How Cities Offload the Cost of Police Brutality

The uprising in Minneapolis that started in response to the police killing of George Floyd will leave the city with millions of dollars of damage in its wake. The city may be poised to spend millions more on the legal costs associated with the trials of at least one of the officers responsible for Floyd’s death, especially if civil lawsuits gain traction.

Other cities should be paying attention. The triple-combination shock of pandemic, social unrest, and potential police legal fees seen in Minneapolis could very likely be the future many cities will face, especially those that have a history of police violence. Add in the additional shock of climate change — floods, hurricanes, torrential winds — in a city already pummeled by the public health crisis and riots, and a city could find itself critically underwater, financially and otherwise. Storms, disease outbreaks, and other acts of nature are unpredictable; but the costs of police violence are much more manageable to rein in on the front end.

In Minneapolis, a metro that has been plagued by several other prominent police brutality incidents in recent years, there are actions the city could have taken but weren’t. The Minneapolis police union blocked the city from incorporating new reforms for the police department — including new rules for the deployment of neck restraints, as was used to kill Floyd.

Instead, cities like Minneapolis make taxpayers pay for police violence on the back end, after a police officer has already injured or killed a civilian, and after he’s been tried or the case has been settled. This is true for most large cities, where the legal costs for defending police are usually paid out of the city’s own general funds, or through issuing bonds, either way paid with taxpayer funds. Cities are effectively using their residents to mortgage police violence — a proposition that may grow less and less palatable as families’ finances are depleted by other circulating disasters.  

“The question is: How commonly known is the money spent by cities to pay for cases to go away?” says William D. Green, history professor at Augsburg University in Minneapolis. “The fact that that’s unclear is a problem, because it allows the city to pay this thing off and then flip it under the table. This needs to be clarified. I suspect that there are very few taxpayers who have any clue how much the city pays out annually for settling cases and how that payment is covered, if you’re talking about accountability.”

Minneapolis is already very familiar with how how much this could cost the city — it paid more than $25 million for police misconduct between 2003 and 2019, including $20 million in one 2019 payout alone for the police killing of Justine Ruszczyk. The city agreed to pay nearly $800,000 for the police killing of Terrance Franklin in February.

Paying out any amount for police violence in the months ahead — including the social unrest Floyd’s killing triggered — will be a hurtpiece for Minneapolis coffers while Covid-19 is still running amok. The city was already forecasting that it would lose as much as $125 million this year for closures mandated to help stop spread of the coronavirus.

For Minneapolis, police misconduct settlements normally come out of its self-insurance policy, which is filled and replenished by city departments and agencies, which are themselves funded through property taxes and fees paid by the public. Property taxes increased under former Minneapolis Mayor R.T. Rybak in part to pay off a huge deficit in the city’s self-insurance fund.

But this isn’t the only way that cities cover the expenses of reckless policing. Oftentimes cities — large ones in particular — issue bonds to cover these costs. Such bonds have been crucial for the city of Chicago, which has been plagued with police violence and misconduct lawsuits over the last couple of decades. In 2017, Chicago took out $225 million in general obligation bonds to pay off police settlement debts, according to a letter to one of the bondholders from the Action Center on Race & the Economy [ACRE]. The letter was part of a campaign ACRE launched to raise awareness about how banks profit from these settlements through the fees and interests that they charge cities for underwriting the bond.

ACRE calls them “police brutality bonds,” and describes them in a 2018 report as financial instruments that transfer resources and extract wealth from black and poor communities to Wall St., through the fees banks charge cities for the bonds. These bonds are mostly used when a city is already suffering from revenue shortages — as is the case with plenty of cities right now under Covid-19 pressure — but “leave the root causes of the revenue shortage unaddressed,” reads the report.

Police reform advocates argue that the money from these police lawsuit bonds — along with outsized police budgets — would be better used for fixing infrastructure, schools, and hospitals in black and low-income communities.

“Police budgets, not only in Minneapolis, but in most major cities, are an enormous percentage of the budget, and before the pandemic there were lots of groups on the ground in Minneapolis that were calling for a divestment from the police — and not just because of incidents of police misconduct, but also because of the effect that it has on all sorts of other programs when cities are struggling,” said Maurice BP-Weeks, co-executive director of ACRE. “You can remember that after the last recession everything was cut, but police budgets weren’t.”

According to Local Progress, a coalition of local elected officials, funding for Minneapolis’ police and corrections department grew 41% between 2009 and 2019 — outpacing the growth of the city’s general fund in that time period — and made up 37% of the general fund in fiscal year 2019.

Like Green, Weeks says there’s not enough transparency in bond issuances, for the public or even for the bondholders, which is troubling for a city’s financial health. Bonds issued by cities are assigned a particular credit rating assessing a city’s ability to pay, and this rating can affect borrowing costs. Traditionally, rating agencies focus on factors like a city’s tax base, liquidity, and budgetary performance to determine a city’s creditworthiness.

But police brutality bonds don’t adequately account for non-financial shocks to the systems — what’s called environmental, social, and governance risks (ESGs), such as a city’s risk from climate change, according to Activest, an organization that advocates for racial justice in municipal finance. It’s not even clear that rating agencies adequately consider climate change risks when dealing with sustainability or “green” bonds. Former Moody’s SVP Bill Harrington addressed this in an op-ed he wrote earlier this year:

To direct debt capital to sustainability projects, the bond world should tell each credit rating agency to overhaul methodologies so that, at the very least, exposures to physical risks such as fire and flooding are core inputs in assessing issuer ability to repay their bondholders. … No existing methodology requires a credit rating committee to include physical risks, let alone other ESG exposures in baseline determinations of issuers’ ability to pay. Nor does any methodology specify how physical or other ESG exposures will drive issuer upgrades and downgrades today, let alone sector upgrades and downgrades over time.  

Activest is pushing for ratings agencies to downgrade credit ratings based on things like a history of police abuses, the potential for riots, and the sturdiness of a city’s health-care system, particularly in a pandemic. This is similar to when Moody’s downgraded Michigan State University’s credit rating just before the school issued a bond to pay off legal settlements related to its gymnastics team doctor Larry Nasser’s sexual assault cases.

“The rating agencies cited the ongoing need for improvements in risk management, uncertainty of additional liability, and the need for greater investment in risk management as factors in the downgrades,” reads a white paper Activest published last year. “Yet to date, it does not appear that rating agencies have downgraded communities that have failed on risk management with respect to police misconduct.”

Activest and ACRE are in partnership for a campaign to stop cities from using bonds to cover police misconduct debt. They contend that if a city has to borrow money to cover legal costs related to police violence, banks should not be allowed to profit off of that, in terms of interest and fees. The organization is also calling for police officers to take out their own individual liability policies to pay their own settlements.

According to UCLA law professor Joanna Schwartz, who authored one of the most comprehensive studies on how cities pay for police legal expenses, it may not be a good idea for police to pay for their own misconduct. They may not be able to pay if left to their own financial devices, which means the people injured or the families of the people killed by police wouldn’t collect justice. She recommends a hybrid system, where both the city and individual officers split the costs of legal expenses and settlements related to misconduct.

“The city would be required to impose meaningful consequences on their officers,” said Schwartz. “Whether that means the officer needs to pay some portion of the judgment, or whether the officer needs to have some sort of employment consequence, or some other consequence, so that the officer is meaningfully deterred and punished without compromising the ability of the plaintiff to be made whole.”

Police reform activists in Minneapolis actually suggested the city do something similar to this in 2016. They wanted a system where the city would pay law enforcement liability insurance premiums for each individual police officer, but if an officer acted recklessly such that the insurance company increased their premium or deductible, the officer would be responsible for paying the difference. It was proposed for a ballot referendum, but the state legislature blocked it from happening, saying that it violated laws mandating that cities wholly indemnify police officers. The Minneapolis city council sided with the state and voted against the ballot referendum, which the state supreme court also supported.

But for ACRE, Activest, the Movement for Black Lives, and a growing network of organizations calling for cities to divest from police, it’s imperative that police officers and departments bear some part of the costs of their own wrongful actions, rather than making taxpayers foot the whole cost.

“We understand this issue to be a systemic issue and not one of just a couple of bad apples,” says BP-Weeks. “But [making police pay] would bring a transformative shock to the system of funding the police, and call into question real systemic issues about how police violence happens and how police training happens. That’s what we’re looking for ultimately.”

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