Citation Numbers: 436 Mass. 736
Judges: Cordy, Spina
Filed Date: 5/7/2002
Status: Precedential
Modified Date: 10/18/2024
Following our decision in Levy v. Acting Governor, 435 Mass. 697, 707 (2002), the Governor held a hearing to determine whether Jordan Levy and Christy Peter Mihos should be removed as members of the Massachusetts Turnpike Authority (Authority), for cause, pursuant to G. L. c. 30, § 9. On February 6, 2002, the Governor determined that they should be removed immediately. Levy and Mihos sought review in the nature of certiorari, pursuant to G. L. c. 249, § 4, in the county court. A single justice reserved and reported the matter to the full court. Levy and Mihos contend that (1) the reasons given for their removal are insufficient as matter of law to establish “cause”; (2) the decision to remove them is not supported by “substantial evidence”; (3) the decision to remove them was arbitrary and capricious, and based on bias; (4) they were denied procedural due process at their hearing; and (5) their removal violated principles of free speech under the First Amendment to the United States Constitution.
1. Background. In 1995, by St. 1995, c. 102, § 13, as amended by St. 1995, c. 273, § 1, the Legislature authorized the transfer of the Ted Williams Tunnel to the Authority, required the first ($100 million) of many financial contributions from it for the purpose of paying the Commonwealth’s share of the Central Artery project (project), and directed that the Authority and the Executive Office of Transportation and Construction (EOTC) undertake a joint feasibility study (study) for the purpose of recommending the establishment of a structure to finance and then to operate the extensive network of infrastructure that would exist after the completion of the project. The study was completed in December, 1996. Before its recommendations were finalized, and because of the political volatility of decisions about tolls, the chairman of the Authority met with the Governor and legislative leaders to discuss the need to raise tolls to meet some of the financing requirements of the
The study led directly to the passage of St. 1997, c. 3, which created a new enabling statute for the Authority (G. L. c. 81 A). St. 1997, c. 3, § 6. The changes to the Authority embodied in c. 81A were significant. Its highway assets were divided between the western Massachusetts turnpike and the MHS. The Authority was authorized to take possession of the project’s facilities when they were completed, to incorporate them into the MHS, and to enter into an agreement with the Commonwealth assuming management responsibility for the construction of the project. A management agreement was executed in July, 1997, and among the many responsibilities assumed by the Authority was the responsibility for preparing and filing an annual “Finance Plan” with the Federal Highway Administration (FHA), setting forth the sources of revenue on which the Commonwealth was relying to pay its projected share of the increasing costs of the project.
In 1997, following the recommendations of the study, the Legislature required the Authority to pay $700 million toward the cost of the project. St. 1997, c. 11, § 61 (b). To make this payment, the Authority sold its first MHA bonds (1997 offering). In 1998, the Legislature amended G. L. c. 81A, § 12, to authorize the Authority and the Executive Office of Administration and Finance (EOAF) to enter into a long-term funding agreement for the operation and maintenance of the project’s facilities once they were transferred to the Authority. The agree
As the project’s costs continued to spiral upward through the year 2000, the Legislature required the Authority to pay $200 milhon into an infrastructure fund for the purpose of meeting these rising costs. St. 2000, c. 87, § 11. In addition, the Authority identified other sources of its own funds and assets that would be available to pay the Commonwealth’s share of these costs in the finance plan which it submitted to the FHA in September, 2000, and August, 2001. Specifically, the Authority committed to using $185 milhon from the sale of its “Allston Landing” properties to Harvard University, $68 million in proceeds from the sale of other parcels, and, more generally, future revenue from the Authority’s real estate assets, to meet the increasing costs of the project.
Included in the prospectuses issued for the 1997 and 1999 MHS bond offerings, as weh as in the Authority’s annual reports (prepared pursuant to its continuing disclosure obligation undertaken at the time of those offerings), were revenue projections based on assumed toll increases including the toll hikes planned in 1996 for January 1, 2002. There is, however, no covenant requiring the Authority to make these toll increases. The January, 2002, hikes were identified as the source of $60 milhon in annual additional revenue. This additional revenue was described as necessary to cover an increase in the Authority’s net debt service costs from $5 million per year in
These toll studies were in turn based on a number of stated assumptions, including:
A. The scheduled January, 2002, increase in tolls;
B. The completion of the connection between the Ted Williams Tunnel and the Boston extension of the MHS in 2002; and
C. That “normal economic conditions will prevail in the Boston metropolitan area, Massachusetts and the United States, i.e. there will not occur a severe recession, depression or national emergency.”
The last two assumptions failed, the effect of which has been fewer automobiles on the Authority’s roadways and therefore less toll revenues than projected. The Ted Williams Tunnel connection is not complete because of construction delays resulting from unforeseen and major water problems; and the economic downturn of the late 1990’s was exacerbated by the terrorist attacks of September 11, 2001.
Levy and Mihos, who were appointed members of the Authority in 1998, had voted to approve the issuance of the 1999 MHS bonds, and the related prospectus, and were briefed at that time and on several occasions in 2001 regarding the background to the scheduled.toll increases and the challenges faced by the Authority in meeting all of its necessary financial obligations.
In early August, 2001, pursuant to G. L. c. 81A, § 4 (/), the Authority held two public hearings regarding the proposed toll
Shortly after the hearings ended, Levy asked members of the Authority’s staff for information about alternative revenue sources, including reinstating tolls at interchanges one through six and sixteen, and ehminating resident and volume discount programs. On October 10, 2001, Mihos asked staff members for information concerning the status of the proceeds from the sale of the Allston Landing property, which had been placed in an account the previous year. In addition,. Levy and Mihos received the opinion of the Authority’s general counsel, as well as independent bond counsel, that the 1997 and 1999 trust agreements and bond prospectuses did not require tolls to be raised on January 1, 2002, and that deferring the toll increase until July 1, 2002, would not have a material adverse impact that would require disclosure under securities laws.
The toll covenant in the trust agreements does not require any specific toll increase. It merely requires the Authority to maintain certain debt coverage ratios. The ratio applicable here is 1.2:1. Bond counsel further advised that the Authority had cash reserves sufficient to avert a deficit until 2004 if there were no increase in tolls. Paul Ladd, the Authority’s chief financial officer, advised Levy and Mihos to approve the toll increase effective January 1, 2002, and cautioned that a six-month delay in the toll increase, without more, would produce a deficit in 2004. Bond counsel, who had attended the public hearing on August 7, 2001, opined that the rating agencies would be receptive to alternative revenue plans.
At the meeting of the Authority on October 30, 2001, three legislators spoke against the proposed toll increase. Levy and Mihos voted to approve the toll increase effective July 1, 2002, “and further that the Authority staff study and report back . . . on (1) instituting an austerity program producing significant operating budget cuts; (2) deferring [Authority] capital expenditures for two (2) years which will yield twenty (20) million dollars per annum; (3) earmarking $30 million from the
Bond counsel, who had attended the October 30 meeting, indicated that she did not foresee any problem with the rating agencies because the members voted for toll increases to begin on a date certain and because the members had identified additional sources of revenue that they would examine within • thirty days.
On November 5, 2001, Levy and Mihos met with staff and discussed various options, most of which had been identified during the months between the August hearings and the October 30 meeting in response to requests by Levy and Mihos. Levy, Mihos, and the staff reached a consensus that the Authority could produce approximately $38.4 million in net revenues to make up for the estimated $30 million lost by the six-month delay in toll increases. This included deferrals in capital expenditures until 2004 and 2005 that staff had assured would not compromise public safety. After the meeting, Paul Ladd made it known that he was unhappy about the course that Levy and Mihos were taking.
On the evening of November 5, 2001, the Governor telephoned Mihos at home and requested his resignation. Mihos declined. On November 9, Levy and Mihos called for a special meeting of the Authority for November 13. Following discussions with the Governor’s chief legal counsel, it was agreed that no votes on certain matters, including tolls, would be taken at the November 13 meeting, and that votes on those certain matters would be deferred until November 16 at 10 a.m. so that the members could meet with the Governor’s representatives to discuss toll increases and other matters. Meetings were scheduled for November 14 and 15. On November 14, Levy and Mihos were advised by a Governor’s representative that Paul Ladd was not in attendance because he was in New York at a meeting with one of the Authority’s rating agencies, Fitch IBCA. It was later learned that he had met with representatives of Moody’s Investors, Inc., another rating agency, on November 8, and that he had disclosed to both rating agencies that the Authority had voted on October 30 to delay implementation of
On November 15, 2001, as a result of its meeting with Ladd the week before, Moody’s affirmed its rating of the Authority’s bonds, but changed its credit outlook from “stable” to “negative.” On November 30, Fitch placed the MHS bonds on a negative credit watch, the mildest form of adverse report. These reports were made without benefit of any details of the alternative revenue developments undertaken by the Authority. The Fitch report gave as one basis the “political” challenge resulting from the Governor’s involvement.
The meeting of the Authority proceeded as scheduled on November 16, 2001. Forsberg announced that the Governor had just informed him that she was removing Levy and Mihos, and that a quorum did not exist on which a meeting could take place. General counsel advised Levy that the meeting could proceed. Forsberg did not participate. Levy and Mihos voted to approve the items on the agenda, including the alternative revenue plan devised on November 5, revised to require a study of the tolls on interchanges one through six, and implementation of a revised commercial rate structure on the MHS.
On February 6, 2002, after a two-day hearing, the Governor notified Levy and Mihos of her decision to remove them for cause, pursuant to G. L. c. 30, § 9, effective immediately. She concluded that their “acts and omissions concerning the Authority’s finances, particularly during the time period culminating with the Authority’s October 30, 2001[,] [bjoard meeting and immediately thereafter, were fiscally irresponsible, resulting in adverse consequences of substantially decreasing projected revenues of the Authority, damaging the Authority’s credit outlook, and creating financial instability.” She found that, despite being “repeatedly advised by the Authority’s financial staff ... of the Authority’s tenuous financial condition, including the depletion of cash reserves in the near term and the need for additional revenue to meet its considerable
The Governor found that the alternative revenue plan was created “hurriedly” and in a “haphazard” manner, that it did not adequately compensate for the revenues that had been lost as a result of their actions, and that it was not financially viable. She also specifically rejected Levy’s and Mihos’s contention that the events of September 11, 2001, and the delay in opening the Ted Williams Tunnel justified their failure to take advantage of the revenue opportunity in the form of a toll increase beginning January 1, 2002. Although the Governor found that these acts and omissions, standing alone, “constituted cause for [their] removal,” she identified several additional, independent grounds justifying removal.
The Governor further determined that Levy and Mihos “interfered with the effective daily management of the Authority” by “dividing the staff,” “refusing to follow normal lines of authority,” “micromanaging matters within the purview of the Authority’s professional staff,” and by “creating an environment within the Authority that was not conducive to productivity.” She also found basis for removal in actions they took that “further jeopardized the Authority’s standing with the rating agencies, without consulting with the Chief Financial Officer or disclosure counsel.”
2. Standard of review. Levy and Mihos argue that the standard of review we should apply “here is the “substantial evidence” test. “Substantial evidence” is evidence that “a reasonable mind might accept as adequate to support a conclusion.” G. L. c. 30A, § 1 (6). The Governor argues that the “arbitrary and capricious” standard should apply because her decision is entitled to considerable deference, and the nature of her decision is executive, not judicial. We have said that “the proper approach in considering the appropriate scope of review [under
The cases relied on by the Governor involve the removal of public officials over whom an executive had broad supervisory or managerial responsibility and control, or oversight, or whose position existed to aid the executive in carrying out policies. See McSweeney v. Town Manager of Lexington, 379 Mass. 794, 800 (1980) (removal of town engineer and superintendent of public works by town manager for incompetence and inefficiency); Dunn v. Mayor of Taunton, 200 Mass. 252, 258 (1908) (mayor removed sewer commissioners for failure to comply with statute requiring imposition of sewer assessments); Gaw v. Ashley, 195 Mass. 173, 177 (1907) (removal of member of board of health by mayor); Ayers v. Hatch, 175 Mass. 489, 492 (1900) (removal of assessor by mayor). In such cases, “[i]f the cause assigned is a reasonable one, then, whether under the circumstances it is sufficient to justify a removal, is for the [executive] to decide and his decision is final.” Id. The decision of the removing authority “can be revised by this court [under certiorari review] only when there has been an arbitrary exercise of power.” Dunn v. Mayor of Taunton, supra. Where traditional models of executive oversight are involved, the less strict “arbitrary and capricious” standard of review should be applied. Where such oversight is absent, however, the public official, and perhaps others, have a greater interest in retention, so a higher standard may be more appropriate. See Boston Edison Co. v. Boston Redevelopment Auth., supra.
The Governor’s supervisory or managerial interest in the Authority is limited, and it does not extend to the activity at hand. See Levy v. Acting Governor, 435 Mass. 697, 705 (2002). The Authority was created as “a body politic and corporate,” G. L. c. 81A, § 1, and as such it is “not part of the machinery of the government.” Commonwealth v. Toomey, 350 Mass. 345, 350 (1966), quoting Opinion of the Justices, 334 Mass. 721, 739 (1956). General Laws c. 81A confers on members the power
Notes or bonds issued by the Authority are not a debt of the Commonwealth, or a pledge of the faith and credit of the Commonwealth. Notes or bonds issued by the Authority are payable solely from revenues generated by the corresponding turnpike or metropolitan highway system. See G. L. c. 81 A, § 4 (g), (h); § 5 (z). Noteholders and bondholders of the Authority cannot look to the Governor or the Commonwealth for payment. They can only look to the Authority. Thus, the Governor has no apparent proprietary interest in the Authority’s issuance of bonds and notes.
The Legislature determined that the public would be better served by an independent Authority. The independence of the Authority is also essential to the Authority’s lenders and investors. The 1997 and 1999 bond prospectuses describe the Authority as “a body public and corporate” able to “act only upon the concurrence of at least two of its members,” and that only they “determine policies affecting the operation and maintenance of the [MHS] and the Western Turnpike.” The only exception to this power mentioned in the prospectuses is legislative action. There is no reference in the prospectuses to the Governor’s having any power to manage the Authority or
3. Cause. Levy and Mihos contend that, because “cause” is not defined in G. L. c. 30, § 9,
The Governor contends that § 9 permits her to remove Levy and Mihos “for cause including but not limited to misconduct, incompetence, neglect of duty, maladministration, or any act or omission that impairs the ability of the Authority to fulfill its public responsibilities.” To these she adds any “grounds for discharge reasonably related, in the employer’s honest judgment, to the needs of his business,” Amoco Oil Co. v. Dickson, 378 Mass. 44, 48 (1979), quoting G & M Employment Serv., Inc. v. Commonwealth, 358 Mass. 430, 435 (1970), and even a dispute over policy “about which there may be an honest difference of opinion.” Rinaldo v. School Comm. of Revere, 294 Mass. 167, 169 (1936).
4. The decision to remove. The essence of the Governor’s reasons for removing Levy and Mihos is that they forfeited approximately $30 million in new revenue, and that their alternative plan was not financially viable. When reviewing a decision to determine whether it is supported by substantial evidence, we must consider the entire record, taking into account whatever fairly detracts from the evidence on which the decision was based. See Blue Cross & Blue Shield of Massachusetts, Inc. v. Commissioner of Ins., 420 Mass. 707, 710 (1995).
There was no evidence that the vote to “delay” the toll increases violated any covenant in the 1997 and 1999 trust agreements or their corresponding bond prospectuses. The evidence was to the contrary. The assumption in the bond prospectuses that tolls might be raised did not create an obligation to raise them. The consensus in 1996 between the former chairperson of the Authority, a former Governor, and legislative
The Governor criticized the November 16 plan for its failure to generate significant “new revenue,” and for relying to a large degree on deferred capital expenditures. There is no requirement to generate “new revenues.” The debt coverage ratios the Authority was obligated to meet are not based on revenues alone, but on net revenues. Net revenues may be increased by cost savings. Additionally, the October 30 vote to defer toll increases, even without the November 16 plan, does not result in net revenues that fall below the 1.2:1 debt coverage ratio. The plan satisfies the Authority’s existing obligations.
Evidence was presented that the rating agencies prefer the Authority to sustain a debt coverage ratio of 1.35:1. The alternative revenue plan adopted on November 16, 2001, meets even that mark for every fiscal year. An analysis of that plan was prepared by Authority staff under the supervision of Ladd on November 30, 2001, as Fitch had expressed a willingness to consider it when Levy and Mihos contacted Fitch analysts and reported that they had not received a complete picture of the Authority’s actions. However, it was not forwarded in time to affect Fitch’s report. Ladd’s plan for the toll increase on January 1, 2002, which he urged the members to adopt on October 30, 2001 (and which the Governor favors), fails to meet the debt coverage ratio of 1.35:1 for the years 2004 through 2010. The finding that the November 16 plan was not viable is not supported by substantial evidence.
The November 16 plan had not been the result of “haphazard” planning, and it was not irrationally linked to the delay in
Contrary to the Governor’s contention, there was no obligation to vote on the proposed toll increases and the alternative revenue plan at the same time. There was no obligation to simultaneously replace the “lost” revenue from the deferral of the toll increases with alternative sources of new revenue. Ladd’s efforts to ignore the revenue plan because it was not adopted on October 30 are not binding on Levy and Mihos. Moreover, although the October 30 vote and the November 16 plan were adopted at separate meetings, it is apparent from the evidence that they were proceeding on parallel tracks and were part and parcel of a single course of action. As noted above, Fitch had expressed an interest in seeing the analysis of the November 16 plan and would have considered it before releasing its November 30 report, but the analysis was not forwarded in time.
The Governor found that Levy and Mihos acted irresponsibly by potentially compromising the project. The Authority had met
The criticism that Levy and Mihos interfered with the effective daily management of the Authority, and the related criticisms, are not supported by substantial evidence. They did nothing more than request information from senior staff that was reasonably necessary to carry out their duties in determining policy for the Authority. Levy and Mihos appropriately considered the contrary opinions of some staff. They are not required to follow the advice of staff. The members of the Authority, not staff, set the policy of the Authority in the circumstances here, subject to action by the Legislature.
This case boils down to a difference of opinion between the Governor and two members of the Authority over the policy of the Authority and the ability of the members to fix tolls. That difference of opinion does not constitute substantial evidence that Levy or Mihos acted in a manner that warrants removal by the Governor for cause.
Because we conclude that the decision to remove Levy and Mihos is not supported by substantial evidence, we need not address the claims that they were denied procedural due process at their hearing, or that the decision to remove Levy violated his First Amendment rights. The order for removal must be vacated.
So ordered.
Mihos reserved his right to present his First Amendment claim to the United States District Court for the District of Massachusetts. See England v. Louisiana Bd. of Med. Examiners, 375 U.S. 411 (1964).
The “[m]etropolitan highway system,” defined in G. L. c. 81A, § 3, includes the “Boston extension” of the turnpike, the “Callahan tunnel,” the “central artery,” the “central artery north area,” the “Sumner tunnel,” the “Ted Williams tunnel,” and other “components as the general court may from time to time determine.”
This increase is largely the result of the Authority’s ability to offset its 2000 and 2001 debt obligation with $40 million in interest which it would earn on funds it had borrowed through the offerings but had not yet expended. The balance of those funds would be expended by 2002, leaving a substantially larger net debt service payment becoming regularly due. However, the anticipated $60 million per year from the anticipated toll increases would be available to be applied to this debt service in July, 2003, a point stressed by Levy, who questioned the need to collect eighteen months of toll increases for application to twelve months of debt, especially where other revenues also would be available to pay that debt.
Unlike G. L. c. 81A, § 10 (a), which confers power on the Authority to fix tolls over the turnpike, free from executive supervision, § 10 (b) simply confers power on the Authority to fix tolls for the MHS, with no reference to freedom from executive supervision. We do not think that this implies a legislative intent to confer supervision in the executive branch, because where the Legislature intended executive oversight of the Authority elsewhere in c. 81A, it did so explicitly. See, e.g., G. L. c. 81A, § 16 (land lease of forty years or more requires Governor’s approval). The Governor, correctly, does not claim any power to fix tolls over the MHS. The 1997 and 1999 bond prospectuses indicate that the Legislature has retained such power for itself. As an example, the prospectuses cited St. 1997, c. 11, § 113, which fixed free passage on the western turnpike (interchanges 1 through 6) and the Boston extension.
General Laws c. 30, § 9, states: “Unless some other mode of removal is provided by law, a public officer, if appointed by the governor, may at any time be removed by him for cause, and, if appointed by him with the advice and consent of the council, may be so removed with its advice and consent.”