by Max Brantley
Much attention has been focused in the past on McDaniel's unilateral control of money won in lawsuits brought on behalf of the state. Since he writes the terms of the distribution for the court orders, he effectively acts as legislature and governor for expenditure of money awarded to the state. His famous direction of a drug lawsuit settlement to build a classroom for the State Police (a use not related to the lawsuit nor even mentioned in the terms of the lawsuit settlement) caused controversy. This prompted him to establish a procedure for using lawsuit money, but it was mostly window dressing to put a gloss on continuation of existing practice.
McDaniel thinks he's clearly allowed to spend this money as he chooses by a 63-year-old court case pertaining to so-called cash funds. The Constitution seems to others to more clearly say that money can't be spent in Arkansas without a legislative appropriation. Some Republicans, including Lt. Gov. Mark Darr, have called for McDaniel to show more deference to the Constitution.
So back to mortgages. Wisconsin Gov. Scott Walker has set off a commotion there by directing Wisconsin settlement money to cover state budget shortfalls. Arkansas has a few of these, too — Forestry Commission repayments; legal assistants; drug courts.
I wondered if the governor or legislative leaders had been consulted on spending this mortgage money. I wondered, first, however, why ALL the $39 million in benefits directed to Arkansas didn't go to victims of the banks' shoddy practices. About two-thirds of the $39 million, $26 million, went that direction, in the form of principal write-downs, mortgage refinance and direct payments to people who've been foreclosed. This will go directly from banks to consumers so there's no appropriation issue with that money. Even the full amount wouldn't begin to make bank victims whole, though they remain empowered to sue individually.
McDaniel personally plans to appropriate $13 million in direct spending for these purposes, subject to court approval:
* $9 million to the Arkansas Development Finance Authority. For what? Housing is mentioned. So is "economic development." Specifics are lacking. Slush fund comes to my mind, though McDaniel PR man Blake Rutherford says I'm all wet. Housing assistance would certainly seem to fit in the broad umbrella of the lawsuit. Some other ADFA "economic development" activities of years past — a dubious politically connected loan to a marginal food safety company or help for an ice cream maker on shaky footing — would not, at least in my opinion.
* $2 million to the Arkansas Access to Justice Commission. It's an organization that provides legal help for needy people by, among others, encouraging pro bono attorney work. Still, more details needed on spending of that money. Can they do foreclosure work now?
* $1 million to the state's two law schools for their legal aid clinics. Is this operating support? Or does it mean expansion of services?
* $1.4 million will go to the state treasury for costs and fees. In which state account it falls for what possible purposes are questions as yet unanswered.
I posed questions on this topic yesterday evening to the governor (was he consulted?) and attorney general. I hope eventually to hear more, first on McDaniel's authority to spend $13 million unilaterally. I also wanted more specifics on how that money is to be spent, beyond feel-good words like generalized promises of housing assistance and the most dangerous, if sacrosanct, of all public spending words — "economic development," aka corporate welfare. I got a partial response on that point from Rutherford later last night:
The Arkansas Development Finance Authority has many programs, including programs associated with financial literacy, tax credit assistance, rental assistance, equal-opportunity housing (including the Housing Trust Fund) that have a proven record of success in Arkansas. The money would be allocated for specific programs who benefit potential victims or would aid us in helping to prevent future housing problems in Arkansas, including foreclosures. No specific allocations have been made, but once they are that information will be made available to the public, and will be, of course, subject to legislative oversight (as are the funds to Access to Justice and both law schools).
This was the policy McDaniel announced previously on his priority for spending settlement money, in order:
* Restitution to consumers or state agencies as designated by court order.
* Designation of cash fund to state agencies involved in the litigation
* Payment of attorney’s fees to the state treasury
* Payment into the "Consumer Education and Enforcement" account.
A third of that money was directed by McDaniel in a way that doesn't seem to neatly fit any of those criteria. None of the state agencies that will receive money are getting "restitution." I'm not aware they were involved in the litigation.
Incidentally, a number of consumer advocates have complained that the banks got off too easy in the $25 billion deal ($5 billion in cash). I've yet to be able to find how the relative payments were divided among the states. State's hardest hit by the mortgage crisis — such as California and Nevada — got the biggest allotments. Tiny Delaware, to name one, got more than Arkansas, $45 million.
The settlement provided that $3.5 billion cash would "go to state and federal governments to be used to repay public funds lost as a result of servicer misconduct and to fund housing counselors, legal aid and other similar public programs determined by the state attorneys general," while $1.5 billion "will be used to establish a Borrower Payment Fund to provide cash payments to borrowers whose homes were sold or taken in foreclosure between Jan. 1, 2008 and Dec. 31, 2011, and who meet other criteria."