The Long & Challenging Road to Recovery from Municipal Bankruptcy

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eBlog, 5/20/16

In this morning’s eBlog, we discuss the bipartisan, House-Administration breakthrough and introduction of bipartisan legislation to address the nearing insolvency of the U.S. territory of Puerto Rico; and we look at charter revisions—revisions we suggested years ago—which could be vital to a post-bankrupt San Bernardino, and, lastly, we consider obstinate challenges—in the form of deep pockets of poverty—in post municipal bankruptcy Detroit.

The Promise of Promesa. Congressional leaders, on a bipartisan basis, are lining up in support of the proposed legislation to avert a July insolvency in Puerto Rico, with the newly revised PROMESA bill from the House Natural Resources Committee gaining the backing of Speaker Paul Ryan (R-Wis.) and Minority Leader Nancy Pelosi (D-Ca.), as well as the White House, with House Speaker Ryan yesterday noting he was confident a majority of House Republicans would back the measure, which could reach the House floor at the beginning of June, and that: “We got this bill exactly where we wanted it.” Minority Leader Pelosi and U.S. Treasury Secretary Jack Lew characterized the measure as one they can support, and Ranking House Natural Resources Committee Member Rep. Raúl Grijalva (D-Ariz.) described the bill as imperfect, but said it is critically needed, noting that while there were aspects of the bill that concerned him, he was “more concerned about the humanitarian crisis unfolding on the island.” House Natural Resources Committee Chair Rob Bishop (R-Utah) said his committee would likely take up the measure next week, but that consideration by the full House would have to wait until after the Memorial Day recess. As drafted, the revised bill would establish a fiscal control board to steer the U.S. territory’s debt and finances in order to restructure Puerto Rico’s $72 billion in debt. Nevertheless, the bill still confronts hurdles: it must get through the amendment process in Committee and then the House floor—and all that before the Senate even begins consideration. For his part, U.S. Treasury Secretary Lew warned: “Congress must stand firm and resist calls from financial interests to undermine this effort every step of the way — in committee, on the House floor and in the Senate.”

San Bernardino Proposes a New City Charter. The San Bernardino City Council has voted 5-2 to ask the city’s voters to approve a proposed, new city charter—a charter which will include all the reforms a committee believes will help streamline municipal governance, but which would also mandate the city to have its own police department—barring any outsourcing. In the wake of two hearings before Council, the Council expects to vote by August 12th, especially since that is the deadline set for submitting the new charter on the November 8th ballot. In our case study on the city, the city in municipal bankruptcy longer than any other city in U.S. history, we noted that, in the estimation of most individuals, a key challenge for the city was in its charter, about which we wrote: “Decision-making authority over budgets, personnel, development and other matters is fragmented between and among the mayor, city manager, city council and city attorney—as well as several boards and commissions. Elected officials do not have the power to alter the salary calculations resulting from these provisions (except through voluntary negotiations with the representatives of that set of employees). These provisions greatly reduce the ability and flexibility of the city to adapt to economic and fiscal conditions as they change over time.”

The new charter is the outcome of a two-year process by a nine-member charter review committee: the revised version is a slimmed down 12-pager, a quarter the size of its predecessor: it proposes a city council-city manager structure. The revised charter, reflecting issues raised in our Center’s report on San Bernardino, relates to the provisions of the city’s proposed plan of debt adjustment, which “made clear the city’s need to streamline governance and operations,” according to the 24-page report presented to the City Council by the charter review committee. The report notes that decades of questionable management and inefficiency were the result of the San Bernardino’s “antiquated” charter, which “complicates daily management and generally neutralizes executive authority.” Under the proposed charter, the positions of city clerk, city attorney, and city treasurer would no longer be elected: the city clerk and city attorney would be appointed by the City Council. Other parts of the city’s governance structure would remain largely the same, including its ward system, the number of wards in the city, and the terms or length of service the mayor and each council member could stay in office. The mayor would continue as a full-time elected position; water board commissioners and library board members would retain their independence.

An issue in the revised charter which drew an adverse response from the Council was the absence of language requiring the city to have its own police department—an omission with which the majority of council members took issue: Councilman Henry Nickel said he did not want the charter committee’s last two years of work be in vain, and wanted to ensure voters approve the new charter by including a provision mandating the city have its own police department, stating: “I think there can be some reasonable, modest revisions we can make to make sure this is palatable to the citizens we represent…I think there’s some fine-tuning we need to do.” Councilmember Fred Shorett warned that any stalling or further revisions to the charter could potentially delay the process and tie the hands of future council members, telling his colleagues: “The public needs to get engaged…It’s time for us to roll up our sleeves and get this on the ballot.” Former Mayor Pat Morris urged the Council to approve the charter as presented: “This is your opportunity to approve their work and move it to the electorate for a vote. I urge you to do it without alteration, or to amend or add to or delete from this recommended new charter…If you do that, you open it up to the allegation that it has been politically massaged,” adding that any changes to the new charter could eliminate future councils from acting in a flexible way to best manage the resources of the city.

Nevertheless, the majority appeared intent on insisting that the city have its own police department: But the council majority stood firm. Councilwoman Virginia Marquez said: “I believe we need a municipal police department. I don’t know what the big deal is,” even as the president of the San Bernardino Police Officers Association, Steve Desrochers, praised the change, advising the Councilmembers: “That was something that we had requested and worked for…I want to thank the council. I think it was forward-looking and it’s going to improve the morale, at least at the Police Department.” He noted he had pushed for the provision prohibiting outsourcing as well as one that would require police compensation to be average, similar to Section 186 of the current charter, which sets pay as the average of 10 like-sized cities. He added that the police union would remain neutral on the proposed charter for now, but said the document was important and that the time had come to change it; however, City Attorney Gary Saenz said the requirement for an in-house Police Department might hold the city back in the future, even though there had not been here any plans to outsource it in the foreseeable future—adding that he was unaware of any other city that required a city-run police force.

For the most part, the charter revision committee had sought to base the new charter on what its members perceived as successful in other cities, but the committee had retained some unusual provisions — including the autonomous water and library boards — to avoid a fight when the peculiarity did not seem to be causing any problems, according to Mr. Saenz said: “Rather than having that resistance to the charter, since that did not seem to be one of the pressing issues in the last decade or so, they thought let’s avoid that issue.”

Challenges to Recovery in the Motor City. Stephen Henderson, the Detroit Free Press Editorial Page Editor yesterday wrote a searing piece about the way poverty is changing and deepening in post-bankrupt Detroit—comparing what he is observing to the depth of poverty he had observed in central Kentucky, and places deep in Appalachia, adding that it was not the “depth of Kentucky poverty in the early 1990s that struck me. It was the isolation that accompanied it. Deep in coal country, it’s just difficult for the poor who live there to even get to a place where things are better. Rough topography cultural estrangement, public policy — it all created a wicked recipe for inter-generational poverty.” After which he wrote that in present day Detroit, poverty is changing, and deepening in the city in ways that reminded him of what he had experienced so many years ago in Kentucky: “For many of the poor here [Detroit], the city is becoming an economic chasm that’s largely cut off from areas where there’s more opportunity. Higher-paying jobs, better schools, or the means to access those kinds of opportunities, are all moving farther away from the city’s deepest pockets of poverty…It’s also lurking just beneath stories about entire areas of the city where there are no longer any quality school options — like far northwest, where a single, low-performing charter high school is the only choice residents have…Deep urban poverty in places like Detroit is beginning to resemble, to me, rural poverty like Kentucky. It’s a story I’ve been telling for a while — dropping into speeches and columns. Now, with the help of some numbers from the Brookings Institution in Washington, I’m able to make that about more than anecdotes. (He was referring to a new study by Brookings, “U.S. concentrated poverty in the wake of the Great Recession”), in which the authors wrote how, in Detroit and other urban areas across the country, there has been a dramatic increase in “concentrated poverty,” defined as the percentage of the poor who live in neighborhoods whose poverty levels are at least 20%, and which, in too many cases higher than 40%, writing that: “In a way, it’s a measure of isolation — how packed poor people are in areas where there aren’t people of more means nearby. According to Brookings, 64% of poor people in metro Detroit live in areas like that today, up from 54% of poor people back in 2000.” He closed by writing: “And if you try to find other areas to compare with Detroit with regard to that kind of concentrated, or isolated, poverty, many rural areas — in Michigan as well as Kentucky — leap out…County-level data in Michigan, for instance, ranks Wayne, home to Detroit, as having the fifth-highest concentrated poverty level.”

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