How Does a Leader Balance Fiscal Versus Human Health & Safety?

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eBlog, 1/24/17

Good Morning! In this a.m.’s eBlog, we consider the ongoing fiscal and human health and safety challenges—and fiscal implications—in the City of Flint, as city residents have sued the State of Michigan; then we look east to Ohio, where the question with regard to a similar human and fiscal health related to East Cleveland appears to be worsening with regard to health, fiscal health, and governance. Finally, we peer south to the warm Caribbean, but where the warmth in weather is exceeded by the increasing political heat between the PROMESA oversight board and the new Governor—a challenge with parallels to the fiscal struggle Washington, D.C. underwent nearly two decades ago.

Fighting for Flint’s Fiscal Future. U.S. District Judge David Lawson has described an attempt by Michigan Attorney General Bill Schuette to side with Flint residents in a lawsuit against the state as “superficial posturing,” stating that the AG has created a “troubling ethical issue” that could delay the case that seeks to provide the city with bottled water delivery. In his opinion, Judge Lawson denied Mr. Schuette’s request to file an amicus brief in the case on behalf of “the people of the State of Michigan,” saying the motion is problematic for several reasons, including that assistant attorneys general have already appeared in the case on behalf of state defendants, including Gov. Rick Snyder, writing: “The proposed amicus brief has not introduced any new arguments or offered a perspective that has not been presented by the parties already. Instead, the attorney general has taken a position aligned with the plaintiffs and at odds with other attorneys in his own office…In doing so, he has managed to inject a troubling ethical issue into this lawsuit, potentially complicating adjudication of the serious legal questions before the court, without adding anything of substance.” A spokesperson for the Michigan Attorney General said he would not appeal this ruling, noting that while the attorney general respectfully disagreed with the ruling, “We originally obtained concurrence from all parties prior to filing, and because it failed to include mention of the conflict wall in this case…Attorney General Schuette will continue to fight aggressively for Flint families and remains thankful to the many Flint residents and elected officials who expressed their support of his actions.” The denial came the day before Judge Lawson is to take up an emergency motion in the case: today, Judge Lawson must decide whether and how the State of Michigan and both state and Flint officials should—or must—comply with a largely ignored federal court order requiring door-to-door delivery of bottled water to Flint homes lacking a working water filter.

The legal challenge dates back to last November, when Judge Lawson ordered the state and City of Flint to provide and finance the provision of four cases of bottled water per resident per week if officials cannot prove faucet filters are working to remove harmful lead. That was an order Gov. Snyder’s administration opposed, arguing it is “overbroad,” and one which the city is fiscally unable to meet; indeed, Michigan has filed an emergency motion with the U.S. Sixth Circuit Court of Appeals to block the order, arguing before the court that while the state was not “reluctant “to comply with the order, rather it was confronted by “financial, logistical, and practical difficulties” in doing so. According to state officials, the order would be a five-fold increase over current efforts and require another 137 trucks, hiring at least 150 additional people and “a warehouse so large it is not clear if one even exists in the Flint area” at a cost of more than $11 million per month. In his order at the beginning of last month, Judge Lawson wrote: “The main thrust of the ordered relief is the proper installation and maintenance of tap water filters. For those homes that have properly installed and maintained water filters in place—which is the vast majority of residences, if the state defendants’ witnesses are to be believed—bottled water delivery is not necessary and was not ordered.” While testing shows lead levels in Flint water are on the decline, Flint residents have been instructed to use only filtered or bottled water for consumption, and researchers have encouraged those practices until further notice from state or federal officials: no amount of lead is considered safe.

Does East Cleveland Have a Future? Ohio’s Environmental Protection agency has shut down a waste site in East Cleveland which currently holds an estimated 2 million yards of waste and construction debris, piled up over the past few years by Arco Recycling, declaring it an unpermitted landfill. In the nonce, former East Cleveland Mayor Eric Brewer worked with Auburn Environmental to understand the harm which might already have occurred at a site which features a combination of toxic gas and toxic particles both on the outside and inside of the property—and which appears to have been operating without any legal authority granted by the municipality. The EPA has given Arco Recycling two weeks to clean up or face further actions. Given the small city’s fiscal depletion and insolvency—and the lack of any state response, it would almost appear to be another Flint-like situation, with grave implications for public health and safety, and a fiscal inability by the small city to address on its own—either fiscally or governmentally.

Is there Unpromise in PROMESA? According to Governor Ricardo Rosselló Nevares, it is time for the PROMESA Oversight Board created by the U.S. Congress and former Obama Administration to turn into Puerto Rico’s representative in Washington, D.C., because, otherwise, the various efforts coordinated to strike a fiscal balance and attain socioeconomic development in the U.S. territory will be in vain. The Governor was responding to a lengthy letter from the Board demanding austerity—a demand which appeared to reflect little flexibility with regard to demanding $4.5 billion in spending cuts and/or tax increases per year. While the PROMESA board said it was open with regard to how the Governor achieves that bottom line, the epistle noted: “To be clear, presenting a plan that can achieve at least this level of savings is a pre-requisite to certifying a fiscal plan.”

According to Governor Rosselló Nevares, the delicate state of the island’s public finances, as well as the grave risk of disruption to Puerto Rico’s healthcare services creates what he described as an “unambiguous need” to obtain the federal government’s support in overcoming the crisis, a message that pertains to his administration, but also the Oversight Board—or, as the Governor put it: “The Board has, I believe, that role to fulfill. They need to be the voice for Puerto Rico’s credibility, as did other fiscal boards, like the board in Washington, D.C…For two and a half years, the members of the board in Washington, D.C., using all available financial tools, but were unable to, failed, or attained only marginal improvements. Which is why they had to return to the Capitol to explain two huge faults they had found.” According to Governor Rosselló Nevares, the PROMESA legislation that ordained the oversight board lacked economic development tools critical to the island’s economy and future revenues, and, he added, as with the District of Columbia, where a comparable oversight body was created—that body went back to Congress to ask for fiscal support. But, in addition, the Governor noted, the second element the legislation for D.C. lacked was “equal treatment as a state.”

The Governor was referring to the period nearly three decades ago when the nation’s capitol, Washington, D.C., succumbed to a comparable fiscal crisis which resulted in credit downgrades and the city’s inability to pay its required pension contributions, all while experiencing disruption in public services. In response, Congress intervened by creating an entity similar to the Oversight Board, in 1997, via the National Capital Revitalization Act, a statute which allowed for the transfer of hundreds of programs funded by DC’s administration to the federal government. The act, among other things, had the federal government take over the criminal justice programs and the actuarial deficiencies in the pensions for teachers, police officers, firemen, and judges. In addition, the federal government also increased its contribution to the District’s Medicaid program, from 50% to 70%—changes which, Governor Rosselló Nevares noted, when made, provided for a nation’s capital city that “was able to thrive.” According to the Governor, under PROMESA, “We have a report from that group, which could presumably help our economic development, but it’s not binding and we don’t know what we’re going to do…The Board, like us, should be a spokesperson to our credibility, and they should tell those who put them there (Congress) that Puerto Rico is taking action, and we’re making good progress.” Although the Governor urged the board members to take up a position in favor of the U.S. territory, while PROMESA regulates the pension and public debt payments, the federal entity’s mandate is explicit: restoring fiscal discipline and achieving Puerto Rico’s return to the capital markets under reasonable conditions.

Consequently, Gov. Rosselló Nevares has focused on providing tools for the private sector, enabling the development of infrastructure projects, and ensuring the continuity of certain collections by approving the extension of Act 154 (which created the 4% tax on foreign companies); but he still counsels “there needs to be action from the federal government,” noting: “You may take fiscal measures to check them off the list, but without economic development, it would have a noxious effect, possibly on emigration, on the quality of life for citizens, and the social environment,” as he rejected the Financial Oversight and Management Board for Puerto Rico’s demands for quick and deep austerity measures, deriding the letter from the oversight board as one demanding an “average 79% haircut,” insisting, instead, “We will reflect a fundamental willingness to pay based upon available resources, while satisfying the need for essential services, adequate funding for public pensions and providing a platform for economic growth, all as required by [the Puerto Rico Oversight, Management and Economic Stability Act].”

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