Flint, unemployment insurance, Headlee lawsuits cast shadow over state budget

capitol
Michigan Capitol | Susan J. Demas

The state is keeping an eye on multiple pending lawsuits, including a potential settlement for Flint residents, that could leave a huge hole in Michigan’s finances.

Whether the settlements come this year or next, some experts say the lawsuits are a risk for the state budget, at a time when Gov. Gretchen Whitmer and GOP legislative leaders are clashing over how to pay for fixing roads and bridges.

Gov. Whitmer and Lt. Gov. Gilchrist
Gov. Gretchen Whitmer and Lt. Gov. Garlin Gilchrist in Flint, April 25, 2019 | Nick Manes

In addition to Flint water crisis civil case, the other lawsuit that could be settled is with victims of false Unemployment Insurance Agency (UIA) fraud charges. Another suit involving the Headlee amendment and municipal financing could have a potentially larger budget implication.

Trying to budget for a settlement could also impact the settlement itself.

“In some ways … it’s unprecedented,” said former Lt. Gov. John Cherry, who served under Democratic former Gov. Jennifer Granholm in the aughts. “It’s an unknown. And I would bet people could imagine the worst. And when you imagine the worst, that would have some budget implication.”

Because of those implications, negotiations are often forced below the surface.

“The hard part for a government … when you know these sort of lawsuits are out there, [is that] you need to budget for them,” said Eric Lupher, president of the Citizens Research Council (CRC), a Livonia-based nonpartisan public affairs research group. “But when you budget for them, you’re sort of telegraphing a view that you may not win, and this is how much you’re willing to settle for.”

Flint class-action suit moves ahead

State Budget Office spokesman Kurt Weiss told the Advance that officials are “certainly monitoring the costs of the lawsuits, as we do consider it a potential risk to the state budget.

Residents held a rally drawing attention to the Flint water crisis starting five years ago | Nick Manes

“At this point, we are not accounting for it in the development of the Fiscal Year 2020 budget,” he added, referring to the budget that must be passed by Sept. 30. “But we are keeping those risks on our radar and monitoring those potential costs for the development on the 2021 budget.”

Offices that may be involved in settlement negotiations with Flint residents are not permitted to speak openly about how the class-action suit and other cases may impact the state budget.

Flint water plant | Nick Manes

Whitmer spokeswoman Tiffany Brown said the governor’s office is “unable to comment.”

While the Budget Office is not “accounting for it” in current budget negotiations between Whitmer, state Senate Majority Leader Mike Shirkey (R-Clarklake) and House Speaker Lee Chatfield (R-Levering), the Flint class-action suit may loom larger in 2020, Weiss said.

In April, a federal judge allowed the consolidated case seeking damages for the people of Flint to proceed. The judge also reinstated GOP former Gov. Rick Snyder as a defendant in the case.

The lawsuits stem from the April 2014 decision to switch the city’s water source to the Flint River. Lead leached into residents’ drinking water after state and local officials failed to apply corrosion control chemicals to the corrosive river water.

Elevated lead levels were found in residents’ blood and an outbreak of Legionnaires’ disease linked to the contaminated river water killed at least 12 people and sickened dozens more.

Flint water crisis, PFAS inspire new gov.’s first action

U.S. District Court Judge Judith Levy in Carthan v. Snyder allowed defendants’ “bodily injury” claims to proceed against former state Treasurer Andy Dillon, former Flint emergency managers Darnell Earley and Gerald Ambrose, and several other state officials.

The judge argued that it’s reasonable to think that Snyder “could have deduced that plaintiffs faced a substantial risk of serious harm from the Flint River,” given his role and other executive staff knowledge.

Rick Snyder and Brian Calley at their year-end press conference, Dec. 11, 2018 | Ken Coleman

No one knows how large the settlement could be, if one is reached. But it could be substantial.

Michael Pitt, managing and founding partner at the Royal Oak-based firm Pitt McGehee Palmer & Rivers representing plaintiffs in the case, said he expects a settlement for more than 25,000 Flint residents involved in the case. More residents who did not seek legal representation could still see recompense, he said.

“It’s hard to say when that’s going to happen and what the shape of it is going to be. But I assure you … that everyone involved in the case is interested in trying to work out a settlement and many people are working in good faith to try to make that happen,” Pitt said.

The deaths also may weigh heavy on the jury’s conscience.

“Juries tend to frown on that,” CRC’s Lupher said. “I think we’re talking real money here.”

Flint lawsuit costs — and those to come

Independent of any civil settlement, Michigan has spent more than $30 million over 3½ years on legal fees for the state’s criminal probe into the Flint water crisis, according to state data obtained by the Advance.

Despite the expensive cost to prosecute and defend state officials in criminal lawsuits arising from the crisis, Attorney General Dana Nessel announced on Thursday that her office dismissed all pending charges in the ongoing investigation, as the Advance reported.

AG office drops Flint criminal charges against Lyon, others, reboots investigation

Solicitor General Fadwa Hammoud and Wayne County Prosecutor Kym L. Worthy said in a statement that the decision to restart the criminal probe was due to a flawed investigation that began under GOP former Attorney General Bill Schuette.

The AG’s office alone spent more than $9.4 million on the criminal prosecution, according to the department.

Michigan Supreme Court | Susan J. Demas

Economist Mitch Bean is a former director of the nonpartisan Michigan House Fiscal Agency. He said that in terms of the overall state budget, those costs and a potential settlement in the Flint civil suit likely will not impact the state’s ability to pay for public services.

“We’ve got a [roughly $60] billion budget ,” Bean said. “There’s several ways you can amend a budget, and it happens every year. All the time, there’s adjustments.”

But other cases offer further risks.

The Michigan Supreme Court in April agreed to allow another class-action lawsuit against the state — this one seeking damages for people who had wages wrongly seized over false unemployment fraud insurance charges — to move forward.

Michigan Supreme Court allows unemployment fraud suit to proceed

More than 40,000 people are now waiting to see if the Whitmer administration will decide to settle the lawsuit fought by Snyder, her predecessor. The state has refunded about $21 million in wages taken in relation to the false fraud accusations.

Lawsuits start becoming a problem for the budget when costs climb above $100 million, Bean said.

Michigan Capitol | Susan J. Demas

That’s why the so-called “Headlee Lawsuit” may be the greater budget danger.

Local communities sued the state in 2016, arguing that Michigan violated a 1978 constitutional amendment requiring that almost 49% of the money raised by state taxes go to local governments.

John Philo, a prosecuting attorney in the suit from the Detroit-based Sugar Law Center for Economic & Social Justice, said the case is awaiting a ruling before the state Court of Appeals.

Although plaintiffs are no longer seeking damages, municipalities want to receive what they argue is rightfully theirs going forward. That cost is not known, but likely “a substantial amount,” Philo said.

Due to Headlee Amendment violations, local school districts have been shortchanged by roughly $6.4 billion, argued Wayne State University law Professor John Mogk in an op-ed published in Bridge.

To put that in perspective, that’s more than 10% of Whitmer’s proposed fiscal year 2020 budget.

When asked about the suit, Bean was blunt.

“Yeah that’s a big one,” he said.

Michael Gerstein
Michael Gerstein covers the governor’s office, criminal justice and the environment. Before that, he wrote about state government and politics for the Detroit News, the Associated Press and MIRS News and won a Society of Professional Journalism award for open government reporting. He studied philosophy at Michigan State University, where he wrote for both The State News and Capital News Service. He began his journalism career freelancing for The Sturgis Journal, his hometown paper.

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