The Place Where Ludington Talks

Ludington City Hall Loan Scheme

Have you ever gave your money to a charity or for some other seemingly-worthwhile cause and later found out that it wasn't used for the purpose it was intended? Or maybe you've heard a hard luck case from a family member or friend, given them some money to spend on something directly and later find out that they spent it on something else instead. Either way, it's definitely a betrayal of your trust in that group or individual.

If you live in Ludington, you pay a variety of taxes and fees that find it's way into the coffers of the city treasurer. By law, that money is supposed to be used for lawful expenditures, which do not include speculative private ventures or the issuance of loans to individuals or groups.

This is codified in no less authority than the Michigan Constitution, Article 7, Section 26, which says plainly: "Except as otherwise provided in this constitution, no city or village shall have the power to loan its credit for any private purpose or, except as provided by law, for any public purpose."

It's also found in another section obliquely, Article 9, Section 18, which says: "The credit of the state shall not be granted to, nor in aid of any person, association or corporation, public or private, except as authorized in this constitution." This applies to all political subdivisions of the state by the findings in Black Marsh Drainage District v Rowe, 350 Mich 470 (1958)).

So certainly the city's treasury cannot set itself up as a lending agency without having all of the city officials involved who have sworn an oath to support the Michigan Constitution be found to have violated that solemn obligation. But that's what has happened rather clearly at the January 14, 2019 city council meeting when the council unanimously approved an overt loan to an individual (a seasonal city employee) for over $8000.

The loan is described in the meeting's council packet (p.39-41) and it is not disguised in any way as something it isn't:

This is the loan that came before the 1-14-2019 meeting and one would have to think that such loans were commonplace and lawful the way it was offered, with the exception that freshman Councilor Angela Serna had a few questions on the contracts terms, format, and deficiencies. She noted that such deals were made in her other profession (nursing, where the loaning party is typically a non-public entity).

The legality of the City of Ludington being a lending institution was never touched upon, however, when it should have been. Beyond the two constitutional sections, the Home Rules City Act, which has the rules for home rule cities (like Ludington is), would have this action by the council be unlawful without a vote by Ludington citizens: (MCL 117.5(1)(e)): "A city does not have power... to engage in a business enterprise requiring an investment of money in excess of 10 cents per capita...unless approved by a majority of the electors voting on the question at a general or special election."

A possible defense against this charge would be that this wasn't a 'business enterprise', in that the loaning act does not appear to give the loaning city a profit or otherwise secure an economic advantage as this is an interest-free loan as designed, with possible (and likely) loan-forgiveness. Yet, noting that the loan is over $810 (more than 10 cents per capita of Ludington), one could say the City would gain an economic advantage from the future employment of Morris. The profit would come from sweat equity.

There is nothing in the city code or charter regarding making loans, other than under 'Prohibited Conduct" (Section 2-72(2)) where it says: "No officer or employee shall solicit any gift or accept any gift having a fair market value of more than $100.00 whether in the form of money, service, loan, travel, entertainment, hospitality, tangible personal property or any other form, under circumstances in which it could reasonably inferred that the gift was intended to influence or could reasonably be expected to influence the officer or employee in the performance of his or her public duties."

As a seasonal officer/employee, Austin Morris could be said to be in violation of this section in taking this $8160 loan since the terms of the contract shows that he is influenced to join and stay alleged to the LPD or else he has to actually repay the loan.

But illegal lending practices is not the only issue in this transaction, for the seemingly non-existent policy of lending to police cadets actually originated in an October 2018 meeting of the Personnel Committee, a group that the City claims is strictly advisory and thoroughly incapable of setting public policy. The notes of that October 3 meeting relate:

"Chief Barnett proposed... a Cadet Position which would establish up to once cadet position per vacancy that would lock in a criminal justice student that has completed their first year of the two-year program. The City would hire this individual for a non-union, full-time position ($12/Hour) as they begin their second year of college. During the first semester the cadet would attend classes and work at the Police Department. During the second semester the cadet would attend the police academy portion of the program while continuing to be paid.

Upon successful completion of the academy and passing the MCLOES (sic) licensing test, the cadet would then be promoted to a starting full-time police officer, the hourly wage would be increased to the full-time 1st year officer, would be sworn in as an officer and begin their field training on road patrol... If an individual is hired in under the cadet program, this person would be committed to working for the Ludington Police Department for two years...

The Committee expressed their support and is hopeful that it will improve the hiring process for officers of the Ludington Police Department."

Neither the cadet or the lateral-entry programs described in the 'advisory' Personnel committee have been approved by the full council. The 'Retention and Loan Agreement' shows that the Chief's cadet program has been accepted as public policy prior to the 1-14-2019 meeting, the council's unanimous approval (with reservation by a councilor elected since the policy was 'supported' by three current councilors in committee) show that the unlawful loan was considered proper by them.

Illegal lending, a supposedly-advisory committee setting policy and violating the Open Meetings Act (OMA), are bad enough, but the FOIA request I received from the City regarding the loan agreement indicate that the City wants to go for three 'bads'. I asked for: "Correspondence between Austin Morris and city officials (including LPD officials) since June 2018 and any other record dealing with the loan agreement to Morris recently okayed by the city council for financing his police academy training (including payments, invoices and other correspondence between officials regarding the agreement or it's terms)."

The FOIA response indicated that some of the records requested were exempt by the attorney-client privilege. It is not clear who exerted the privilege, there is no legal proceeding involving what's on these records (yet), just the creation of Ludington public policy outside of a meeting open to the public. The exemptions appear in two E-mail strings between the city attorney and various city officials, here and here. Let's look at the exemptions and guess what may be under the blackout.

A 1-3-19 E-mail from Police Chief Barnett to City Attorney Wilson is also sent to 3 other officials, the city manager, the city clerk and Barnett's second-in-command, and eliminates everything other than the topic sentences of three paragraphs:

Because of the wide audience, it is unlikely that the chief was looking for privileged advice, particularly when you consider that Wilson also sends his heavily redacted response back to all four officials and the process was repeated once more that same day. “When e-mail messages were addressed to both lawyers and non-lawyers for review, comment, and approval, we concluded that the primary purpose of such communications was not to obtain legal assistance since the same was being sought from all.” In re Vioxx Prods. Liab. Litig., 501 F. Supp. 2d 789, 809 (E.D. La. 2007).

Likewise, there is no indication in the non-exempt records that indicate the chief had an attorney-client relationship with Wilson as that term is defined and the privilege does not apply if anyone other than the client or his attorney has read the communication. Another facet in this case is that they are discussing the commission of an illegal act (i.e. loaning money in violation of the MI Constitution), and the A-C privilege cannot be used to cover up the attorney's participation in an unlawful tort.

FOIA is pro-disclosure, and any public body that tries to exert an exemption has the burden of proof to show that it was applicable, and it is clear in this case that they have not justified the exemptions and their legality in this case, and the underlying actions appear to be showing other malfeasance by multiple city officials.

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Permalink Reply by XLFD on February 5, 2019 at 7:02am

News like this doesn't fit in the local print medium, unless it's spun by city leaders and makes Ludington look like the best tourist destination ever.

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Permalink Reply by shinblind on February 6, 2019 at 2:34pm

Can someone answer what police academy charges tuition at a weekly rate? That is how the loan is structured, $480/wk.

Always though tuition costs need to be covered up front.

And it looks like tuition usually costs under $5,000? Any explanation what the additional funds are for? Spring Break? Running a tab at the local pub? Bullets for Barney?