A Justice Department lawsuit marks the latest setback in Ferguson, Mo.'s struggle to recover from a controversial police shooting in 2014 that has shaken its fiscal foundations.
The department accused Ferguson of policing and municipal court practices that violate constitutional and federal civil rights, adding to the uncertainty surrounding a credit that is already rated at speculative grade.
"Defendant has been aware for years of concerns that the city's focus on revenue has undermined the fair administration of justice within the municipal court. It has disregarded those concerns to avoid disturbing the court's ability to optimize revenue generation," the Justice Department said in the lawsuit, filed Wednesday in U.S. District Court for Eastern Missouri.
Attorney General Loretta Lynch announced the action one day after the city council refused to adopt all terms of a consent decree reached after lengthy negotiations, notably rejecting a provision that would apply the decree's requirements to any policing entity. Without it, the city could escape compliance by disbanding its police department and seeking services elsewhere.
DOJ launched a patterns and practice probe of the department following the controversial August 2014 shooting to death of a young, unarmed African-American man, Michael Brown, by then police officer Darren Wilson, who is white.
"The residents of Ferguson have waited nearly a year for their city to adopt an agreement that would protect their rights and keep them safe," Lynch said in a statement. "They have waited nearly a year for their municipal courts to commit to basic, reasonable rules and standards."
In addition to the DOJ probe, the shooting drew scrutiny to Ferguson and other cities' heavy reliance on court fines to prop up their budgets and led to state audits and legislation that placed tighter limits on the use of court fines to cover operations.
The city, which once had a healthy balance sheet, has struggled to recover due to reduced fine collections, the cost of the consent decree and other litigation,, and its former Aa3 rating has fallen into junk territory. The cost of the consent decree and other outstanding litigation pose further pressures.
Federal investigators released a scathing report in March that concluded Ferguson's focus on generating revenue over public safety, together with racial bias, led to illegal practices.
"Our investigation found that Ferguson's policing and municipal court practices violate the Constitution, erode trust and undermine public safety," principal deputy Assistant Attorney General Vanita Gupta, who heads the Civil Rights Division, said in the Wednesday statement.
The lawsuit alleges that the city police department conducts stops, searches and arrests without legal justification and uses excessive force, and its courts prosecute municipal charges in a manner that violates due process and equal protection and engages in discriminatory law enforcement conduct against African-Americans. The alleged conduct violates constitutional and federal laws. While African-Americans make up 67% of the city's population, they account for 89% to 95% of many charges.
The complaint filed in the federal court in St. Louis seeks declaratory and injunctive relief to remedy the unlawful conduct.
Since the shooting, the city has implemented changes limiting court fine collections and adopted policing changes but the lawsuit says they are "insufficient to eliminate the pattern or practice of unconstitutional conduct and ensure it will not recur" without an enforceable court decree in place.
The city had been warning ahead of the vote Tuesday night that the agreement could cost between $2.1 million to $3.7 million to implement in the first year, raising questions about how it would cover the new expense.
City documents put the price tag at $1.8 million to $3 million in the third year and beyond. The amended agreement that was approved included seven changes. The council dropped some of the costlier mandates on police and other employee salary and jail staffing as well as the provision applying the rules to any policing services.
"During the past seven months, we have worked very hard to ensure that our negotiations were feasible and realistic for the citizens of Ferguson," Ferguson Mayor James Knowles III said in a statement. "Although we did not get everything we wanted in the agreement, we certainly made sure that what was agreed upon, can be implemented in a timely and sufficient manner."
Moody's Investors Service late last year lowered the city's general obligation rating on $6.7 million of debt from a 2011 issue to Ba2 from Ba1 and warned of the potential for further weakening by assigning a negative outlook. The rating on the city's $8.4 million of 2013 certificates of participation was lowered to Ba3 from Ba2 and the rating on $1.5 million of 2012 COPs was lowered to B1 from Ba3.
The city operates on a $14.5 million budget. The downgrade reflected the lack of an adopted plan to address the city's rapidly declining reserves and limited options for restoring fiscal stability, Moody's wrote. "The declines represent a severe departure from the city's prior strong financial performance, following the civil unrest in 2014."
Without action, the city has warned it could become insolvent by June 30, 2017, Moody's said, citing the city's budget documents.
The city, northwest of St. Louis in St. Louis County, faces further strains should it face new costs due to legal fees or provisions of the consent decree, Moody's said. The city's options are limited due to constrained revenue raising ability and its stagnant economy. Missouri local governments may file for Chapter 9 bankruptcy protection by an action of the local governing body without sign off or approval from any other agency, although the city has not indicated plans to file.
