City May Borrow $900,000 To Settle Suits
by Thomas MacMillan | Sep 20, 2012 1:34 pm
Posted to: City Hall, Legal Writes
In a move an expert likened to using one credit card to pay off another, the DeStefano administration is seeking permission to borrow nearly a million dollars to pay settlements in two lawsuits against the city.
The Board of Aldermen Wednesday night officially took up a proposed resolution to that effect from city Chief Fiscal Officer Michael O’Neil. The “resolution of official intent” serves as a notification to the federal government that the city may issue bonds to pay for $900,000 in lawsuit settlements.
The money would pay for settlements in cases stemming from two incidents: a fatal crash between two police cruisers in 2008, and a 15-year-old’s traumatic brain injury in a Coop High gym class in 2006.
The resolution, which was moved to the board’s Finance Committee for consideration, would not require the city to issue bonds. It would simply preserve the option to do so.
It would not be the first time the city has issued bonds to pay for litigation settlements. One year ago, the board approved a similar declaration of intent, giving the city the option to borrow money to help pay the $5 million settlement of the Ricci case. That bonding was approved as part of the current fiscal year’s budget.
Despite the Ricci case, borrowing to pay for litigation is not common. Bonding is normally reserved for capital expenses—for buildings and infrastructure. The city budget already includes a self-insurance fund to pay for litigation settlements.
Municipal finance experts generally “frown upon” borrowing money to pay off debts, according to Michael LaFaize, director of fiscal policy at the Mackinac Center, a Michigan-based economic issues think tank.
“It is like individuals taking an advance on one credit card to pay another,” LaFaize said.
In an email Thursday, O’Neil objected to that characterization: “None of the borrowed funds are being used to pay back other monies that have been borrowed. To liken these transactions to ‘using one credit card to pay off another’ is to misunderstand them significantly. For what it’s worth, ‘using one credit card to pay off another’ can make good business sense (for example, the City’s refunding of $47.7 million of existing bonds last month, which saved the City $5.9 million). I don’t know any municipal finance experts that would frown on that! Borrowing to pay for legal claims is not ideal, but paying this amount down from General Fund appropriations would have significantly affected the level of services provided by the City.”
O’Neil said the city’s self-insurance fund owed the general fund $10.5 million as of June 30. “In recognition of the need to resolve this balance, the Board of Aldermen, as part of the FY13 capital budget approved a capital appropriation of $6 million to begin to pay this balance back (i.e., to pay for “Ricci” and other cases). The $6 million was borrowed last month, reducing the amount owed to the General Fund to $4.5 million presently. There is also a tentative plan to appropriate $2 million in conjunction with the FY14 capital budget. Capital items are financed through the issuance of general obligation bonds. As such, the City is borrowing funds to pay back this balance over time.”
Traditionally cities have borrowed money for capital projects—buildings, roads street lights, which can produce a return on investment by sparking other economic activity—but not for operating costs or debts, LaFaize said. However municipalities have increasingly turned to such dicey practices in recent years as pension costs and other structural financial problems have caught up with them, he observed.
In 2011 the city proposed borrowing money to pay for general fund expenses by selling off future parking meter revenue for up-front cash. That idea, called monetization, died after proving unpopular with some lawmakers and members of the public who viewed it as recklessly irresponsible.
It remains to be seen how lawmakers will react to the idea of bonding to pay for more litigation settlements. Board of Aldermen President Jorge Perez said Wednesday night he hasn’t looked at the proposal yet and does not yet have an opinion on it.
The proposed resolution concerns settlements in two cases, Renee Albanese Martone, et al v. City of New Haven and Donna Aponte, Administrator of the Estate of Dario Aponte v. Marilyn Gonzalez, et al.
The first case stems from an incident on Dec. 1, 2006, in the gym at Cooperative Arts and Humanities High School. Nico Martone, 15, was playing touch football in a game organized by gym teacher Mark Angeletti when he struck his head on a cinderblock wall, lost consciousness and had seizures.
Nico suffered a traumatic brain injury, was in the ICU at Hospital of St. Raphael, and out of school for four weeks. Nico and his parents sued the city in November 2008.
According to a summary and justification in a settlement recommendation approved by city Corporation Counsel Victor Bolden and Mayor John DeStefano, Nico has “permanent cognitive deficits, anxiety, depression, panic attacks, and post concussive syndrome.” Nico had been taking honors classes and getting As and Bs.
The settlement justification states that Angeletti had “a history of making poor judgments,” including not reporting seeing two students having sex in the hallway outside his classroom, and taking a wig from the theater department and wearing it during gym class.
Before the accident Angeletti’s principal, Dolores Garcia-Blocker, requested that he be transferred to another school. The fact that the Board of Ed denied the transfer was one reason Bolden recommended settling the case. “Overall, an adverse verdict is unavoidable in this case,” the recommendation reads.
The settlement recommendation states that Nico and his family should receive $1.2 million from the city, paid in two installments: $600,000 in August 2012 and $600,000 in July 2013.
The city’s Litigation Settlement Committee voted on July 18, 2012 to settle the case according to that recommendation.
Angeletti was removed from his position and now works in Wisconsin, the recommendation states.
In Donna Aponte vs. Maria Gonzalez, the city was a named defendant in a case arising out of a Sept. 9, 2008, crash between two police cruisers. Sgt. Dario Aponte died in the crash. His widow—also a city cop—sued.
Sergeant Aponte and Officer Diane Gonzalez were both responding to a domestic violence call when their cars collided at the corner of Chapel and East streets. The state police concluded that both cops were driving without proper regard for safety. Diane Gonzalez has been in a coma since the accident.
“While liability is questionable, if a jury were to find in favor of the plaintiffs, any award could, potentially, far exceed the proposed settlement,” the settlement recommendation signed by Bolden and DeStefano states.
The settlement recommendation states that Donna Aponte should receive $350,000 from the city’s workers compensation insurance carrier, $500,000 from the city before Aug 1, 2011, and another $500,000 from the city on or before Aug. 1, 2012.
The Litigation Settlement Committee approved the settlement on March 2, 2011.
Paul Bass contributed reporting.
Tags: bonding, municipal finance, Mackinaw Center
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Maybe they’re trying to get into bankruptcy.
What is the interest rate on a bond repayment versus an unpaid settlement agreement? I am guessing it is less, therefore it probably makes some fiscal sense. The city owes either way, it is just a matter of who they are going to owe and how much…
Check out this website and then you will really see the state of our State…not good (and this is the perfect example why):
The foolishness of borrowing this money to pay for known, predictable and ongoing lawsuits is beyond measure. Jorge Perez knows this. He’s a banker. The city’s credit is already shakey; we just finished the last fiscal year with a multi-million dollar deficit after going through all of last year in a monthly deficit. The previous three years were only balanced in the last week of the fiscal year by pre-paid construction permits by YNH and Yale U. In one of those years, the year was retroactively balanced three months late with an unexpected influx of money from the state in the ultimate cooked books scheme.
If this intent is approved, the mayor will most assuredly borrow the money just as he did with Ricci. The problem is the settlement account is seriously in the red because the mayor and his finance enablers refuse to budget for litigation and refuses to institute best management practices that will properly manage our risk exposure. Of course, that means DeStefano can’t do something else; can’t hire a friend or reward a campaign contributor. Who will provide the adult supervision on the city’s fiscal matters and who will just say no to more mindless and shortsighted borrowing?
posted by: Christopher Schaefer on September 20, 2012 7:10pm
Noteworthy says “The city’s credit is already shakey; we just finished the last fiscal year with a multi-million dollar deficit”. Now, just change a few words—and you have our FEDERAL government: “The Federal Government’s credit is already shaky; we just finished the last fiscal year with a multi-TRILLION dollar deficit”. Hard to kick a bad habit—when you’ve always got the same players.
@Chris Schaefer. To my knowledge, the federal government has never had a “multi-trillion dollar deficit.” The current federal deficit is slightly over 1 trillion. The federal government’s credit is also far from “shaky.” Instead, the interest rate on federal-government issued debt is at record lows.
posted by: Christopher Schaefer on September 21, 2012 9:32am
My mistake: I SHOULD have said “$11.27 trillion DEBT—equaling over $150,000 PER taxpayer—resulting from accumulative annual budget DEFICITS of over $1 Trillion”. As for our federal govt.’s credit being “far from ‘shaky’”, Moody’s, S & P [and China] would disagree: http://abcnews.go.com/blogs/business/2012/09/moodys-warns-of-us-debt-downgrade/ http://www.usatoday.com/money/economy/2011-08-05-s-and-p-downgrades-credit_n.htm