Op-Ed by Derickson Lawrence
Seven years ago, I published an article title “Sitting on Bankruptcy Row.” At the time, the White House was warned by Fitch Ratings Agency that the U.S. could lose its AAA ratings if both branches of government (the White House and Congress) could not resolve the nation’s looming tax increases and spending cuts in advance of the then-approaching debt ceiling. Out of view, though, were financial problems locally. Many municipalities across the country were reeling in debt, but suffering in silence, as they grew closer to bankruptcy.
A notable case was the City of Yonkers.
In 2019, the scenario is eerily similar – with a couple of exceptions. On one hand, there is the headline-grabbing national government shutdown and the pain of federal workers getting furloughed and now getting back to work. On the other, unbeknownst to many, is a municipality’s silent struggle with increasing debt and other challenges. That is, until a credit ratings agency (Moody’s) sounded the alarm by pulling the municipality’s rating; exception one. And two, this time, the case is City of Mount Vernon.
To be clear, the City of Yonkers never went into bankruptcy. A financial commission/control board was formed with leaders from across the county and state to avert that fate. The question is: Can the City of Mount Vernon do the same with its current leadership without state intervention?
What is municipality bankruptcy?
Companies go bankrupt all the time, but what happens when a city wants to throw in the towel? First, in states like New York where it’s allowed, that state’s maternal instinct typically kicks in with intervention options. Second, depending on the specifics of the case, the state appoints a group of financially savvy individuals (financial control board) and determines the range or oversight or advisory powers to be awarded to get them back on track. Should intervention fail, and that municipality meets certain federal standards, then it can pursue relief from its creditors through Chapter 9 bankruptcy, reserved for municipalities – which is a painful process for everyone.
In today’s political climate of divided government, especially in Mount Vernon, it will take courage, strong leadership, less egos, and a willingness on behalf of elected leaders to put the reputation of the city first. It’s clear that Moody’s is not concerned about the city’s politics or its charter. The charter’s implications are profound, and it warrants update to clearly delineate functioning roles among the mayor, the City Council and the comptroller. Currently, the comptroller’s function lacks visibility into three crucial departments under the mayor’s aegis: the water department, the Urban Renewal Agency and the Industrial Development Agency.
Other challenges persist. Municipalities have to live within their means, they can’t spend what they don’t have, and operating without audited financials for three years, according to claims by City Council officials, make it impossible to quantify current liabilities or reserves. What’s worse, without a rating, it is unclear whether the City of Mount Vernon has the ability to float bonds for its longer-term spending plans.
Unlike Fitch Ratings’ warning of a downgrade of U.S. debt seven years ago, Moody’s action in pulling Mount Vernon’s ratings means that the city has run out of time to produce a budget (already a month late), deliver audited financial statements for open years, and fix any so-called “structural imbalances.” Otherwise, it is sitting on bankruptcy row.
This crisis is unfolding now and warrants crisis intervention. It mandates a meeting of the community to get us to a point where key stake holders, community leaders and elected officials begin discussions relative to a plan, perhaps an austerity plan, and other priorities, beyond the production of the city budget. We, as a community, need to save our city. These are times of “challenge and controversy,” in the words of Martin Luther King. But these are times where citizens can make a difference.
The alternative is the prospect of a state- imposed financial control board – a move that may supersede the authority of city elected leaders. Those ramifications and other unknowns are concerns that City of Mount Vernon elected officials must grapple with when sitting on bankruptcy row, unless it’s a calculated move to exact concessions. In either case, Chapter 9 bankruptcy becomes the sad day of reckoning where we as taxpayers and public service employees in Mount Vernon all lose.
Derickson K. Lawrence, a resident of the City of Mount Vernon, is a former congressional candidate of New York’s 16th Congressional District and a former member of Westchester County Charter Revision Commission. He is reachable at: dkl@marketvw.com.
