Post Municipal Bankruptcy Challenge in the Motor City & Puerto Rico

August 16, 2019

Good Morning! In this morning’s eBlog, we consider the ongoing governance challenges as Detroit continues to recover from its chapter 9 municipal bankruptcy, as we consider the role of surrounding Wayne County; then we head for the sunny Caribbean to assess the challenge of succession in the wake of an ousted Governor.

Forgiving Delinquency? Wayne County, Michigan is considering forgiving the delinquent tax bills of low income Detroit homeowners under a new program; however, that consideration is complicated by the County’s chief debt collector, who, last week, said not only that he was opposed to the idea, but also that it might be illegal. The new program, the Quiet Title Exemption Program, would have low-income Detroiters give temporary ownership of their homes to the Wayne County Land Bank, which, in turn, would then file a court case to erase the debt and return the homes to their owners. However, a key obstacle is whether such a practice would be legal: the land bank’s staff members said they have an opinion from Wayne County lawyers who blessed the idea; however, County Treasurer and Land Bank Chair Eric Sabree noted he does not believe judges can erase the debt. At a land bank board meeting last week, Treasurer Sabree reported he had consulted with attorneys, including those who work with land banks and other experts, noting: “Not one of them have any support for something like this: ‘The judge cannot extinguish taxes.’” The goal is to help struggling owners keep their homes, giving them a “fresh start,” according to Wayne County Land Bank Executive Director Daniel Rosenbaum. The good gnus, this year, is that foreclosures are down 5%; however, close to 34,000 properties are on repayment plans, according to the Treasurer’s office. Low-income Detroiters who qualify do not have to pay property taxes; however, unsurprisingly, critics have argued the yearly application process for the property tax exemption is cumbersome and many Detroiters apparently are unaware of the option and opportunity. To qualify, a household income of a family of four must fall below $26,104. Detroit would be the only city in the Wayne County to qualify currently, because it is alone in giving a 100% poverty tax exemption. 

Under the proposal, owners who currently have a tax exemption, would be forgiven for past years in which they have obligations, with Wayne County accepting that they would have qualified in the past. If approved this year, the land bank hopes to start with about 80-90 homes, which officials estimated would mean erasing approximately $150,000 in debt: it would cost owners $500 to file to quiet title. The land bank Board last Thursday tabled the proposal; the Board hopes to call a special meeting in the next few weeks for further discussion. Chair Sabree had other concerns: he has argued that other taxing jurisdictions, such as the Detroit Public School District and library, were not consulted. In addition, he questioned whether Wayne County would be required to provide refunds to low-income owners who had the exemption, but whowere able to pay their past due tax bills. 

For his part, County Executive Warren Evans is supportive: he noted: “We think it’s a good avenue to help some residents break the poverty cycle and keep them in their homes.” Director Rosenbaum added that this is a temporary program focused on assisting homeowners until the Michigan Legislature changes the law to allow retroactive tax exemptions—albeit, as the proposal has stalled in recent years, it is unclear whether this might not be an impossible dream; moreover, the City of Detroit, a key player, has yet to weigh in: a spokesperson for Mayor Mike Duggan said they were reviewing the Quiet Title Exemption Program and a possible retroactive tax exemption, with office spokesperson John Roach noting: “We are committed to reducing the financial burden on these individuals in order to keep them in their homes and are working hard to develop the best solution.” Most of the Census Tracts in Detroit, especially those with lower life expectancies, have more than 28 percent of the population living at or below the poverty line. Specifically, there are three census tracts in Detroit where the average life expectancy is between 62 and 65 and the percentage of the population living below the poverty line ranges from about 29-100 percent.

The Challenge of Succession. According to Puerto Rican folk history, Pateco buried the dead from Hurricane San Ciriaco, which savaged Puerto Rico one hundred twenty years ago. At the beginning of this month, Teofilo Torres, dressed as a gravedigger, said: “I already buried Ricky Rosselló…This is the coffin for Wanda,” referring to ousted Gov. Ricardo Rosselló. Former Justice Secretary Wanda Vázquez was, theoretically, next in line, but then, at the end of July, as we have noted, the former Governor nominated Pedro Pierluisi. The removal of the former Governor could prove cathartic, but Puerto Rico confronts both governance and economic challenges: it has suffered from years of economic mismanagement, a bloated public sector, and a 44.9% poverty level—more than thrice the national average. Moreover, the inadequate and discriminatory federal response to Hurricane Maria exacerbated its fiscal and physical challenges: it sparked sparking mass emigration to the mainland, leaving an older and poorer U.S. population behind. The government debt, which exceeds $120billion, including pension liabilities, is suffocating. The PROMESA Oversight Board has completed two deals to restructure some of the debt this year.

Now the ouster of former Governor Rosselló’s departure has focused attention on one of Puerto Rico’s most significant problems: corruption, which has been endemic for generations. Politicians on both sides offer sweetheart deals to their friends in business, which in turn generates the money needed to get elected. Or, as economist José Villamil put it: “The political system basically created an institutional infrastructure that promotes behavior which will lead to corruption sooner or later.”

Last month, the FBI arrested six individuals, including two members of the Rosselló administration, for directing $15.5m to favored businessmen. Douglas Leff, head of the San Juan division of the FBI, told Radio Isla: “It’s going to be a very busy summer for us.” A week later the Centre of Investigative Journalism, which originally published the leaked messages that led to the Governor’s downfall, reported that three of his associates, Elías Sánchez, Carlos Bermúdez, and Edwin Miranda, had benefited in various ways from their friendship with the former Governor. All three deny wrongdoing.

Now, with the swearing-in of its third governor in two weeks, Puerto Rico has now been tasked with learning to move forward in the aftermath of #RickyLeaks, the July 13th publication of 889 pages worth of text by the Puerto Rico Center for Investigative Journalism, in which then-governor Ricardo Rosselló mocked the island, Puerto Rican celebrities, and fellow politicians—leaks which led to twelve days of protest and the former Governor’s resignation, albeit, as Archbishop Roberto Octavio González Nieves of San Juan noted: “What pressured Governor Rosselló to step down was the result of a build-up of many years of frustration, difficulties, especially corruption within the government…The government was out of touch with the real needs of the people, especially after Hurricane Maria.” he said, describing the leaked chats as the detonator that set off an explosion of frustration, anger and marches. The former Governor’s administration at the time included Secretary of State of Puerto Rico Pedro Pierluisi, who assumed the role of Governor from August 2 until the territory’s Supreme Court ruled determined his being sworn into office unconstitutional on August 7. As a result, the former Secretary of Justice, Wanda Vázquez, was instituted as Governor immediately following Mr. Pierluisi’s resignation on that same day. 

The governing challenge now will be to work to dismantle the system of patronage which has built up over years. Apart from the practice of favoring allies with government contracts, politicians have a habit of replacing officials across the government machinery with their own cronies every time there is a transfer of power. That leads a loss of expertise and experience each time. It will be further complicated by the query on the streets of San Juan: ‘Quien es encargado?” [Who is in charge?]. Is it the newly elected Governor, the 1st U.S. Circuit Court of Appeals, the PROMESA Oversight Board—which, early last month filed an “adversary proceeding” over unauthorized spending and a recently adopted law, Act 29, allowing the municipalities to not make retiree health care and pension contributions. When he signed Act 29, Gov. Ricardo Rosselló said the central government would make these payments for the municipalities. He said the law was a way to relieve financial pressure on the municipal governments.

Puerto Rico Oversight Board lawyer Martin Bienenstock said a law’s passage aimed at helping municipios contravened the PROMESDA Board’s authority on debt—in response to which, last month, through his legal representative, former Gov. Rosselló filed a motion to dismiss the Board’s case. Peter Friedman, the lawyer representing the side of the Governor and the other defendant, the Puerto Rico Fiscal Agency and Financial Advisory Authority, described the situation as one which has “been a crazy two weeks.” Under pressure from members of his party and from demonstrators, in the last few weeks former Gov. Rosselló resigned and had Pedro Pierluisi sworn in as his replacement; however, a few days later, the Puerto Rico Supreme Court declared Mr. Pierluisi’s selection invalid; since then the former Governor’s Secretary of Justice, Wanda Vázquez Garced, has become Governor.

Meanwhile, in response to the unrest in Puerto Rico’s government, Judge Laura Taylor Swain agreed to postpone the motion-to-dismiss hearing twice; however, she rejected a motion to do so a third time. Mr. Friedman, in a filing with the court last week seeking a postponement of the hearing, noted: “It is vital that Governor Vázquez be permitted to provide her guidance on Act 29 and the other aspects of the litigation regarding alleged patterns and practices of the office of the governor of Puerto Rico…Defendants have serious concerns that proceeding with the hearing on August 15 does not provide them with an appropriate amount of time to fully discuss and evaluate the significant legal and public policy issues at stake here, formulate their positions of them, and engage with the Oversight Board if they believe it is appropriate to do so.” However, Judge Swain issued a ruling that said despite the need for Vázquez Garced to review the case, it was best to avoid further delays in the case.

Meanwhile, last Thursday, PROMESA Board Chairman José Carríon and Executive Director Natalie Jaresko met with the new Governor in what appeared to be an effort to establish better relations.

Then, in the courtroom at the end of last week, the PROMESA Board’s attorney, Martin Bienenstock, argued over the issue with regard to whether sections of the Puerto Rico Oversight, Management, and Economic Stability Act authorized the local government’s actions and the Board’s attempt to overturn them: the issue involved whether the Board was seeking to invoke an an overly broad interpretation of section 204 of the PROMESA statute, which bars the local government from issuing or otherwise modifying debt without the Oversight Board’s authorization, to nullify Act 29. He also argued that the Board’s use of section 204 was inappropriate, because it allows local budgetary officials to “certify” laws as long as they are not “significantly” inconsistent with the fiscal plan. Writer Eric Friedman is of the view that the Board lacks the statutory right to challenge Act 29; however, Judge Swain pointed to a PROMESA section which she said prohibited the local government from doing anything inconsistent with a fiscal plan, asking, rhetorically, if the Governor “could blow an enormous hole” in the budget as long as he or she certified it to be consistent with the fiscal plan? Attorney Bienenstock said Law 106 from 2017 had, among other things, directed the municipal governments to send pension and retiree health contributions to the central government so the central government would use them for those purposes. (Former Governor Rosselló signed Act 29 this summer, amending Law 29 on the issue of the municipal transfers. Effectively, in Act 29, the central government had altered a debt the local governments had owed to it, Mr. Bienenstock said. PROMESA section 2017 bars the local government from altering debt, he added. The PROMESA Board has challenged two dozen resolutions appropriating funds for expenditures not in the board-approved budget. Mr. Bienenstock said that PROMESA section 204(c)(2) was aimed at preventing the local government from “reprogramming” money without first obtaining PROMESA Board approval, adding that through PROMESA section 205(a), the Board had authority to address aspects of government policy beyond the issue of their consistency with the fiscal plan.

Judge Swain said she would take the lawyers’ arguments under advisement and would later release her decision.

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Betting on Atlantic City’s Fiscal Future & Righting the Fiscal Ship in Puerto Rico!

August 16, 2019

Good Morning! In this morning’s eBlog, we consider the challenge in Atlantic City, New Jersey of property taxes before veering south to assess the improving governance and fiscal situation in the U.S. Territory of Puerto Rico with new Governor Wanda Vázquez-Garced settling in and returning some stability.

Betting on the Up & Up. A year after two new casinos, the Hard Rock and Ocean, opened in Atlantic City, the city’s gambling and sports betting revenue is up nearly 8%. According to figures released by the New Jersey Division of Gaming Enforcement Wednesday, the casinos took in $323 million, an increase of 7.8% from one year ago—the date when the city’s two newest casinos began their first full month of operation. The city’s biggest casino, the Borgata, took in nearly $88 million in casino and sports betting revenue, the most it ever had reported in a single month, notching an increase of nearly 15% from a year earlier—and coming during the first full month of operation of a $12 million sports betting and entertainment project the casino opened. The nearby Ocean Casino Resort took in $20.1 million from gamblers last month, nearly a 20% increase from last year, when it was in its first month of operation. Indeed, the casino’s chief marketing officer noted that last month marked the best month in the casino’s history for gross and net slot revenue and hotel occupancy, including the two-plus years it operated as Revel. Together, the figures demonstrated the recovery of Atlantic City’s casino industry—just three years after the Hard Rock’s predecessor, the seemingly aptly named Trump Taj Mahal, shut down, marking the fifth of the 12 Atlantic City casinos that operated in 2014 to go out of business. The re-openings of Taj Mahal as Hard Rock and Revel as Ocean have restored several thousand jobs and boosted casino revenue, even as profits collectively fall for the resort, which now has more competitors than it did just a few years ago.

Nevertheless, as can be the case with any game of risk, the good gnus could be impacted by an obscure provision buried within the casino PILOT (payment in lieu of taxes) law—under which, if Atlantic City’s casinos eclipse $3 billion in total gaming revenue this year, which they are projected to do, the city would receive about $4 million to $5 million less from the industry in 2020—because of a crediting mechanism built into the 2016 legislation: the city would lose about $14 million to $15 million in investment alternative tax funds (IATs), according to Department of Community Affairs spokesperson Lisa Ryan, but that loss would be offset by the gain of about $10 million in additional PILOT funds the city would receive. As we have previously noted, the decade-long PILOT program was intended to stabilize Atlantic City’s finances by temporarily eliminating the volatility of costly tax appeals from the casinos and providing a predictable revenue stream for the city, the county and the school district based on annual gaming revenue; however, the Department, which, under the terms of the quasi-chapter 09 state takeover of the city by the state in 2016, provided that even if PILOT payments were to increase because gaming revenue reached the next fiscal benchmark, the city would experience a net loss because of a crediting concept in the law that holds casino tax payments at 2015 levels: the credit is to be financed with funds from the IATS which the city is statutorily obligated to use for municipal debt service. Last year, Atlantic City received nearly $9.7 million in IAT funds; the FY2019 municipal budget, which has not been formally adopted, anticipates more than $13.8 million from IAT funds; however, if the casino industry meets the $3 billion gaming revenue threshold outlined in the PILOT, Atlantic City will not receive any IAT funds in 2020 or 2021.Ms. Ryan noted: “We are aware of the IAT issue and working with the city, particularly its finance staff, to adapt to its near and long-term impact on the city’s finances, which, as it stands now, is negative in the short-term, but positive 2022 and beyond.”

PILOT bill sponsor Assemblyman Vince Mazzeo (D-Atlantic) said Golden Nugget Atlantic City and Resorts Casino Hotel would not sign on to the voluntary PILOT without the credit provision in the bill responsible for the two-year moratorium on IAT payments to the city, adding that, in his view, the PILOT law did its job, stabilizing Atlantic City government and finances: “We wouldn’t have seen the turnaround with $3 billion in revenue without it,” Mazzeo said. “But I have always said it isn’t perfect. We have a hiccup here, but in 2022 and on the money will be restored.”

Atlantic City Council President Marty Small noted he was aware of the provision in the PILOT legislation and it was one of the reasons he testified last year to the State Legislature about Atlantic City being able to recoup a percentage of sports betting tax revenues. (Governor Phil Murphy, last October, signed legislation providing that host municipalities of sports betting facilities would receive 1.25% of taxes from sports wagering revenue; however, the legislation directed such revenues to go to the Casino Reinvestment Development Authority—not the city. The PILOT law outlines tiers for total gaming revenue generated by the casino industry and resulting pilot or payments in lieu of taxes. Last year, the casino industry reported $2.86 billion in revenue and the PILOT responsibility was $132.6 million: Atlantic City received $70.2 million of that total, while Atlantic County was paid $15.6 million, and the Atlantic City school district received $44.2 million. Two new casino properties and legalized sports betting created additional gaming revenue streams in the second half of 2018. With a full year of nine operational casino properties and sports wagering revenue, the industry is on pace to eclipse the $3 billion threshold in the PILOT bill. The resulting PILOT amount for 2019 is estimated to be roughly $152.6 million. From 2022 to 2026, the final years of the PILOT, the crediting mechanism lapses and Atlantic City would again receive its portion of IAT funds. According to the DCA budget document, the city would receive annual IAT funding of $39.6 million during those years.

The risk in gaming—which, after all, is about betting on risk—could come from internet gaming—which, after all, does not require a physical presence; last year, internet gambling brought in more than $39 million, an increase of nearly 52% from last year. Among internet-only entities, Resorts Digital took in $10.5 million in July, up nearly 169% from a year ago, and Caesars Interactive-NJ won just over $5 million, up nearly 35%. So far this year, the casinos have taken in $1.84 billion, an increase of more than 18% from the same period last year.

Property taxes revenues have risen this year substantially, averaging just over $676.50 on a $150,000 home — even though the city, county and school district all have announced stable budgets. Nevertheless, a loss of property value, and the end of millions of dollars a year in tax-appeal refund credits from the county to the city have conspired to create the situation, according to Atlantic County Tax Administrator Margaret M. Schott—a finding which she noted came as a surprise. The biggest increase is in county taxes, up 20 cents per $100 valuation, or $373.50 on a modest $150,000 home; and it is happening notwithstanding that the city’s share of the county tax burden is decreasing. A loss of $358 million in equalized value from successful tax appeals and sales data adjustments brought the city’s bill for county taxes down to $11.8 million this year, from $13 million in 2018.

A spokesperson for the state Department of Community Affairs, which continues to oversee the city’s finances, last Friday noted it is calling for a joint task force to coordinate and reduce taxes, inviting Atlantic County Executive Dennis Levinson, New Jersey Department of Education Commissioner Lamont Repollet, and the Atlantic City Board of Education to join DCA and city elected officials in the effort. The spokesperson said the municipal tax rate is the only one it has control over, and that the municipal portion of property taxes did not go up. DCA oversight decreased the municipal tax rate by 11.4 percent in 2017, and kept it flat in 2018 and 2019.

Taking Charge of Governance. Puerto Rico’s new Governor Wanda Vázquez finally appeared to be overcoming some of the challenges to her authority this week with key members of the majority New Progressive Party expressing support—support which may grant an individual who has who has never held elected office space in which to focus on the U.S. territory’s lagging efforts to recover from the devastation of Hurricane Maria in 2017, as well as the grinding economic slump and debt crisis which has led to demands for austerity from the PROMESA Oversight Board. On Wednesday, Senate President Thomas Rivera Schatz, who had been viewed as her chief challenger, issued a statement on Facebook backing her and saying: “It’s up to all of us to work for Puerto Rico…The governor will have our collaboration, and I have expressed that personally.”  In an 80-page report the Board released Wednesday, the Board urged the federal government to provide more help to the island’s people and businesses, and asked: 1) the federal government for a long-term funding solution for Medicaid on the island, 2) to change a law to make air cargo cheaper, 3) to expand a child tax credit to Puerto Rico, and 4) to increase federal statistics collection there. Puerto Rico Oversight Board Executive Director Natalie Jaresko touted the progress the board made in restructuring debt in fiscal year 2019.

August12, 2019

Good Morning! In this morning’s eBlog, we consider the ongoing federalism and governance challenges for Puerto Rico, a U.S. territory, making it somewhere between a municipality and a state-and undergoing the governance challenge of determining succession, roiling governance challenges in the U.S. territory of Puerto Rico, where, in the wake of a Puerto Rico Supreme Court decision, Puerto Rico Secretary of Justice Wanda Vázquez-Garced was sworn in as the U.S. territory’s third Governor in less than one week.

Puerto Rico Supreme Court Chief Justice Maite D. Oronoz Rodríguez has warned of the risks of hastily amending Puerto Rico’s Constitution, as well as spoken about how the territory’s Justices came together to reach consensus with regard to the process for settling on a new Governor. Interestingly, Chief Justice challenged claims that this was a constitutional crisis; rather, she noted, it was not Puerto Rico’s Constitution that was in trouble, but rather the territory’s political institutions, noting: “The Constitution resolved the political crisis,” referencing that the Chief Justice’s main argument was the “clear” and “specific” decision written by associate Justice Rafael Martínez Torres who, with the unanimous support of Supreme Court justices, declared unconstitutional the swearing-in of former Resident Commissioner Pedro Pierluisi as Governor, and noting this was the most important judicial decision that Puerto Rico’s highest court had ever issued. In the wake thereof, Judge Oronoz Rodríguez believes that the July demonstrations mark the beginning of a new Puerto Rico where citizens are more engaged and involved in government affairs and demand more from public servants; however, she warned that controversies triggered before, during, and after the protests should not lead to swiftly amending the Constitution: she cautions that there could be mistakes if constitutional changes are not duly evaluated and considered. She noted that the island’s is like a cutting-edge tool which provided the necessary criteria to resolve the lawsuit filed by Senate President Thomas Rivera Schatz challenging Commissioner Pierluisi, who had been named Secretary of State to put him in line to become Governor after the Senate chose not to confirm former Gov. Rosselló Nevares’ resignation, Senate, as the Constitution mandates—in response to which the former Resident Commissioner had argued that such confirmation was unnecessary due to a 2005 amendment to the Succession Law. The Supreme Court, however, ruled that a part of this amendment was unconstitutional. (The suit here was filed on Sunday, the Puerto Rico Supreme Court certified it on Monday, arguments were presented on Tuesday, and the decision was handed down on Wednesday.) 

Justice Oronoz Rodríguez, in response to the question with regard to whether, by declaring Sr. Pierluisi’s appointment null and void, could it really even be determined that Mr. Pierluisi had even served as Governor, noted: “I think it’s fair to say that the majority decision provides that Pierluisi was sworn in accordance with a law that at that time was valid, because it had not been declared unconstitutional. It is the Court that, five days later, decided that a Secretary of State has to be confirmed by the Senate and the House, so that appointment, made based on an unconstitutional law, is not valid.” In response to a follow-up question with regard to whether, if an individual is appointed to a government office, and, subsequently, it comes to light that said appointment was null and void—can it actually be said that she or he actually held office, the Chief Justice responded: “I think that [Gov.] Pierluisi, aware that the situation could end up in Court, was very cautious; he said so himself…I think he did so because he knew that the matter would end up in the Puerto Rico Supreme Court.

Asked to describe, from his perspective, the importance of the case, the Justice noted it was the “most important and transcendental case. And I dare say it is the most important case that the justices in this court have ever had,” adding that in the nearly two-thirds of a century of the Commonwealth) there had not been a situation such as this: “The Constitution is so extraordinary that not only did it foresee a permanent absence of an elected Governor, but that there could also be an absence of a Secretary of State, who is the second in the line of succession. In the absence of a Governor and a Secretary of State, the law has a preferential order to fill that position. That is the law that was amended in 2005 and that brought the problems we had. The Constitution is so precise that it anticipates something that happened 66 years later and provides the way to resolve it. I’ve heard a lot of people talking about a constitutional crisis here. There was no constitutional crisis here. There was a political crisis here. The Constitution resolved the political crisis.”

Asked what would have happened if former Gov. Ricardo Rosselló, before leaving, had not called an extraordinary session, and what would have happened if the Puerto Rico House and the Senate confirmed him before former Gov. Rosselló left office; the Judge responded: “All these questions have different answers, and it is fascinating for me, as a lawyer and as a judge, because the answers are there. All these questions have legal answers…That Constitution was recently mistreated with cases such as Sánchez Valle which ratifies that Puerto Rico’s sovereignty comes from Congress and PROMESA through which Congress imposes an unelected entity over the government.

He added: “I think that if you have a Constitution that worked, you have to be careful about amending it, and, not that it shouldn’t be done, but you are talking about a document that was considered, that was discussed, prepared by a multi-sectoral group, in consensus, with a plurality of representatives…When I hear people saying that we have to rush to amend the Constitution, I think we have to take a pause. Reactive legislation to address a particular situation of a historic moment may not be useful in the future.

He noted that a “perfect example” of reactive legislation was the Law 7-2005, enacted in 1952, to address a specific situation, where the Governor, at the time, was from a party other than those controlling the Legislature: “This amendment was created for a particular situation of the person proposed as Secretary of State back then. They all made an important mistake then, because they drafted legislation to address a specific issue and did so in contravention of the Constitution. We, who are still immersed in this political crisis, do not have enough distance from the events to calmly think about what is convenient for Puerto Rico.

Asked if he had a concern with regard to the amendment, the Judge responded: “My only concern is that we react without granting the island space and time to return to stability. These amendments, if they are proposed, must come after a deep evaluation, study, consensus, and a very well-thought-out process. Besides, you cannot have a constantly changing Constitution. That brings distress and instability.”

Asked if it seemed unusual for the court to render a unanimous verdict in such a short time frame, Judge Oronoz Rodríguez agreed it was extremely rare, adding that the Justices understood whatever decision they reached would have signal import; therefore, achieving unanimity—and how they wrote their opinion matter profoundly: “I think this is the most important case this Court has ever seen. We clearly see the historical significance of this ruling for future generations. I think it was important, and that all of us need to express ourselves. We were very clear in our determination, but we wanted to make additional points. I have to say that I think judge (Rafael) Martínez Torres was the right person to write the decision. Not only is he a very intelligent Justice, he has incredible legal knowledge, but he can write promptly and clearly. It was important for that opinion to be clear, not only because it would be read by lawyers, but because it was an opinion that would be read by the whole island and people from outside of Puerto Rico. It was necessary to transmit the idea in a simple and timely manner, and I think he captured it brilliantly.

Asked about his thoughts with regard to the mass demonstrations, the Justice noted: “I think Puerto Rico had two very important moments in recent years. One is (Hurricane) María and the other, this summer. I think that María united us as a people. I think Maria got the best out of the Puerto Ricans. That’s why you have people who were helping for months and are still helping people they didn’t even know. I think it brought more solidarity to us. The summer of 2019 created an island more involved in its governance. I think Puerto Ricans are watching and will ask much more from all of us public servants, and will be more aware of the decisions, whether they affect them or how they affect them. I think, for the first time in its history, or in a long time, Puerto Rico has been able to tangibly feel that the power of governance is in its hands. Public exercise and public power fall in the hands of Puerto Ricans. I think it was the first time that it has been extraordinarily concrete. That makes us—and we already were—a great island and a much stronger democracy.”

Asked if the Puerto Rico Constitution made room for a peaceful coup d’etat, the Judge responded: “In my concurring opinion, I said there was a peaceful revolution, and it was something that I have been thinking about, since everything began, and that is, without entering into judgments about whether it was correct or not, Puerto Rico managed to have a Governor’s resignation in 12 days and, except for a few instances where there was violence, it was a peaceful process. When you look at other countries’ history, you can see coups d’etats by the military, with blood running in the streets, people being kidnapped, with civil wars between brothers. Puerto Rico achieved what the people on the street demanded. It did it in 12 days and in a peaceful way. I think that’s worth celebrating. I recently met with Chief Justices from other U.S. jurisdictions, and they expressed astonishment at what Puerto Rico had made. Many years from now, we will look back, and we will see that what we are going through is historic, especially because Puerto Ricans don’t usually take the streets that way. Certainly, it was historic.”

Political Challenges of Succession in a U.S. Territory

August 9, 2019

Good Morning! In this morning’s eBlog, we consider the ongoing, roiling governance challenges in the U.S. territory of Puerto Rico, where, yesterday, in the wake of a Puerto Rico Supreme Court decision, Puerto Rico Secretary of Justice Wanda Vázquez-Garced was sworn in as the U.S. territory’s third Governor in less than one week.

Jenniffer González, whom the New Progressive Party legislative leadership wants to serve as Governor through the rest of the current term, describes herself on her official website as a “lifelong Republican activist for Puerto Rican statehood.” Now, if acting Governor Wanda Vázquez Garced, in agreement with the legislative leadership, decides to nominate her as Secretary of State and resign, Ms.González would become Governor—not necessarily a tantalizing prospect, as she would confront significant responsibilities, such as restoring the island’s credibility, navigating President Trump’s discriminatory storms, and trying to restore trust in government. Three years ago, she ran on the ticket with former Governor Ricardo Rossello Nevares. After winning with 48.8 percent of votes-some 23,500 more than Popular candidate Héctor Ferrer Ríos, Ms. González became the first woman to hold the office of Washington Resident Commissioner. She was sworn in on January 3, 2017. Ms. González describes herself as a “a product of the Puerto Rico public schools:” she has a bachelor’s degree in Political Science from the University of Puerto Rico and holds a Juris Doctorand Master of Laws degree (LL.M.) from the Puerto Rico Interamerican University Law School. She has brought that to bear on a long leadership stint, with her elected public servive commencing 17 years ago, when she won election to the U.S. House of Representatives in a special election. She served as Speaker of the Puerto Rico House from 2009-2012; she currently serves as the Chair of the Puerto Rico GOP.

In the wake of the leak of a profane, offensive chat between former Gov. Rosselló Nevares and his top aides, targetting different sectors, she asked for his resignation as president of the PNP party—and then demanded his resignation as Governor. In the U.S. House of Representatives, she currently serves as a member of the House Natural Resources Committee, as well as on the Science and Technology and Transportation Committees.

But she also had to deal with President Trump’s outbursts and insults to Puerto Rico and its leadership. Nevertheless, at a time when the federal Government appears to be imposing more restrictions on the U.S. territory’s access to emergency funds, former Puerto Rico Secretary of State and former Puerto Rico Senate President Kenneth McClintock believe her ties to the Republican Party in Washibngton “may benefit Puerto Rico.”

The Rocky, Steep Road of Federalism to Fiscal Recovery

August 6, 2019

Good Morning! In this morning’s eBlog, we consider the ongoing, roiling governance challenges in the U.S. territory of Puerto Rico with, in the wake of the resignation of the former Governor, growing uncertainty with regard to governance succession–questions also raising federalism issues.  

The Rocky Road to Fiscal and Governance Recovery.  Puerto Rico’s roiling political crisis has entered a new phase, with the U.S. territory’s top court agreeing to consider whether newly sworn-in Governor Pedro Pierluisi assumed the office legally in the wake of former Governor Ricardo Rosselló’s resignation last Friday. The crisis has now involved all three branches of the territory’s government, as well the Trump Administration and the 1st U.S. Circuit Court of Appeals—as well as the Puerto Rico Supreme Court, which responded rapidly to a lawsuit filed Sunday by Senate President Thomas Rivera Schatz seeking an order to force the newly sworn in Governor to give up the functions of the office. The court ordered all sides to submit written arguments by high noon today.

Unlike a chapter 9 municipal bankruptcy—in those states in which chapter 9 is authorized—Puerto Rico, as a U.S. territory, is neither a state, nor a municipality—so the path to succession is different. In resigning from office, the former Governor had nominated Mr. Pierluisi to serve as Secretary of State, thereby placing him next in line to serve as Governor; however, notwithstanding that nomination, the Senate did not vote to confirm, a mandate under Puerto Rico’s constitution, according to Mr. Pierluisi’s critics. Capitol city San Juan Mayor Carmen Yulin Cruz noted: “Pierluisi became Governor in a nonviolent coup orchestrated by Rosselló himself: with the Mayor part of the opposition Popular Democratic Party, which has filed a separate petition with the high court seeking his removal. Or, as the Mayor put it: “Pierluisi the usurper is a more refined version of the same corruption that sent people out to the streets of San Juan.” (Gov. Rosselló had announced he would resign on July 24th in the wake of massive protests that followed leaks of chat messages in which he mocked and disparaged Puerto Rico’s citizens.)

Potential Gov. Pierluisi’s first remarks as “Governor” had appeared to imply he would accept a Senate vote, but late Sunday, he appeared to say that the Puerto Rican Senate’s decision on his nomination was moot; rather he wanted the court to rule. But, abruptly prior to yesterday’s Senate session, he changed back again, stating he would respect the will of the Senate if it voted on what he described as his “incumbency,” even further muddying the governance waters subsequently by stating he would “await the decision” of the Supreme Court.

Meanwhile, Puerto Rico’s non-voting Member of Congress, Jenniffer Gonzalez, yesterday made her way to Senate President Schatz’s office, asserting she did not want to see the governance crisis resolved through “any legal subterfuge,” noting that Mr. Pierluisi’s appointment required approval by both chambers of the legislature.

As for the people of Puerto Rico, it appears that the protesters who forced former Gov. Rossello out of office are demanding a new governance structure—and, it appears that they do not believe the potential Governor should be part of such a structure, with the streets of San Jose’s colonial quarter, where the Governor’s mansion is, bearing fresh graffiti reading “Pierluisi you’re next!” and “Puerto Rico has no Governor,” appearing to Mr. Pierluisi for his role in creating the PROMESA Oversight Board which has controlled the territory’s finances since 2016, to his law firm’s representation of that Board as well as the utility giant AES Corp., which had been accused of polluting the Puerto Rico’s groundwater with toxic ash. Rosa Segui Cordero, a spokeswoman for the Citizen’s Victory Movement, a political coalition formed earlier this year which has been active in the protests, noted: “The people are not satisfied with this establishment and request to democratically elect their leader: Until this is obtained, the popular uprising will remain, strong and united.” Efren Rivera Ramos, a law Professor at the University of Puerto Rico, noted: “The governing class has proven oblivious to the concerns of the hundreds of thousands of demonstrators who took to the streets; the real crisis here is not a constitutional one, but a deeply political crisis that confirms the failings of an entrenched, perverted political culture.”

When it Rains, it Pours. If sorting out governmental succession in a U.S. territory were not difficult enough, the Trump administration is set to roil the waters more, asserting it will place new restrictions on billions of dollars in federal disaster aid for Puerto Rico, according to two senior government officials briefed on the plan, as the U.S. territory struggles to recover from not just the weeks-long political crisis that has forced the Governor to resign, but also be confronted with new recovery obstacles: the decision will impose new safeguards on approximately $8.3 billion in Housing and Urban Development disaster assistance funding to Puerto Rico, as well as about $770 million in similar funding for the U.S. Virgin Islands, according to the senior officials, who spoke on the condition of anonymity, because they were not authorized to discuss the matter publicly. It appears these officials are under pressure as the President is reported to repeatedly ask his aides about Puerto Rico, with the questions not what more could the federal government do to help, but rather officials said, creating pressure for the administration to take action to impose further internal controls to protect taxpayer funding for Puerto Rico aid; thus while the Trump administration will proceed forward with plans to allow states such as Florida, Texas, and California to apply for the disaster mitigation funding approved by Congress, at the same time, it will propose new restrictions on assistance to Puerto Rico, with the restrictions spurred directly by requests from the President, according to aides—that is, the restrictions would limit assistance in a discriminatory fashion for projects on housing and other infrastructure to prepare them for future natural disasters.

Succession? In those states which permit chapter 9 municipal bankruptcy, the respective state statutes create a judicially overseen process of succession. But in enacting the PROMESA Act, Congress created a Board, the PROMESA Board, the authority and legitimacy of which is currently under scrutiny in the 1st U.S. Circuit Court of Appeals—as well as raised questions with regard to conflicts of interest by some of the appointed members. The growing fiscal and governance scandal has also has prompted bipartisan calls from Congress—that is the Congress which has exited Washington until next month—to impose additional transparency measures and stricter oversight for funding approved for Puerto Rico, with a House panel recently advancing a bipartisan plan to add new safeguards to Medicaid funding for the island. Yet such efforts face their own stormy governmental process as many in Congress renew accusations that the Administration has withheld critical aid from Puerto Rico since it was struck by Hurricane Maria in September 2017; indeed, the President has repeatedly sought to limit the amount of aid going to Puerto Rico, while publicly arguing “nobody could have done” what he did for the U.S. territory. Congress has approved $42 billion for Puerto Rico’s recovery; however, only about $14 billion of that funding has been made available to Puerto Rico according to federal data, with Trump Administration officials claiming some $8.3 billion in disaster mitigation funding will still go to Puerto Rico, but no timeline provided. The funding, with a new hurricane season approaching, was approved by Congress to protect parts of the island prone to natural disasters, such as by building water pumps where flash flooding occurs, according to Deepak Lamba-Nieves, the Research Director at Puerto Rico’s Center for a New Economy, who reported: “[These] mitigation projects allow for specific areas to be protected from hazardous events…Those projects can ensure that a vast number of families in Puerto Rico are not displaced from their homes during the next hurricane, or should any other disaster event occur.” (The U.S. territory has been flummoxed by the slow release of federal aid to Puerto Rico compared to other states after Hurricane Maria, which killed thousands of people and caused between $90 billion and $120 billion in damage, according to varying estimates.

When It Rains, It Pours. Puerto Rico is in the middle of a 13-year recession—a recession which has been aggravated by an exodus of its younger and more educated residents: about four percent of Puerto Rico’s population left in 2018; the population has dropped by 15 percent since 2008, according to a Pew Research Center report released earlier this week. But the data appears to confirm that those leaving are more educated and younger—meaning the burden to address aging and poverty will fall on fewer shoulders.

How Does a State, Territory, or Local Government Ensure Continuity of Essential Services in a Bankruptcy Situation?

August 2, 2019

Good Morning! In this morning’s eBlog, we consider the governance challenges in the U.S. territory of Puerto Rico with the resignation of the Governor this morning. Our report comes as the Senate, yesterday passed a $2.7 trillion discretionary appropriations bill for the next two fiscal years and suspended the national debt ceiling—meaning the annual federal deficit is now on course to reach $1 trillion.  

The Rocky Road to Fiscal and Governance Recovery.  The political and governing crisis in Puerto Rico appeared to worsen yesterday, as lawmakers and street protesters opposed the Washington corporate lawyer tapped to replace disgraced Governor Ricardo Rosselló: with the Governor expected to formally resign today, some members of his party vowed to reject his chosen successor, Pedro Pierluisi, in no small part because of apprehensions with regard to conflicts of interest as hundreds of thousands of Puerto Ricans took to the streets to demand that Gov. Rosselló resign in the wake of the leaked messages which triggered widespread rage over suspected administration corruption, slow recovery from 2017’s deadly hurricanes, and the U.S. territory’s quasi chapter 9 municipal bankruptcy. A 2019 study by the University of Michigan found that the federal response was both faster and more generous after hurricanes struck Florida and Texas than it was for Puerto Rico. Congress also let expire emergency food stamp aid for Puerto Rico in March, causing reductions in critical federal help for more than 1 million island residents. Now, it appears that Gov. Rosselló’s former rival Pedro Pierluisi Urrutia will take over as Governor.

Yesterday, Gov. Rosselló called a special session of Puerto Rico’s legislature in order to vote to confirm him as Secretary of State, and, therefore, next in line to succeed him. Mr. Pierluisi, a 60-year-old lawyer, served as Puerto Rico’s Secretary of Justice for three years under Gov. Rosselló’s father, former Gov. Pedro J. Rosselló. He was elected to represent Puerto Rico in Congress as its nonvoting resident commissioner and served there from 2009 to 2017. Mr. Pierluisi was re-elected after his first term, even though the Governor at the time, Luis G. Fortuño, who was also on the ballot for the New Progressive Party, was not. That popularity made Mr. Pierluisi, who comes from a political family, an attractive candidate for Governor in 2016; however, he lost the primary that year to the younger Mr. Rosselló by about 2 percentage points, or about 10,000 votes. Mr. Pierluisi then backed Mr. Rosselló, who like him is a Democrat when it comes to national politics, though Puerto Rico’s political parties do not neatly match up with those on the mainland. The New Progressive Party supports statehood for Puerto Rico.

However, the events in Puerto Rico have been further roiled by the Trump administration, which will place new restrictions on billions of dollars in federal disaster aid for Puerto Rico, according to two senior government officials briefed on the plan, notwithstanding the significant, remaining challenges of recovery; however, the new White House will impose new safeguards on about $8.3 billion in Housing and Urban Development disaster mitigation funding to Puerto Rico, as well as about $770 million in similar funding for the U.S. Virgin Islands, according to the senior officials, who spoke on the condition of anonymity because they were not authorized to discuss the matter publicly.

On a parallel track, the difficult challenges coming from the Trump Administration come in the midst of an exceptional political challenge in the Commonwealth—a challenge exacerbated last month when the FBI arrested two former officials in Gov. Ricardo Rosselló’s administration on corruption charges over the misuse of federal contracts—and as, tens of thousands of protesters marched in Puerto Rico’s streets demanding the resignation of Gov. Rosselló, who has announced he will be resigning formally today.

But the Governor’s resignation appears to have made clear there will be legal and political challenges to succession—in Puerto Rico, Washington, D.C., and, maybe New York—as there are many governing cooks in the kitchen, including the First U.S. Circuit Court of Appeals, the PROMESA Oversight Board, and Congress: it might well be there could be changes to the Jones Shafroth Act which made Puerto Rico a U.S. territory—endowing it with an indeterminate governance status. Thus, unsurprisingly, both parties in the just recessed U.S. Congress have called for stricter fiscal and governing oversight—as well as questions with regard to the discriminatory, disparate disaster response treatment for Puerto Rico compared to other states, despite the President’s repeated claims that “nobody could have done” what he did for the island. That is open to some question, however, as Congress has approved $42 billion for Puerto Rico’s recovery, but only about $14 billion of that funding has been distributed according to federal data.

Mr. Pierluisi is perceived as competent and experienced. As Resident Commissioner, he ensured that Puerto Rico received federal stimulus funds and was covered by the Affordable Care Act. Both were considered important achievements; however, he also faces a serious potential conflict of interest: in the wake of leaving office, Mr. Pierluisi went to work for O’Neill & Borges, a law firm which does external legal consulting for the PROMESA federal oversight board appointed by Congress to oversee Puerto Rico’s troubled finances. This week, unsurprisingly, Mr. Pierluisi took a leave of absence from the firm; nevertheless, his association with the much despised, unrepresentative Oversight Board brings difficult political baggage. In a statement accepting his nomination on Wednesday, Mr. Pierluisi cast his Washington connections as an advantage: “It is also crucial to restore the trust of federal authorities and Congress, where I have earned respect,” he said, “and to re-establish a productive relationship with the oversight board, based only on what is good for Puerto Rico and facilitates the end of its mandate.”

Unsurprisingly, however, members of Gov. Rosselló’s New Progressive Party (PNP) said Mr. Pierluisi’s role as a lawyer for law firm O’Neill & Borges advising the PROMESA Board should disqualify him: street protesters accused Mr. Pierluisi of serving the interests of Puerto Rico’s political elite, not the people’s, in helping establish the widely-disliked, unelected Board during his time as Puerto Rico’s non-voting Member of Congress. Mr. Pierluisi, for his part, released a statement saying he had “listened to the people’s messages, their demonstrations,” and he would “only answer to the people.”

Puerto Rico House Speaker Carlos Méndez said he favored current Puerto Rico Senate President Thomas Rivera Schatz, suggesting that Mr. Pierluisi lacked sufficient support Puerto Rico’s lower house to be confirmed—but in this governance confusion, where, unlike in the federal government and some states, there is a specific, set line of succession in the event of a resignation (think for President Richard Nixon, it appears here we will have to await this afternoon’s session of the Legislature when it meets to consider Mr. Pierluisi’s nomination—a nomination which found its path in the wake of Puerto Rico Justice Secretary Wanda Vázquez clarifying she did not want the position, noting: “I reiterate, I have no interest in occupying the position of Governor,” citing the threat of further protests—including growing interest and support for independence.

Meanwhile, with the U.S. House and Senate out until after Labor Day, Congress has suspended consideration of the appointments of seven current members of the PROMESA Oversight Board, whose terms expire on August 30th, albeit the Board indicated that “all members” submitted the documents requested by the Senate Energy and Natural Resources Committee, which is responsible for evaluating appointments. These appointments—or re-appointments, however, come as the U.S. Supreme Court is reviewing the 1st U.S. Circuit Court of Appeals decision finding that the appointments to the Board under the Obama Administration were unconstitutional, because they had not been submitted to the U.S. Senate: that oral hearing has been scheduled for October.

The Board has, in its filings, urged the U.S. Supreme Court to overturn the 1st Circuit opinion, writing that the U.S. territory’s record debt restructuring took place at a critical moment. Governmental bankruptcy, as opposed to corporate bankruptcy, is presented with the unique challenge of ensuing no disruption of essential services, especially police, fire, traffic and street lights, etc.

The Exceptional Challenges of Governance in Transition in the Wake of near insolvency.

 

July 30, 2019

Good Morning! In this morning’s eBlog, we consider the ongoing fiscal challenges to one of the nation’s oldest cities, Petersburg, Virginia, before veering south to assess the growing governance challenge of filling the Gubernatorial vacancy in Puerto Rico.  

The Steep Road of Fiscal Recovery. Petersburg, Virginia, one of the nation’s older municipalities—and one which neared insolvency—has found the fiscal path to recovery uneasy. Last Saturday afternoon, Del. Lashrecse Aird (D-Petersburg) was asked, pointedly, about its current fiscal situation: “What is the state’s opinion about Petersburg’s finances?” Before she answered, Delegate Aird laughed and said, “I like a blunt questioner.” Then she responded: “The state is still very concerned about the progress the city is making.” But In Virginia, she added, state government does not just automatically step in and take over a local ledger; instead, the locality has to make a formal request for assistance from the state Auditor of Public Accounts, and Delegate Aird said even though the state has offered, the official request from Petersburg has not come in, to her knowledge. The fiscal dilemma is complex, because the Commonwealth does not specifically authorize municipal entities to file for chapter 9 municipal bankruptcy, albeit, in certain situations, the Commonwealth law allows for the appointment of a receiver with respect to revenue bonds. Nevertheless, there is no question but that the municipality is in some dire, ongoing, fiscal straits: according to the APA’s web site, Petersburg has not submitted an annual comprehensive financial (CAFR) report to the state since 2017. (These reports are due on Nov. 30 of each year.) Nevertheless, as Delegate Aird noted: “I believe fully that the state is paying close attention,” with her statement coming at the first of several “listening sessions” she has scheduled for the 63rd House District.

About 35 people turned out for Saturday’s session, and Del. Aird’s prediction about what to expect rang mostly true. In addition to the question with regard to Petersburg’s fiscal stress and state perception, she also fielded a question with regard to a rumor that the Robert Bobb Group, which temporarily took over management of municipal operations in 2016 in an effort to turn Petersburg’s finances around, might be coming back: she responded she had not heard anything about a possible return. Another question raised during Saturday’s session involved low-income families’ accessibility to school textbooks—a query in which the citizen told Delegate Aird that children were not being allowed to bring textbooks home with them, and many of those families could not afford internet access, which is driving so many educational initiatives. Del Aird responded: “That has not been brought to my attention.”

Petersburg is a municipality of over 32,000, with nearly 80 percent black of African American. The median income for a household in the city was $33,927, and the median income for a family was $40,300; males had a median income of $30,295 versus $23,246 for females: the per capita income is just under $19,000—with nearly a quarter of the population below the federal poverty level, including 27.1% of those under age 18 and 15.8% of those age 65 or over.

The Exceptional Challenge of Political and Fiscal Recovery from Virtual Municipal Bankruptcy. Far south of Petersburg, in Puerto Rico, the U.S. territory is mired in fiscal and governance turmoil, clearly making more challenging efforts to proceed with a permanent, long-term restructuring of Puerto Rico’s debt while the Commonwealth government is in turmoil and island-wide protests continue. The situation is, if anything, further complicated by the welter of fiscal overseers, some with serious conflicts of interest. The Governor has submitted his resignation, there are serious legal challenges pending with regard to the governance legitimacy and authority of the Congressionally imposed PROMESA oversight Board: absent an elected Governor in place, long-term debt or operational restructurings could be seen as lacking the consent of the Puerto Rican people and may face heightened political and popular disfavor in the years to come.

And, it appears, no one is eager to fill the empty governance post at the top: the woman in line to become Governor of Puerto Rico said Sunday that she does not want the position; she hopes disgraced Gov. Ricardo Rosselló appoints a Secretary of State who would then serve as his successor upon the effective date of his resignation. The slot for the Secretary of State has been vacant since Luis Rivera Marín, also involved in the controversy, quit days before the Governor did. That left Justice Secretary Wanda Vázquez next in line; however, she tweeted her apprehensions: “I reiterate, I have no interest in occupying the position of Governor: I hope that the Governor identifies and submits a candidate for the position of Secretary of State before August 2 and I have told him so.” It appears her apprehensions are well grounded: she has been investigated for claims of favoring family members in a possibly criminal dispute, although officials found insufficient evidence to go forward. She has also has been accused of dragging her feet on investigations such as questionable licensing of medical marijuana clinics; however, the greatest questions have been with regard to governmental corruption with regard to recovery from Hurricane Maria after it slammed the island two years ago—and from which, recovery remains spotty: many in Puerto Rico to know what happened to the relief funds, accusing Secretary Vázquez of showing little interest in finding out.

So Who’s up to Bat? The seeming disinterest of Secretary Vázquez appears to reflect growing divisions within Gov. Rosselló’s powerful, pro-statehood New Progressive Party. With Gov. Rosselló having recently resigned and delegating the reins to Senate President Thomas Rivera Schatz to serve in an acting capacity, some believe that the Senate President is interested in the Governor’s position. If no Secretary of State is named, the next in line would be Treasury Secretary Francisco Parés; however, because the Secretary is only 31, he is too young to be eligible. Next in the governance line of succession would be Secretary Eligio Hernández, who rose to that post in April, when his predecessor was forced to resign amid corruption charges. The next few days are likely to see a power struggle play out within the party, according to Victor Suarez, who was Puerto Rico’s the 24th Secretary of State, as well as the current Executive Director of the Puerto Rico Convention Center District Authority—and who, prior to his current position, served in various roles in public service, including as executive director of the Puerto Rico Port Authority, as Secretary of Consumer Affairs—and as Deputy Mayor of Carolina, and as the territory’s Chief of Staff. Mr. Suárez noted: “I think there are negotiations going on and they are regrouping: She was supposed to be part of a smooth transition, but this make me wonder if the Governor was outmaneuvered.”