being true to their perceptions of fairness vs. doing what we need to keep the lights on.

If you call one "wrong", then you are immediately invalidating the legitimate points one side is making.

I personally would choose the money vs. what I perceive to be a narrow and short-sighted interpretation of "fairness". But that's not because I think their interpretation is wrong.

I just think that if I have to choose between the two, our need to pay the bills trumps it.

[mam2009]

"Wrong" is a tough word to use. Right now there seems to be a debate about which is more important, being true to their perceptions of fairness vs. doing what we need to keep the lights on.

If you call one "wrong", then you are immediately invalidating the legitimate points one side is making.

I personally would choose the money vs. what I perceive to be a narrow and short-sighted interpretation of "fairness". But that's not because I think their interpretation is wrong.

I just think that if I have to choose between the two, our need to pay the bills trumps it.

I asked the question because many here on DYes have consistently made comments that basically promote the idea that its ok if the City breaks the law as long as they get money in exchange for it. But barely a sound was made by the media yesterday when the emergency City Council meeting called by the Mayor was quickly adjourned without the Council voting on the Miller Canfield contract. Why wasn't THAT a big deal to the media?

What happened yesterday was a prime example of why there is gridlock. The Mayor tends to make impulsive and short-sighted decisions without first considering the process for accomplishing his objectives. He doesn't think past "I wanna do it now!" He tends makes decisions in a vacuum without consulting with people familiar with how you go about getting it done. Getting the "how" wrong can often result in negative consequences. In this case, even if the Council had approved the contract yesterday, they're decision would have been null and void due to the Open Meetings Act violation. If the Mayor had consulted FIRST with the Law Department, they would automatically have made sure the meeting complied with the state Open Meetings Act. For people who deal DAILY with open meetings, it would have come as a no-brainer -- you call a meeting, you notify the public. PERIOD But those are the kinds of things that happen when you make decisions in a vacuum. That's why this mayor has had problems getting things accomplished and fully executed throughout his term. And Detroit is suffering horribly for it.

[Honky Tonk]

I asked the question because many here on DYes have consistently made comments that basically promote the idea that its ok if the City breaks the law as long as they get money in exchange for it. But barely a sound was made by the media yesterday when the emergency City Council meeting called by the Mayor was quickly adjourned without the Council voting on the Miller Canfield contract. Why wasn't THAT a big deal to the media?

What happened yesterday was a prime example of why there is gridlock. The Mayor tends to make impulsive and short-sighted decisions without first considering the process for accomplishing his objectives. He doesn't think past "I wanna do it now!" He tends makes decisions in a vacuum without consulting with people familiar with how you go about getting it done. Getting the "how" wrong can often result in negative consequences. In this case, even if the Council had approved the contract yesterday, they're decision would have been null and void due to the Open Meetings Act violation. If the Mayor had consulted FIRST with the Law Department, they would automatically have made sure the meeting complied with the state Open Meetings Act. For people who deal DAILY with open meetings, it would have come as a no-brainer -- you call a meeting, you notify the public. PERIOD But those are the kinds of things that happen when you make decisions in a vacuum. That's why this mayor has had problems getting things accomplished and fully executed throughout his term. And Detroit is suffering horribly for it.

I have a question, does the council have lunch before or after recess?