Governance Challenges to Cities’ Futures

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eBlog, 6/07/16

In this morning’s eBlog, we examine the exceptional governance challenges critical to a city’s fiscal future: here observing the issues confronting the future of Detroit’s public and charter schools—with differing positions between not just the Michigan House and Senate, but also significant divisions in the city. As we have noted, the perception and performance of a city or county’s schools are fundamental to families—thus they have significant implications for assessed property values—and for the balancing—or unbalancing—roles of states, city councils, and public school boards. And, as we await Thursday’s anticipated vote in the U.S. House of Representatives on proposed legislation to create a control board for the nearly insolvent U.S. territory of Puerto Rico, we observe the narrow margin of victory in Puerto Rico in the U.S. territory’s gubernatorial primary.

Will It Pass or Fail? With the start of school now not so far off, the question for parents, students, and the City of Detroit is whether whatever final decision to, as Michigan House Speaker Kevin Cotter (R-Mt. Pleasant) puts it, “return local control in the same way that the settlement of the municipal bankruptcy returned control,” will be in place and provide confidence for the families of Detroit. The hard part is the process of restoring local control. An indication of just how searing and difficult this process of recovery from insolvency is can be measured by the razor-thin 55-53 vote by which the House acted. As the Speaker notrd: “The city (Council) is in place, however, there is financial oversight from the (review commission). The same is true here,” referencing that the House-passed version of the state legislative rescue package to address the Detroit Public Schools (DPS) fiscal and physical degradation—one which would authorize Detroit’s Financial Review Commission, which helped the city exit chapter 9 municipal bankruptcy, oversight of DPS: the city’s school board would need Commission approval to hire a chief financial officer, fire a superintendent, or fund out-of-state travel for board members or district officials. For his part, DPS Emergency Manager retired U.S. Bankruptcy Judge Steven Rhodes appears to believe is a key step towards averting insolvency by the end of this month—and recognizes it would restore some authority to an elected school board. While the House-passed version includes fewer dollars for startup costs for a new, debt-free Detroit district than the $715 million plan approved by the Senate, the final House version is more than $100 million larger than the initial House proposal. The pending version includes $150 million in transition costs, more than $100 million higher than the chamber’s initial bill; the Senate version authorizes $200 million for those costs. The House version would provide for the restoration of local control through election of a new school board this November and giving the panel control of the district’s academics, through a superintendent it would appoint, starting in January.

On the issue of state oversight, Judge Rhodes supports the Speaker’s position vis-à-vis giving the review commission oversight of DPS—not a surprise given his key role in approving Detroit’s final plan of debt adjustment to enable Detroit to emerge from municipal bankruptcy by subjecting the city to the Financial Review Commission—even as current DPS school board President Herman Davis termed such oversight a deal-breaker, calling it yesterday “a bunch of garbage,” adding: “It can’t really be called local control, because they’d still be controlling the money. We expect to be able, as we regain governance — to regain neighborhood schools and charters will fall by the wayside anyway.”

But in addition to contention with regard to funding, there is also contention over governance: the pending Senate-passed version of the legislation includes a proposed Detroit Education Commission—a commission which would have the power to open and close schools, including charters—a key issue which Judge Rhodes and others have deemed critical to impose some restraints on the opening of new charter schools or, otherwise, risk stripping the new DPS of any realistic chance of success. The House version of the legislation would give the Michigan School Reform Office the power to close schools that receive failing grades for three years under a new letter-grade system. Senate Majority Leader Arlan Meekhof, an advocate of the Detroit Education Commission, has indicated a willingness to accept the House measure; Michigan Gov. Rick Snyder has indicated he still supports the Senate bill, but does not want the fate of DPS to rise or fall solely on the basis of one issue. For his part, Detroit Mayor Mike Duggan is urging business and civic leaders to oppose the House bill: he is apprehensive that, because it lacks the citywide education commission, any state aid package would risk being wasted; he believes state help is critical to stabilize DPS’s enrollment and finances.

Lifebuoy. With the House scheduled to take up consideration of the PROMESA (the Puerto Rico Oversight, Management, and Economic Stability Act, HR 5278) legislation for Puerto Rico this Thursday, the Obama administration is offering federal aid to the muncipios of Ceiba, Fajardo, and Naguabo—small municipalities whose economies, where more than 45 percent of the region is in poverty and there is a 17 percent unemployment rate, some thrice the national average—were slammed by the loss of a U.S. naval station. According to the announcement, the federal assistance, under the Promise Zone program, is intended to help stance to bolster their economy and infrastructure. According to the White House, the assistance is focused on “upgrading the former Naval Station, improving marine industry infrastructure, boosting hotel development and local tourism, and developing a local food hub and a commercial-scale hydroponic farm with teaching kitchens and a food business incubator.”

New Leadership. Puerto Rico’s pro-statehood party on Sunday narrowly selected Ricardo Rosselló Nevares’ over Pedro Rafael Pierluisi Urrutia, the current and Resident Commissioner of Puerto Rico in the U.S. Congress, by a margin of less than 2 percent in the New Progressive Party gubernatorial primary, according to the Puerto Rico Election Commission. The close election could have implications for governance: Delegate Pierluisi, who has served two terms in the U.S. House of Representatives, has frequently described and advocated for statehood, claiming that could be a solution to Puerto Rico’s fiscal challenges. Mr. Rosselló has promoted an even more rapid and aggressive approach to gaining statehood—and he opposes the pending PROMESA legislation, claiming it would return Puerto Rico to a colonial position, even as Commissioner Pierluisi had given cautious support to this bill, describing the proposed fiscal control board a politically necessary price to pay for restructuring the island’s debts. Mr. Rosselló has indicated he may favor paying a larger portion of due debt service than Puerto Rico Gov. Alejandro García Padilla proposed in his FY2016-2017 budget—a budget in which he had sought to devote $209 million of the general fund to debt service, so that he could finance freed up fiscal resources for other purposes he deems essential.

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