Ensuring a Sustainable & Safe Municipal Future

July 9, 2015

The Road Back from Municipal Bankruptcy. Jefferson County Commission President Jimmie Stephens notes that the County’s return to fiscal sustainability in the wake of its successful exit from municipal bankruptcy—the largest in U.S. history at the time, has improved enough for the county to reenter the municipal market: “This Commission is dedicated and determined to follow the judge’s order and to follow the bankruptcy plan…There are still plenty of challenges, but we’re working together and that gives us opportunities for success…We’re doing our due diligence and making sure that we don’t revisit some of the mistakes of the past.” Jefferson County’s assessed property values have increased, sales and use tax collections are up, and Jefferson County is now prepping to host the World Games athletic competition in 2021. The county’s budget has remained structurally balanced, but, unsurprisingly, the recovery has been insufficient to provide for less anticipated needs: there have been insufficient revenues to resume some services, such as to complete the County’s road-paving program.

Commission President Stephens also reports rejuvenated relationships with the Alabama legislature, noting: “We went to the Legislature with a genuine set of needs, not wants…In order to do our job and be effective in our job, we needed additional revenue to reinvest in the future of Jefferson County.” The presentation included the detailed steps the County has taken as part of its implementation of its approved plan of debt adjustment by U.S. Bankruptcy Judge Thomas Bennett—albeit that plan has been under challenge before the 11th U.S. Circuit Court of Appeals for nearly two years: a key issue before the federal court is whether a lower-court appeal of Jefferson County’s plan of debt adjustment by a group of county sewer system ratepayers is moot, with Jefferson County’s attorneys arguing that the appeal is not viable, because the court-approved bankruptcy exit plan was largely implemented following the sale of $1.8 billion in 40-year sewer refunding warrants in December 2013—warrants which allowed the county to write down $1.4 billion in related sewer debt in an intricate transaction that cannot be unwound, according to the county’s attorneys. Notwithstanding, the federal judge presiding over the ratepayers’ appeal has ruled that the county’s plan of debt adjustment is not moot, because some key components are questionable, including a provision which requires the federal bankruptcy court to ensure that county officials adopt sewer rates sufficient to pay debt service on the refunding warrants—a key provision to the county’s ability to successfully issue a refunding two years ago. Jefferson County attorneys have urged that it is critical for the appellate court to resolve the mootness issue for investors and the stability of any municipality relying on exit financing to emerge from bankruptcy.

Is Puerto Rico Being Held Up? The U.S. House Judiciary Committee appears unwilling to provide Puerto Rico with access to the U.S. bankruptcy courts to offer the U.S. territory a time out to ensure the continuity of essential public services and to reorganize its debts under the oversight of a federal court. Chairman Bob Goodlatte (R-Va.) yesterday said: “Today, we met with our Republican colleagues on the Judiciary Committee to discuss the issues facing Puerto Rico…While no consensus was reached, a general concern was expressed that to provide Puerto Rico’s municipalities access to chapter 9 of the Bankruptcy Code would not, by itself, solve Puerto Rico’s difficulties, which are associated with underlying, structural economic problems.” That is, to offer protection to ensure the health and safety of U.S. citizens in the island’s 78 municipalities would, apparently, be an insufficient motive to act. The refusal to take any action as Congress nears its next five week recess—the very time period when Puerto Rico could default—could increase the import of the efforts by Sens. Chuck Schumer (D-N.Y.) and Richard Blumenthal ( D-Conn.), who indicate they intend to propose companion legislation to the now spurned H.R. 870 in the Senate. The House refusal to act comes as a number of Presidential candidates, including former Florida Governor Jeb Bush, former U.S. Senator and Secretary of State Hillary Clinton, and Sen. Bernie Sanders (I-Vt.) have also called for Congressional action on the issue.

Steep, Treacherous Fiscal Road Ahead. Just two years ago, we wrote: “Baltimore reached a peak population of 949,708 in 1960 and 30% of Maryland’s population resided in the city at that time. By 2010, the population had dropped to 620,961 and the city’s share of the state’s population fell to 11%. Like many Eastern and Midwestern cities, a significant portion of this loss in population is attributable to the decline of its industrial base and suburbanization. Baltimore lost 110,000 jobs between 1990 and 2010—about 24% of all jobs. Seventy percent of these jobs lost were in manufacturing and related industries. There are approximately 16,000 vacant and abandoned properties in the city—one blighted property for every 40 residents. Median household income is 44% lower than that of the state and crime is 86% higher. Through all of this change, Baltimore still retains its position as the only large city in Maryland and serves as its principal urban hub. Unlike other cities in this report, Baltimore has not been in a fiscal emergency and has a relatively healthy balance sheet.” Indeed, the Maryland legislature has explicitly rejected granting the option of municipal bankruptcy for its cities and counties.

But in the wake of the death of Freddie Gray last April, the fiscal and human challenges confronting the city are almost beyond our imagination. Yesterday, Mayor Stephanie Rawlings-Blake fired the city’s Police Commissioner, stating: “[A]s we have seen in recent weeks, too many continue to die on our streets, including three just last night and one lost earlier today.” As of yesterday, police report a 48 percent increase in homicides over last year–with May’s 42 the most in a month in a quarter century. Non-fatal shootings are 86 percent higher than last year–yet, even with the exceptional increase in shootings, the number of arrests is half of last year’s. In the wake of injuries to as many as 160 police officers during the rioting in Baltimore–even as uncertainty has increased with regard to what actions police officers can take when being assaulted–there appears to be greater and greater reluctance on the part of the rank and file to be entrapped between the Scylla and Charybdis of being injured or being charged with a crime for being too aggressive in enforcement.

According to the city’s police department, gunmen killed three people and wounded one yesterday near the University of Maryland, Baltimore—shootings in a municipality that has witnessed a record upsurge in homicides since April: shootings here which can hardly augur well for the University. While police stated the shootings were not related to the university, the Baltimore Sun reported that shots had been fired into a vehicle traveling on the same block five days ago. Police also report that looting of pharmacies during the unrest and a subsequent drug turf war have been behind a surge in killings in May—a month in which the city experienced 43 homicides, the highest number since 1972, but dropped the total to 42 when one killing was reclassified as justified. A police spokeswoman yesterday put the May homicide number at 41, the highest monthly tally since August 1990, without explaining the new total.

Baltimore reached a peak population of 949,708 in 1960—a time when 30% of Maryland’s population resided in the city; by last year, that number had dropped to 620,000–and the city’s share of the state’s population fell to 11%. Like many Eastern and Midwestern cities, a significant portion of this loss in population was attributable to the decline of its industrial base and suburbanization: Baltimore lost 110,000 jobs between 1990 and 2010—about 24% of all jobs: seventy percent of these jobs lost were in manufacturing and related industries. There were approximately 16,000 vacant and abandoned properties in the city in 2010—one blighted property for every 40 residents. Median household income was 44% lower than that of the state, and crime was 86% higher. This year, the city’s homicide rate—prior to last night’s shootings, had reached 155 homicides—or nearly 50 percent higher than at this point last year. The exceptional challenge—not just for the Mayor and Council, but also for Gov. Larry Hogan and the Maryland legislature is how to try to staunch the mayhem and its exceptional erosion of the city’s future fiscal stability.

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