Ludington City Hall Loan Scheme

[XLFD]

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.

[Freedom Seeker]

Cute cartoon! Very convoluted concept for our city to act as a loaning institution without giving any authority. You are right X, it appears by the notes of Oct. 3 Personnel Mtg. The council never approved the policy but voted on a contract on Jan. 14. So much redaction looks like a cover-up.

Another thing, if Barnett received 18 applicants for departing Krause's position, could the position not have been filled by someone already trained?

[XLFD]

Thanks, especially for catching the last fact you spotlighted, one I failed to acknowledge in the article, but had considered.  It's well known that the nation is having a police shortage, so when an outlying rural department like Ludington has 18 applicants for one full-time position, my perspective is that we are doing good and are offering competitive salaries.  If only 10% of those applicants are qualified and pass background checks, you still have a choice of two great applicants.  

Chief Barnett needs to count his blessings rather than encourage the City of Ludington to break the law in extending credit to prospective recruits to induce them to join the LPD.  If the LPD has had a problem keeping officers, Chief Barnett might want to seriously do some navel-gazing and reflect on how permissive he has been with law violations by his peers at city hall, his untenable defenses over the years of LPD bad behavior, and how it negatively influences the public perception of the LPD.  Unless a police officer is tainted himself, why would he want to join a corrupted department.

[XLFD]

Additionally, the new loan policy is unwritten and can easily be claimed to be biased since the chief or anybody else can give out interest-free and forgivable credit from the Ludington City Hall Loan Company to family, friends, or anybody else who they favor for anything that they can claim will help the local government. 

Is the city manager's daughter planning on following in his footsteps?  Let's give her a similar loan so that she can get her bachelor's, master and doctorate in city administration at a prestigious institution.  If Ludington doesn't need someone in that position when she graduates, forgive the loan, it's only taxpayer funded.  No written policy established by the city council at an open meeting means that the policy is anything that our city officials want it to be.

[Willy]

This is one of the most outrageous bally-whacks the City has pulled. Loaning out tax payers dollars to whomever the City thinks is deserving. I'm no lawyer but I'm guessing there are some banking and loaning laws that may have been broken here along with a pig slop full  of corrupt behavior. Is this cadet related to any City official or friend there of? Why is he allowed to cut in line ahead of others who may seek employment with the police dept? Why would the police union put up with this? Even though the ranks of City Hall fungus has been thinned out starting with Shay and the Mayor it doesn't appear that nothing has changed. It might even be getting worse. This could be a slippery deal than shop with a cop. It's possible that this could be a late Christmas present for the poor lad.

Maybe I'll apply for a police cadet loan and buy myself a new jet ski or reinvest the money in the Trump Towers.

[XLFD]

I've researched the parents of cadet Morris and they don't seem any more connected than some.  Both seem to hold full-time jobs that would have above average salaries for the area; conservatively, the cost of the academy would be approximately a tenth of their annual household income.   They themselves live out in Hamlin Township, so with the loan, they aren't investing anything, unlike every City of Ludington taxpayer.

So remember, if you ever need help from (or get in trouble with) law enforcement in Ludington and Officer Austin Morris is involved, let him know that you put him through police school when his parents refused to.

[Pheonix Emory]

Clearly the loan was given with the approval of Chief Barnett.  I'm confused, where is it in the Chief of Police's job description that he is now a loan officer?    Hand selecting and assisting the next generation of officers seems a very dangerous business.  The person knows they are beholding to the Chief and much more likely to carry on the agenda of Chief Barnett and others who assisted in the loan process.  Was there an announcement made to the general public making this offer or was it only extended to this one person?  There must be attorneys at this moment feverishly looking for a loop hole to make this completely acceptable and lawful.  Laws are specifically written to confuse the common person into believing they are protected from crime and corruption and their best interests are being served.  Personal accountability is key to stopping these people from furthering their personal agendas. 

Make them "professionals" including personal liability and insurance.  If they knew they would face jail time and personal loss, they might consider growing a nice big green crop of integrity in their own back yards.  I'd like to see what insurance companies would be willing to back many of those claiming to be "protecting our rights and serving the citizens."   Protecting one's ego (don't forget their family and friends) and money appears to be much more highly prized than personal integrity these days.

Perhaps it is time to let the guidance counselors at the High School know the City of Ludington offers interest free loans so every student can fund their educations without the burden paying interest on their loans.  What is good for one, needs to be good for ALL and not just the chosen few.

A suggestion for Chief Barnett:  While intended or not, the Shop With A Cop accounting practice did not lead to any entity being fully accountable for the funds donated and their exact whereabouts. Perhaps you might apply for your very own interest free loan and take a course in best practices for accounting and accountability while being the Chief of Police.  Holding one's self to a higher standard makes for excellent role models and those same children who were taken shopping would likely benefit much more from being served with those who are willing to hold themselves to a higher standard.  Consider it a gift that keeps giving and never wears our or looses its value.  Teach the children what it means to be humble and take corrective action when one learns there was a better way to accomplish a goal.  You will become a real hero.  Teach them transparency requires humility and you will likely earn the respect of more than the children in your community. 

[XLFD]

Excellent analysis, Pheonix, one needs only sees the poor accounting practices and the unaccounted for money in the past for the Shop with a Cop program to realize that this is another extension our city leaders have given Chief Barnett to use donated and/or tax dollars for purposes never intended.  I and others interested have been investigating whether there is any other such program in Michigan that allows a local government to establish 'loans' to effectively grow their own police recruits, but haven't found any. 

This is also similar to the reserve police officer program in that Chief Barnett gets his own select police force that mostly serves as volunteers, but gets thousands every year from the city's coffers for them even though the city has never officially declared them as a legitimate unit.

There seems to be programs within MCOLES and the MSP to assist with the costs of police training for local agencies, and other money seems to be available.  Such grants and programs are firmly set up and devised so as to fairly distribute the money to those going into the field, and they do not seem to restrict the cadet from choosing to work for a sponsoring local police force.  As always, the City and any City apologists are free to do their own research and refute our claims that this is an illegal, unconstitutional practice.

[Willy]

Good points X and Pheonix. The more people I talk to about this the more questions are being asked. For instance, can a private citizen apply for a loan to pay for training to work as a machine operator for the Public Service Dept or Parks Dept. Can anyone request a loan to pay for training as a clerk, secretary, inspector, or City Manager? What are the Federal tax laws pertaining to these types of transactions? If the City Attorney approved this then what was his reasoning and where is the paper work regarding his decision? Where does this end. If this is allowed to stand will a precedent be set that allows for loans paid  by taxpayers for any education training available. If the City wants to hire folks and provide on the job training then I have no problem with that as long as the jobs are open to all. I think Barnett and the Council stepped into a deep pile of crap and the taxpayers as usual are being handed a line of BS along with a healthy dose of take it or leave it. I would like to know who is really pulling the strings in regards to Ludington's political scene. One would think that since Shay left some of the corruption would have receded, but again we are embroiled in another controversy.

[XLFD]

The possibilities are endless, and exercises like this is exactly how and why governments become tyrannical in nature and scope.  I expect the tax dollars going to the City of Ludington to be used for police service, fire protection, sanitation, streets, sidewalks, park/cemetery upkeep, and just enough clerical and administration services to keep things accountable and running smoothly. 

I expect the water and sewer utilities to be self-sustainable (they never seem to be due to the poor planning of city administrators and councilors), and so taxes are eventually used to help pay down the debt.  I expect these utilities to be well-maintained for the public safety, but know that it's basically impossible since you have government regulators overseeing public utilities whose underlying goals work against that. 

Needless to say, there's a lot of extra junk in the budget that we could do without and be a better city corporate for doing so.  This loan scam is just the latest bout of insanity in a long line of political expansion for expansion's sake.  Not Shop with a Cop, but Flimflam with a Flatfoot.

[snide]

If this actually went on --- I.E.  A person applied for a public job - didn't have proper qualifications (in this case the legal training required) and a government official went out of their way to draft this loan agreement (on city time ,I assume) & enable the person to get training paid for up front (with tax payer money) against what law is as written..... ALL PERSONS INVOLVED SHOULD BE REMOVED FROM THEIR JOBS. PERIOD.

[XLFD]

Everybody needs to be scared about why there was no question of the legality of this loan from where it originated:  from Chief Barnett and City Attorney Wilson-- those who define the law as it pertains to Ludington.  

Additionally, consider that Nathaniel Wolf, one of Ludington's City Attorneys operating out of Grand Rapids did the yeoman's work of creating the loan and employment agreement as it was.  Wolf was paid over $200/hr. to craft the details, this appears to be a non-standard type of agreement, so he may have spent some time at it.  He then sent it to Wilson.  I'm surprised they allowed this E-mail at all in the response, since it's a correspondence between two attorneys in the same law firm.

The records shows Wilson took six minutes to compose an E-mail to Chief Barnett with Wolf's work product (unattributed) which allowed no time for him to properly personalize the details, meaning Wolf had did that too.  This is likely the reason why Wilson seems so 'out of it' when Councilor Serna looks at the details, finds them wanting, and artfully argues the deficiencies  at the LCC meeting of 1-14-19.

One shouldn't be surprised if Wilson wound up charging the taxpayers over $600 just for Wolf drafting this unlawful agreement, as this would qualify as a 'special project' for the city attorney.   As snide implies, this is unacceptable, definitely should be investigated independently, and discipline should be firm.

[stump]

  Has any of this information hit the news media?