The Complex Challenges of Implementing a Municipal Bankruptcy Plan of Debt Adjustment

July 31, 2018

Good Morning! In this morning’s eBlog, we consider post-chapter 9 municipal bankruptcy challenges for the City of Detroit, before turning to learn about good gnus from Puerto Rico.

The Steep Route of Chapter 9 Debt Adjustment. Direct Construction Services, minority-owned firm, which has participated in Detroit’s federally funded demolition program, is suing Mayor Mike Duggan, the city’s land bank, and Detroit’s building authority as well as high-ranking officials from each division—alleging racial discrimination and retaliation. The suit asks the court to award damages and declare the actions of the city, its land bank and building authority as “discriminatory and illegal.” The suit alleges that some contractors had been asked to change bidding and cost figures “to reflect compliance” under the federal demolition Hardest Hit Fund guidelines. Filed in federal court, it charges that Service’s managing member, Timothy Drakeford, was treated unfairly based on his race and that officials in the program conspired to have him suspended for refusing to falsify documents and for cooperating with federal authorities. Mr. Drakeford, who is barred from bidding on federally funded demolition work, is also suing for breach of contract and discrimination against black contractors. The suit charges that some contractors, including Mr. Drakeford, had been asked to change bidding and cost numbers “to reflect compliance” under the federal Hardest Hit Fund guidelines; indeed, the suit alleges it was subsequently suspended—not because of the quality of its work, but rather “because of the refusal to change numbers in bid packages.” The suit adds: “This case arises because of defendants’ breach of contract, concert of action, due process violations, and discrimination on the grounds of race in its implementation of the Hardest Hit Homeowner demolition program, including failure to timely pay black contractors in comparison to their white counterparts, improper and disparate discipline and retaliation.”

This issues here are not new—and have previously been the focus of FBI, state, and city investigations, especially over bidding practices and rising costs. As we have previously noted, the city’s plan of debt adjustment efforts to raze abandoned homes was a particular focus—a program through which federal assistance was misappropriated while the city worked to demolish homes after its bankruptcy—in that case involving federal funds allocated via the Michigan State Housing Development Authority. The suit contends that Direct Construction was awarded three contracts for demolition work by the land bank, and asserts that payments were delayed and harder to obtain from the land bank than for “larger white companies,” such as Adamo and Homrich, two firms awarded the largest percentage of the work to date. The suit asserts Direct Construction was under contract for several demolition packages, but still has not been paid, and references in excess of $143,000 in unpaid invoices, noting: This “repetitive process has gone on for over a year now, with no success,” contending that it had been performing work on two contracts which it had been awarded for a total of 48 homes—before, on December 19, 2016, being hit with an “immediate stop work order” from the land bank, without explanation. A year ago in February, Direct received a letter regarding an Office of Inspector General report, which suggested that photographs submitted for repayment of sidewalk work had been falsified and that the company would not be compensated—a letter followed up the next month by a notice of suspension. (Direct was among a few businesses suspended last year on claims of manipulating sidewalk repair photographs to obtain payment.)

Detroit Corporation Counsel Lawrence Garcia yesterday noted: “The Office of Inspector General found that not only did Mr. Drakeford personally manipulate a photo of a demolition site to conceal tires that had not been removed from the lot, but also gave information that was not truthful to the OIG’s investigators. For the penalties issued with respect to these matters, the Detroit Land Bank, the DBA and the city followed the recommendations of the independently appointed inspector general…These facts more than justify the city’s actions.” Indeed, that office, at the request of the land bank, had initiated investigations in December of 2016 into allegations that sidewalk repair photographs were being doctored. (The land bank mandates that its contractors to take “before and after” photographs of sidewalks, drive approaches, neighboring residences, and surrounding areas to document conditions.) The Office, the following February, flagged Direct Construction over five of its submitted photographs, concluding the photos had been modified to disguise incomplete work; it recommended the company be barred from doing work in the city’s demolition program until at least 2020. (The Michigan State Housing Development Authority began placing greater emphasis on sidewalk replacement photographs in October of 2016, when a new set of practices went into place—at a point in time when federally funded demolition had been suspended for two months after a review by the Michigan Homeowner Assistance Nonprofit Housing Corp.).

Since Mayor Duggan’s election in 2013, the city has razed nearly 13,000 homes—a task that has fiscal and physical consequences—reducing assessed property values and property taxes, but also leaving medical scars: over that time, the percentage of children 6 and younger with elevated lead levels rose from 6.9% in 2012 to 8.7% in 2016, according to state records. Early last year, the land bank repaid $1.37 million to address improper expenses identified by auditors for the state. The land bank last summer reached a settlement with state housing officials to pay $5 million to resolve a dispute over invoices the state determined to be improperly submitted. Detroit’s administration has claimed the city has been transparent with its demolition program and cooperated fully with all inquiries.

Good Gnus. In Puerto Rico, Governor Ricardo Rosselló Nevares and the Labor Secretary Carlos Saavedra are celebrating a turnaround in employment in the U.S. territory: between May and June, some 11,000 people joined the island’s labor market, dropping Puerto Rico’s unemployment rate to its lowest level in half a century. Gov. Rosselló Nevares yesterday reported the unemployment rate to be 9.3%, the lowest rate in the last 50 years, noting: “On this occasion, unemployment drops and the participation rate increases are all numbers going in the right direction.” Sec. Saavedra explained the increase between May and June reflects summer employment programs, but at a level considerably better than in previous years, especially in the commercial and self-employment sectors—and, as he noted: “We have seen a substantial increase in self-employment,” apparently reflecting many involved with repairs and reconstruction for damage caused by Hurricane María, especially electricians, and builders. Economist Juan Lara explained that jurisdictions which have suffered deep economic declines as a result of a natural disaster experience a period of rebound that leads to growth, but cautioned: “[T]his can hardly be maintained in the long-term without a change in the economic model.” He estimated that in the next five or six years, federal investments could keep the economy in positive territory, noting: “The important thing is to remember that these funds do not last forever and that the economy needs sustained redevelopment.”

For his part, Gov. Rosselló stressed that the current economic improvement is occurring without the federal government having released a penny of the more than $1.8 billion in promised HUD assistance. Nevertheless, there can be little question but that the more than $3 billion in insurance claims already paid, according to according to Iraelia Pernas, the Executive Director of the Puerto Rico Insurance Companies Association have had a positive, if one-time, impact. Similarly, the island is anticipating, in August, a large CDBG grant.

Gov. Rosselló Nevares attributed the jobs upturn, interestingly, to emigration: many who were unemployed left Puerto Rico for the mainland, even as he reported the total number of citizens employed has increased, as well as the labor participation rate (not seasonally adjusted), which rose from 40.5% in May to 41.1% last month. percent in June. In the first months following Hurricane María, nearly 200,000 people left Puerto Rico. Many, however, have returned.

Informacion Mejor? PROMESA Oversight Board Executive Director Natalie Jaresko has reported the Board “welcomes the publication” of fiscal information mandated by the Board, after, on July 10th, the Board had sent a letter to FAFAA Executive Director Gerardo Portela Franco, complaining of a failure to submit documents, including documents comparing the General Fund budget to actual spending; PayGo balances; and public employee payroll, headcount, and attendance. The board said that, according to the approved quasi-plan of debt adjustment, the first two documents had been due on May 31st, and the third on June 30th. FAFAA released the PayGo report on July 17, and the other two reports last Friday.  Ms. Jaresko wrote: “The Oversight Board welcomes the publication of the General Fund to Actual Report, the Human Resources Report and the Payroll Report: Full monthly public reporting is essential to increase transparency of government finances, increase accountability, and monitor compliance and progress as per the fiscal plan and budget objectives in order to eliminate Puerto Rico’s structural deficits…The Oversight Board is committed to continuing this important work of monitoring full compliance by the government with reporting requirements, in order to achieve PROMESA’s mandate of restoring fiscal responsibility and market access to Puerto Rico.”

Fiscal & Physical Recoveries

eBlog

July 30, 2018

Good Morning! In this morning’s eBlog, we consider a Puerto Rican post-hurricane perspective on federalism amidst fiscal and physical challenges.

Unequal Americans? Puerto Rican statehood supporter María Meléndez, the Mayor of Ponce, told the Capitol Hill publication the Hill that officials are encountering more sympathy from Congress in the wake of the two hurricanes which devastated the U.S. territory last September. Through constant visits and lobbying efforts, Mayor Meléndez has worked to remind Congress that Puerto Rico is part of the U.S., but has not ever been given voting representation in Congress. She noted that in a visit with  House Appropriations Committee Chair Rodney Frelinghuysen (R-N.J.), the Chair told her that many members of Congress had been previously unaware that Puerto Rican nationals are natural-born U.S. citizens: “Chairman Frelinghuysen told me: “You are right, you are absolutely right. I am a Republican, but why can’t you vote? We don’t get it. But we didn’t know enough about Puerto Rico until after María.’” The Mayor, as well as an increasing number of Puerto Rican elected leaders, have made a habit of visiting Senators and Representatives with large Puerto Rican constituencies to lobby for support for the territory’s reconstruction after the devastation of the hurricanes last summer—lobbying especially vital, because Puerto Rico is only represented by a resident commissioner, a four-year elected official who has access to the floor of the House of Representatives—but who may not vote. Mayor Meléndez, a member of the New Progressive Party (PNP) in Puerto Rico, said Puerto Rico’s inequitable political treatment is a civil rights issue, a position she shares with Resident Commissioner González-Colón and Gov. Ricardo Rosselló. The Mayor notes that Puerto Rico’s current status has delivered scant results: “Look at the results of the Commonwealth up to now. We’ve worked for what? For whom?”

For a brief moment in time, the President, last October, had suggested eliminating Puerto Rico’s debt because of the severe impact on its municipal bond interest rates; however, White House Office of Management and Budget Director Mick Mulvaney nixed any such offer when he instead said Puerto Rico needed to “fix the errors that it’s made for the last generation on its own finances.” OMB Director Mulvaney, as the White House has accumulated the greatest national debt in the nation’s history and facing a shutdown threat at the end of September, failed to mention that the accumulation of debt and deficits under his watch make Puerto Rico’s pale in comparison.

Unsurprisingly, a key issue for Mayor Meléndez is that the PROMESA Act focused on the territory’s finances, but overlooked those of Puerto Rico’s 78 municipalities, or muncipios, noting: “This economic crisis has forced the central government to impose more responsibilities on the municipalities,” which, she notes, rely on three revenue sources: business licenses, building permits, and property taxes. In the wake of the hurricane, Mayor Meléndez had decided to grant exemptions on building permits, adversely affecting the municipality’s budget, but taking the step as a critical action to attract new businesses and the income from property taxes and business licenses. In addition, the municipality created alliances with five neighboring municipalities, irrespective of party affiliation, to pool costs and create better bids on construction contracts. As she notes, notwithstanding the fiscal strain, Puerto Rico’s municipalities will have an outsize role in rebuilding. And, she reminds us: “Reconstruction won’t take a year; it will take several years. It took New Orleans 13 years to recover from Hurricane Katrina.” But, New Orleans, after a delay, received far more federal assistance—fiscal and physical assistance which are limited, especially when it comes to attracting investments. The cost and access to power—and the dire state of public infrastructure add to the challenge—or, as the Mayor puts it: “At 23 cents per kilowatt, no company is going to set up shop.” Nearly a year after Hurricane Maria, many families still rely on generators or simply do not have electricity available at home.

Rebuilding the Motor City, and Reconsidering Colonialism in Puerto Rico

July 27, 2018

Good Morning! In this morning’s eBlog, we consider post-chapter 9 municipal bankruptcy challenges in Detroit, before turning to legislative and legal challenges to Puerto Rico.

A Foreclosed Motor City Future? In Detroit, time is running out for the owners of foreclosed properties under a new program which arose out of a legal settlement two years ago intended to protect the rights of low-income owner-occupants of foreclosed homes to purchase back their properties back for $1,000—a plan which provided that occupied homes on tap for this coming fall’s tax auction will instead be purchased by the City of Detroit and sold to owner-occupants who can prove they qualify for the city’s poverty tax exemption or have in the past—an exemption which would reduce or eliminate property tax liabilities for those who qualify. The plan is an indication of one of the most challenging aspects of fashioning a plan of debt adjustment for recovering from the largest chapter 9 municipal bankruptcy in U.S. history: how does one enhance the property tax base by attracting higher income families to move back into the city without jeopardizing thousands upon thousands of the city’s poorest families?

To date, with a looming deadline in a month, the United Community Housing Coalition has received about 140 applications—the foundation received funds from the City and foundations to purchase the homes—with the assistance available to prospective homeowners who can prove they could have qualified for the tax exemption between 2014 and 2017, but did not receive one—and that they agree to sign a sworn statement they would have qualified in the past. The effort matters: Wayne County Treasurer Eric Sabree estimates as many as 700 owner-occupied homes in Detroit are at risk of being sold at the fall tax foreclosure auction.

Quien Es Encargado? (Who is in charge?) U.S. District Court Judge Laura Taylor Swain Wednesday stated she would issue an opinion soon with regard to the hard federalism question emerging from the by Puerto Rico versus the PROMESA Oversight Board over their authority, noting at the end of the Title II bankruptcy hearing: “I realize the urgency of the situation,” at the end of a Title III bankruptcy hearing in San Juan, referring to two adversary proceedings against the Board–one brought by Gov. Ricardo Rosselló, and the other by the Presidents of the Puerto Rico Senate and House of Representatives—while PROMESA Board attorney Martin Bienenstock described the Governor’s effort to challenge the Board’s efforts to preempt the legislative power and authority of the U.S. Territory’s elected Governor and Legislature as “ineffectual.” Mr. Peter Friedman, representing the Governor and Puerto Rico’s Fiscal Agency and Financial Advisory Authority (FAFAA), responded that the Governor was just trying to raise a narrow set of issues: they want the federal court to reject the notion that they have no meaningful role in governing.  But the unelected Mr. Bienenstock said the Governor’s challenge is based on five discrete issues intertwined with the PROMESA Board’s ability to revive the economy, regain capital markets access, and do other things mandated by the PROMESA law, as he focused especially on two issues: what he characterized as the Board’s power over “reprogramming” the use of unused Puerto Rico government funds, arguing before Judge Swain that if the Governor were permitted to appropriate and authorize funding to carry out his responsibilities, then the PROMESA Board would have lost control over the budget, fiscal plan, and debt restructuring.

In response to this extraordinary claim, Judge Swain said that while she recognized the Board has some authority, she questioned whether it applies to funding lines that had been authorized before PROMESA’s passage, describing the issue as a “conundrum,” even as Mr. Bienenstock testified that the Governor wants to make it legal to “knowingly and willingly” spend more than the PROMESA Board budget authorizes. This raised an issue which goes to the heart of governance in a democracy: should those elected by the citizens of a jurisdiction have the final say as opposed to those who neither reside in nor come from such a jurisdiction have the final governing authority?

Crossing Swords. Puerto Rico Governor Ricardo Rosselló, stated he would not testify before the U.S. House Natural Resources Committee unless Chairman Rob Bishop (R-Utah) said he was sorry for a Tweet tweeted from the Committee’s account last week: “Call your office, @ricardorossello,” accompanied an invitation to the hearing, where invited witnesses were to be grilled on a management crisis at PREPA. Gov. Rosselló noted the tweet falsely suggested that he was hard to reach. Perhaps more importantly, for the Governor, the Chairman’s comments appeared to reflect a disrespect which would not be shown to the Governor of any State, emphasizing the perception that the federal government has a colonialist attitude toward the Commonwealth, where residents are U.S. citizens, but are barred from having a vote in the House and Senate. Chairman Bishop did not apologize for the demeaning tweet, asserting that its removal meant no apology was required—a position hard to imagine he would make to Utah Governor Gary Herbert.

Converting Swords to Plowshares? With Congress adjourning today for six weeks, Puerto Rico Resident Commissioner Jenifer Gonzalez hopes her pro-democracy project can be discussed by Chairman Bishop’s Committee in September: her legislation, HR 6246, would enable the admission of the territory of Puerto Rico into the Union as a State. Chair Bishop, according to the Commissioner, “has a plan” to move the prospects for statehood forward in the short 19-day legislative window before this Congress adjourns in November. Rep. Gonzalez affirmed that her legislative goal is to incorporate Puerto Rico as a territory, which would be considered as a promise of statehood, and create a Congress Working Group, so that, within a period of just over a year, there would be a report on changes to laws that would have to be put in place to admit the island as a state in January of 2021.

Lighting up PREPA? Puerto Rico’s Governor Ricardo Rosselló was a no-show at a Congressional hearing Wednesday afternoon on efforts to wrench control of the bankrupt Puerto Rico Electric Power Authority from Puerto Rico’s government—a hearing, “Management Crisis at the Puerto Rico Electric Power Authority and Implications for Recovery,” with regard to which Chairman Rob Bishop (R-Utah) had written: “Despite your recognition of the politicization that has plagued PREPA and your commitment towards allowing for independence, the recent departure of PREPA’s CEO after only four months of service and the resignation of the majority of PREPA’s governing board are the most recent signs of the utility’s continued dysfunction and a sign that ‘political forces…continue to control PREPA.’” The Governor, late Tuesday had announced he would not be able to participate in the hearing—a hearing at which there was to be a focus on corruption within the utility and the possibility of privatization—but at which the Committee was scheduled to receive testimony from the invaluable chapter 9 expert Jim Spiotto, as well as DOE Assistant Secretary Bruce Walker.  In its most recent audit, Ernst & Young had noted there substantial  doubt whether PREPA could continue as a going concern, since it does not have sufficient funds to fully repay its obligations as they come due and is restructuring its long-term debt. (PREPA utility filed for bankruptcy one year ago in the face of accruing $9 billion in debt, under PROMESA’s provisions in Title III.

Puerto’s Rico’s Demographic Challenges

July 24, 2018

Good Morning! In this morning’s eBlog, we consider what promises (no pun!) to be a brighter fiscal future for Puerto Rico,but a governmentally challenged fiscal and governing future.

Road to Recovery? According to Puerto Rico’s Department of Labor and Human Resources, the annual unemployment rate is lower than at any time than in more than 77 years, as Puerto Rico’s total employment level reached 995,767, and its unemployment rate dropped below 10% to the lowest monthly rate since at least 1975, dropping just over 15% in the last year. The BLS, however, reported that non-farm employment declined 3.5% from a year earlier, though it was up 1.9% from the post-Hurricane Maria low in October 2017: according to this survey of non-farm employers, private sector employment declined 3.4% in June from a year earlier. Puerto Rico’s Department of Labor and Human Resources said that Puerto Rico’s labor participation rate had increased to 41.1% from 39.3% a year ago last June.

The Fiscal Challenge of Demography. Dr. Angel Muñoz, a clinical psychologist and researcher at the Pontifical Catholic University of Puerto Rico in Ponce is warning that the question of who will care for Puerto Rico’s aging population is a growing crisis; he appears especially apprehensive that the U.S. territory’s elderly population is particularly at risk amid the new Atlantic hurricane season, which runs through Nov. 30th—especially after an earlier study we cited by Harvard researchers estimated that 4,600 Puerto Ricans died in the months after Hurricane Maria hit last September: many were seniors who faced delays in getting medical care. That apprehension has grown as projections show that one-third of Puerto Rico’s population will be 60 or older by 2020, even as the number of young people are increasingly emigrating to the mainland in search of employment, often leaving behind aging parents. Dr. Muñoz noted: “We have more [older adults] being left alone to almost fend for themselves, or being cared for by other seniors, instead of a younger family member.” Adding to the fiscal and physical challenges is that in Puerto Rico, Medicaid does not pay for long-term nursing home care.

Challenging PROMESA. In yet another governance and legal challenge, Puerto Rico’s Financial Advisory Authority and Fiscal Agency will seek, today, to convince U.S. Judge Judith Dein that the fiscal budget signed by Gov. Ricardo Rosselló Nevares should be the controlling fiscal guide, marking the Governor’s first formal complaint against the PROMESA Board. The suit makes for an exceptionally full docket: it gets in line with more than 75 lawsuits filed against Puerto Rico or the Board. Last week, Judge Dein denied a request from the Association of University Professors and Teachers of the University of Puerto Rico in Mayagüez to intervene in the litigation between the government and the Oversight Board, after the Board sought the dismissal of the case, claiming it was acting in accordance with the powers conferred by Congress. The legal challenge has an element of Rod Serling, the former host of The Twilight Zone, because of the constitutional and principles of self-government questions raised—especially compared to chapter 9 municipal bankruptcy, where filing for chapter 9 is only permitted in states where such authority has been enacted by the respective Legislature and Governor. In contrast, the PROMESA law appears to rely on different institutional and Constitutional frameworks, and veers sharply from the principles of self-government upon which our nation was founded by the states. Nevertheless, Puerto Rico constitutionalist Carlos I. Gorrín Peralta and the ex-Judge of Puerto Rico’s bankruptcy court, Judge Gerardo Carlo Altieri believe it unlikely that the statute will be declared unconstitutional. The former. A professor at the School of Law of the Inter-American University of Puerto Rico (UIPR), is of the view that it is unlikely that Judge Swain would declare unconstitutional the statute which, among other things, created the special position that she occupies by appointment to preside over the Title III cases of Puerto Rico. Mr. Peralta notes: “Puerto Rico does not even have sovereignty to accuse a person of drugs that the feds have already accused and, then, the second message was the declaration of unconstitutionality of the restructuring law,” he noted referencing Puerto Rico v. Sánchez Valle and Puerto Rico v. Franklin California Tax-Free Trust. He adds: “The Congress has exercised the colonial mollero,” which, in Spanish, can generally be translated to mean to show one’s biceps. Adding that the current dispute between the Oversight Board and the Commonwealth is, as he called it, the result of “conceptual ambiguity,” which can be illustrated by Law 600, wherein he described the statutory language as “the nature of a pact” adopted in the statute which gave rise to the Constitution of Puerto Rico, although in practice, there was no agreement between the United States and the United States.

In PROMESA, ergo, Senor Gorrín Peralta said the vehicle which is understood to be the vehicle with which to restructure Puerto Rico’s debt, in reality, he believes, is a statute designed to: protect the economic interests of the United States, and contain the effect that Puerto Rico’s debt would have on the state and local municipal bond market.

From the perspective of Judge Carlo Altieri, the allegations of Gov. Rosselló Nevares and the island’s legislative leaders regarding a possible usurpation of powers are of great import. The same, he added, applies to the case of Aurelius Capital Management, which alleges that the PROMESA Board is null because its members were not appointed with the consent of the Senate as dictated by the U.S. Constitution.

Nevertheless, according to a former president of the Bankruptcy Court in Puerto Rico, the backdrop to settle the dispute between Gov. Rosselló Nevares, the Legislature, and the PROMESA Board is not a purely civil case or a claim for constitutional rights, but rather the procedures of U.S. bankruptcy law which are oriented to pragmatism and the rapid resolution of disputes, mainly monetary, or, as he put it: “In the Bankruptcy Court, what are sought are fast, practical, technical,and efficient processes. Of course, PROMESA is a special law; it is not chapter 9 or chapter 11: it is a very special law and definitively, constitutional attacks are not the norm in cases of traditional bankruptcies either of municipalities or Chapter 11 cases. These constitutional arguments are very important, but they have the effect of delaying cases and resolving cases, creating confusion and excessive costs.”  He further noted that Judge Swain’s recent ruling in the Aurelius casts serious doubts with regard to the chances for Gov. Rosselló Nevares and the Legislature to prevail. He adds that it is highly probable that this litigation will continue via appeals, so the process of adjusting Puerto Rico’s debts will be delayed: “The candles are deflated. I would not be surprised if the court decided against the Legislature and the government.” Nevertheless, he made it clear that in the future, especially when the confirmation process of the plan of adjustment nears, the scope of the Oversight Board’s fiscal plan could change. 

He noted that Judge Swain could rule against the government by determining that Gov. Rosselló Nevares’ requests are aimed at seeking an opinion and that, in reality, there is no controversy surrounding the authority of the Oversight Board to certify the fiscal plan and the budget; rather, he said,The reasons are eminently political,” adding that as the Oversight Board’s actions begin to increasingly, adversely affect citizens’ pockets, there will be ever-increasing rejection of what is perceived as colonial imperialism. He added that if the court ruled in favor of the Rosselló Nevares administration and curtailed the powers of the PROMESA Board, the body created by Congress would continue to have “gigantic” powers to impose its mandates upon the people and government of Puerto Rico.

Is PROMESA Unpromising?

July 23, 2018

Good Morning! In this morning’s eBlog, we consider whether the PROMESA statute might be unconstitutional.

Tug of Governance War. This week, Judge Judith Dein will be challenged with the task of resolving the controversy between the government of Puerto Rico and the PROMESA Board over the budget. Judge Dein, a federal magistrate judge from the district of Massachusetts, has been designated to assist Judge Laura Taylor Swain in Puerto Rico’s Title III bankruptcy proceedings—as, according to an order by Chief U.S. District Court Judge Aida Delgado last month, her charge will be to “hold court and perform any and all judicial duties,” as needed, in relation to the Commonwealth’s Title III cases, with his order coming because of the unavailability of magistrate judges in the District of Puerto Rico, citing a statute which permits Chief judges to assign magistrate judges to temporarily perform judicial duties in a district other than the judicial district for which they have been appointed. Her test will come the day after tomorrow, when the Fiscal Agency and Financial Advisory Authority (FAFAA) will try to convince Judge Dein that the budget to be implemented for the current year is the one approved and signed by Governor Ricardo Rosselló Nevares earlier this month, marking the first formal complaint filed by the Governor against the PROMESA Oversight Board. The challenge now joins a long litigation line of more than 75 lawsuits filed against the government or the Board—all questioning the scope of the PROMESA law.

While, to date, the bulk of such challenges have come from municipal bondholders and municipal bond insurers, this new legal avenue emerges from the elected officials of Puerto Rico, who, in light of PROMESA, would be called upon to execute the dual mandate granted to the Board. In these cases, several parties have already received denials from Court. Last week, for instance, Judge Dein denied a request from the Puerto Rican Association of University Professors of the University of Puerto Rico in Mayagüez to intervene in the litigation between the government and the PROMESA Board—which had asked for dismissal, alleging that it acts in accordance with the powers conferred by the federal statute. Likewise, in the related suit filed by Puerto Rico Senate President Thomas Rivera Schatz and House Majority Leader Carlos “Johnny” Méndez (R-Fajardo) against the Board, Judge Dein, to whom Judge Laura Taylor Swain entrusted to resolve the controversy, denied the request.

The suit raises grave constitutional and governance questions relating to the kinds of principles of self-government upon which our nation was founded, as well as the stark difficulty of somehow applying chapter 9 municipal bankruptcy to a U.S. territory—that is, a statute which only permits such a filing if authorized by a state. Constitutionalist Carlos I. Gorrín Peralta and former Judge President of the Bankruptcy Court in Puerto Rico Gerardo Carlo Altieri, nevertheless, believe it unlikely that the statute will be declared unconstitutional. Professor Gorrín Peralta, of the Inter-American School of Law believes it is unlikely that Judge Swain would declare the statute unconstitutional, a statute which, after all, created her special position, appointed by the Associate Justice of the Supreme Court of the United States. He explained that the Supreme Court pronouncements about Puerto Rico two years ago only served as a message to the U.S. Congress to take action regarding Puerto Rico, and the actions of that legislature have not been different from what they have been done for more than a century, noting: “Puerto Rico does not even have sovereignty to accuse a person of drug dealing, who has already been prosecuted by federal authorities, and then, the second message was the declaration of unconstitutionality of the Debt Restructuring Law,” referencing the cases Puerto Rico v . Sánchez Valle and Puerto Rico v. Franklin California Tax-Free Trust. Mayhap ironically, Prof. Peralta, in the case of the institutional funds which had successfully challenged the Debt Enforcement and Recovery Act (which was approved by the Puerto Rican government in 2014), he recalled came the same day on which the U.S. Senate was to vote on PROMESA, archly noting: “The Congress has exercised its colonial strength,” adding that now, the dispute between the PROMESA Board and the government is the result of the “conceptual ambiguity” under which Puerto Rico has suffered for decades. Rather, he is of the view that PROMESA, rather than a vehicle intended to help restructure the U.S. territory’s debt, actually is a statute designed to protect the economic interests of the United States, contain the effect that the Puerto Rican debt would have in the municipal bond market, and rid the federal government of any responsibility for the debt issued by a territory that was authorized to do so by Congress.

Meanwhile, Carlo Altieri considered that the allegations of Rosselló Nevares and legislative presidents regarding a possible usurpation of powers are of great importance. The same, he added, applies to the case of Aurelius Capital Management, which alleges that the body created by PROMESA is null because its members were not appointed with the consent of the Senate as dictated by the US Constitution.

However, according to the former Judge President of the Bankruptcy Court in Puerto Rico, the backdrop to settle the dispute between Gov. Rosselló Nevares, the Legislature, and the Board is not a purely civil or a constitutional rights claim case, but the procedures provided by the federal Bankruptcy Code and which are oriented to pragmatism and the rapid resolution of monetary disputes: “In Bankruptcy Courts, fast, practical, technical, and efficient processes are sought. Of course, PROMESA is a special law, it is not chapter 9 or chapter 11; it is a very special law and, definitively, attacks on constitutionality are not usual in traditional bankruptcies cases, either municipalities or Chapter 11 cases,” adding: “These constitutional arguments are very important, but they have the effect of delaying cases and resolving cases, they  confuse and add excessive costs,” opining that Judge Swain’s recent ruling in the Aurelius case points to Gov. Rosselló Nevares and the Legislature having little likelihood of prevailing, after her refusal to dismiss the request of Title III as requested by the investment fund, because Puerto Rico is a U.S. territory and, as such, Congress “can thus amend the acts of a territorial legislature, abrogate laws of territorial legislatures, and exercise full and complete legislative authority over the people of the Territories and all the departments of the territorial governments.’” That is, he believes that, for Jude Swain, the PROMESA Board is an entity of the Commonwealth, and, therefore, U.S. Senate confirmation for its members is not required. He adds that, in his opinion, “I would not be surprised if the Court ruled against the Legislature and the government,” noting that, to date, it seems that what Judge Swain perceives PROMESA as granting the Board authority to approve fiscal plans and budgets; however, he made it clear that, in the future, especially for the confirmation process of the quasi plan of debt adjustment, the scope of the Board on the fiscal plan could change. He added that while Judge Swain appears to believe the Board is a territorial government agency, U.S. Court of Federal Claims Judge Susan Braden has concluded otherwise in the lawsuit filed by Oaktree Capital Management, Glendon Capital, and others. (That lawsuit, which is on hold until the constitutional challenges filed by Aurelius are resolved, Judge Braden found that the Board is a federal agency and therefore, its actions are in themselves, the actions of the United States.)

Voz de la Gente (Voice of the People). Mr. Peralta appears to be of the view that, as PROMESA begins to have an effect on the citizens’ of Puerto Rico’s wallets and pocket books, there will be increasing dissatisfaction with the Board in Puerto Rico, noting that if the court were to rule in favor of Gov. Rosselló Nevares’ government and defined the powers of the Board, “the truth is that the body created by Congress will continue to have ‘gigantic’ powers to impose its criteria on the government of Puerto Rico.

Potholes in the Motor City Road to Recovery & un Federalism in Puerto Rico

eBlog

July 20, 2018

Good Morning! In this morning’s eBlog, we consider some of the post chapter 9 municipal bankruptcy challenges Detroit confronts, before returning to some of the legal, governing, and judicial challenges to Puerto Rico’s fiscal recovery.

The Potholes in Recovering from Municipal Bankruptcy. Five years out from the nation’s largest ever chapter 9 municipal bankruptcy incurred in the wake of accruing some $14 billion in long-term debt, the city’s plan of debt adjustment has unrolled in a sparkling fashion, especially downtown and around Michigan Central Station. Just under 40% of jobs in Detroit are deemed high skill—higher than the surrounding neighborhoods—and especially valuable in a city which, unlike most, boast an income tax. Nevertheless, median income, at about $56,000 is the lowest in the nation among major metropolitan regions. And the sorry state of the Detroit Public School system continues to discourage families with kids to move from the city’s suburbs into the city: in excess of 90% of eighth graders lack proficiency in math and reading.

A key to the recovery has been the auto industry—and major foundations, including the Kresge, Ford, and the Community Foundation of Southeast Michigan—all of which contributed to the so-called “grand bargain” in the city’s chapter 9 plan of debt adjustment approved by Judge Steven Rhodes—an adjustment which brought in hundreds of millions of dollars to safeguard pensions and preserve the city’s jewel in its crown: the Detroit Institute of Art. Moreover, since then, foundations have contributed great sums to workforce training in Detroit, retail revival, human welfare services and more—as well as for-profit corporations, such as JP Morgan Chase, which has been pumping $150 million into the city to support a variety of efforts from retail to job training. Moreover, millennials and empty-nesters have moved downtown: in the past few years, a trickle of newcomers has swelled to a flood, meaning what, on the city’s first day in chapter 9 municipal bankruptcy when it was unsafe to walk downtown, is, today, an area of dozens of new residential developments, which have been built or are underway in the greater downtown, from the revival of classic skyscrapers like the David Whitney Building and Broderick Tower to new construction like the Auburn and DuCharme Place. If anything, an urban challenge confronting city leaders today is the escalation of rents—forcing questions with regard to displacement.

Changing the Premise of PROMESA? In the wake of Judge Laura Swain Taylor’s rulings, there appears to be increasing pressure in Congress to revise or repeal the Puerto Rico Oversight, Management, and Economic Stability Act [PROMESA], after a the Judge suggested the U.S. government could be liable for cuts to bond values mandated by the PROMESA Oversight Board. U.S. Court of Federal Claims Chief Judge Susan Braden issued her opinion [Altair Global Credit Opportunity Fund et al. v. The U.S. Court of Federal Claims, No. 17-970C, July 17, 2018, in the case filed by investment funds against the U.S. government concerning defaulted employment retirement system bonds. Judge Braden’s signal that she was inclined to rule in favor on the claims drew reactions from members of the Puerto Rico Task Force of the Congressional Hispanic Caucus—or as U.S. Rep. Darren Soto )D-Fl.) put it: “This ruling exposes additional problems with the PROMESA act…It may also be a catalyst to support a reform or repeal to provide Puerto Rico full bankruptcy rights.”

Rep. José Serrano (D-N.Y.), who was born in Mayagüez, Puerto Rico, agreed that the opinion may have an impact on Puerto Rico; however, he was uncertain it would be for the better—rather, he seemed apprehensive Judge Braden’s opinion placed the interests of creditors in front of those of the citizens of Puerto Rico—American citizens, noting: “By making the U.S. government liable for Puerto Rico’s debt, the court has essentially determined that bondholders can have priority over the needs of the Puerto Rican people: This would force the federal government to make the hedge funds whole, rather than focusing on the true intent of PROMESA: helping Puerto Rico get on a sustainable economic and fiscal path. We have to make sure the people of Puerto Rico come first.” In stark contrast, Manal Mehta, founder of Sunesis Capital, agreed the ruling would help bondholders, but he saw this as a positive. “The plaintiffs had to get over the hurdle to show this is actually a claim against the federal government to get to federal claims court. This is a solid win for creditors,” noting: “It looks like the court made the correct decision, as the Lebron [legal case] test emphasizes ‘federal control’ to determine whether something is ‘federal’ for takings purposes, and it’s clear Congress controls the [PROMESA] Oversight Board, as it appoints it: So there’s now a takings route for creditors, at least in situations where the PROMESA Oversight Board/government has wiped out prepetition collateral, and it’s unlikely to be overturned.” Put more starkly, he added: “Until final adjudication, this ruling strikes a dagger at the heart of the legitimacy of the Oversight Board: I suspect that this will lead Congress to remove and reappoint members of the Oversight Board in a manner that is consistent with the appointments clause of the U.S. Constitution as well as modify Title III of PROMESA to ensure that the federal government does not become liable for creditor claims.”

In her decision, Judge Swain wrote that the PROMESA Oversight Board was part of Puerto Rico’s government, not the federal government. Reminiscent of the old question ‘Who’s on first and what’s on second, Judge Braden’s ruling reached the opposite conclusion, likely, as New York Congresswoman Nydia Velázquez put it: “There’s a good chance this ruling will be appealed.”

Federalism?  Just when the House Popular Democratic Party (PDP) minority joined the suits against the PROMESA Board, Rafael Cox Alomar, a former Popular Resident Commissioner candidate, said that there appears to be consensus in federal court regarding the fact that the territorial clause grants the U.S. Congress absolute powers over the island: “The environment is completely different, and it is an environment where the theory that Congress has plenary powers, powers that are basically unlimited seems to be growing. In other words, the colonial character of the relationship has been reaffirmed,” he added, asserting that he believe the U.S. Supreme Court has established that the Commonwealth of Puerto Rico does not have its own sovereignty with regard to double jeopardy cases, noting: “I do not think that, in the current environment, arguing that PROMESA is unconstitutional or that the Board does not have the power to do this, or that…or that Congress cannot get involved in legislating in internal affairs without the consent of Puerto Ricans, will be very successful,” suggesting “a new model based on the sovereignty of Puerto Rico is what is needed.”

Adding to the matter, the Popular Democratic Party caucus yesterday filed suit in federal court questioning the constitutionality of the creation of the PROMESA Board, as well as the alleged usurpation of powers, making it the third case filed in the wake of the PROMESA Board’s failure to certify the budget approved by the Legislative Assembly facing the breach of the agreement reached with Governor Ricardo Rosselló Nevares, which included repealing the Law of Unjust Dismissal (Law 80-1976) as a requirement to, among other things, retain the Christmas bonus of public employees.

Indeed, the courtroom is in a traffic jam: last week, Governor Ricardo Rosselló Nevares sued the Board for usurpation of his authority, while, in a separate lawsuit, the Legislative Assembly argued an excess of authority on the part of the PROMESA Board—or, as House Member Rafael “Tatito” Hernández put it: “The Board wants to rule, wants to legislate, and wants to establish public policy in Puerto Rico without being democratically elected. It does not have that power, and it does not result from any clause in PROMESA Law. We are not challenging PROMESA; we are specifically challenging the Board.”

The Fiscal Challenges of Federalism

July 13, 2018

Good Morning! In this morning’s eBlog, we consider the legal, governing, and judicial challenges to Puerto Rico’s fiscal recovery, before turning to the very different kinds of fiscal recovery challenges confronting Wilkes-Barre, Pennsylvania.

Who Is Preempting Whose Power & Authority? Yesterday, the PROMESA Oversight  Board requested dismissal of Gov. Ricardo Rosselló Nevares’ suit in which he is charging that the Oversight Board has usurped his power and authority, with the Board asking the federal court to issue an injunction to prevent such action, noting in its filing: “Although PROMESA relies in the sole discretion of the Board, two major policy instruments that exist, the fiscal plan and the budget, and the law expressly empowers the Board to formulate and certify them…the Governor questions whether PROMESA preserves to the government the political powers and of government to make policy decisions.”  In response, the Board asserted that the Governor’s claim lacks merit, asserting that the law provides that the Board has the final say with regard to budget and tax issues, writing: “The provisions to which the Governor objects are not recommendations in the sense of §205 of PROMESA,” with that response coming just minutes after the U.S. requested—for a second time—its insistence on the “Constitutionality of the PROMESA statute. In a motion filed Wednesday, U.S. Justice Department Assistant Attorney General Thomas Ward advised Judge Laura Taylor Swain that two recent decisions upon which Puerto Rico had relied were not pertinent to the legal issues at hand. Promise law.

In a motion filed Wednesday, Assistant U.S. Attorney General Thomas G. Ward and Jean Lin of the Justice Department asserted before Judge Taylor Swain that two recent U.S. Supreme Court decisions presented by the Aurelius Management Investment Fund were not relevant to the critical issues at hand, after, earlier this week, the Fund had provided the Judge with two U.S. Supreme Court decisions which, it asserted, affirm its perception of the statute, as it continues to argue before the federal court that the actions of the PROMESA Board are null and void, because the members of the Board without the consent of the Senate as required by the U.S. Constitution, referencing two recent U.S. Supreme Court decisions, Lucia v. SEC and Ortiz v. United States, where, in the former case, the court, last month, determined that a higher ranking SEC official should have been appointed to his position based on the Appointments Clause of the US Constitution, while, in the Ortiz decision, the Supreme Court held that it has jurisdiction to review decisions of the Armed Forces’ appellate courts—claims which the Justice Department described as incorrect, since such decisions only support his argument that the appointment clause of the U.S. Constitution does not apply to members of the PROMESA Oversight Board—or, as the Justice Department brief put it: “A finding that the clause applies to territorial officials would not only face this historic practice, but would also challenge the current governance structures of the territories and the District of Columbia that have been in place for decades,” adding to that Congress has full authority over its territories—authority which is not subject to the “complex” distribution of the powers of the government provided by the U.S. Constitution.

Last week, Gov. Rosselló had charged that the PROMESA Oversight Board has been trying to make policy decisions that the PROMESA law does not grant it authority to make, as he had petitioned Judge Swain to mandate that the Board to answer the complaint or motion to dismiss by yesterday. His attorneys stated: “The court should expedite resolution of this case to address the injury to the Commonwealth and its people occurring every day due to the Board’s attempt to seize day-to-day control of Puerto Rico’s government.” Even though the PROMESA Board asked for more time, Judge Swain ruled in favor of the Governor’s request—so, the complex federalism sessions are scheduled to resume on the 25th, when the quasi bankruptcy court will entertain oral arguments, possibly including participation by Puerto Rico Senate President Thomas Rivera Schatz and House President Carlos Méndez Núñez, who filed a similar suit against the board on July 9th, asserting that the PROMESA Board was preempting the legislature’s rightful powers. Thus, even the Board and the Governor have generally been in agreement this year in their fiscal plans, the Board has insisted its policies must be followed—with its proposed quasi plan of debt adjustment showing a surplus of $6.5 billion from this fiscal year through fiscal year 2023.

In the suit, Gov. Rosselló quotes from Judge Swain’s opinion of last November and order denying the PROMESA Board’s motion to replace the then-chief executive of the Puerto Rico Electric Power Authority with the board’s own appointee, with the opinion noting: “Congress did not grant the [Oversight Board] the power to supplant, bypass, or replace the Commonwealth’s elected leaders and their appointees in the exercise of their managerial duties whenever the Oversight Board might deem such a change expedient.”

Mayor of Wilkes-Barre Asks State for Financial Assistance. Mayor Tony George, whose city is confronting a $3.5 million deficit in the upcoming fiscal year, is seeking financial assistance under Pennsylvania’s program for distressed communities, the Financially Distressed Municipalities Act, approval of which request would mean the municipality would be eligible for loans and grants through the state Department of Community and Economic Development. The move came as Standard & Poor’s placed the city’s “BBB-” rating on CreditWatch with negative implications, in the wake of Mayor George’s petition to the Pennsylvania Department of Community and Economic Development, with the Mayor warning the city faces an estimated $3.5 million deficit next year and in the coming years despite efforts to place Wilkes-Barre on sound financial footing with its participation in Pennsylvania’s Early Intervention Program. The credit rating agency added it will gather more information before making a determination that could make it more expensive for the city to borrow money at higher interest rates, noting: “We expect to resolve the CreditWatch status within 30 days. We could lower the rating if we believe that the city’s credit quality is no longer commensurate with the rating. However, if we believe it does remain commensurate with the current rating, we could affirm the rating and remove it from CreditWatch.” Should the credit rating be downgraded, it would be the second time during Mayor George’s administration, after, a year ago last May, S&P lowered the rating to “BBB-” from “A-” because the city’s cash flow was constrained and was relying on borrowing to make ends meet. City officials are tentatively scheduled to hold a conference call with S&P on August 7th—by which time the state is expected to have made its decision on declaring the city distressed.

Under that state statute, municipalities may also restructure debt. If the Mayor’s request is granted, the state will appoint a financial adviser to design a financial recovery plan for the city—one of the nation’s oldest, having been inhabited first by the Shawanese and Delaware Indian and (Lenape) tribes, so that it was in 1769 that John Durkee led the first recorded Europeans to the area, where they established a frontier settlement named Wilkes-Barre after John Wilkes and Isaac Barre, two British members of Parliament who supported colonial America. At the time, these settlers were aligned with colonial Connecticut, which had a claim on the land that rivaled Pennsylvania’s. Indeed, armed Pennsylvanians twice attempted to evict the residents of Wilkes-Barre in what came to be known as the Pennamite-Yankee Wars, so that it was not until after the American Revolution, in the 1780s, that a settlement was reached granting the disputed land to Pennsylvania. A century later, the city’s population exploded in the wake of the discovery of anthracite coal, an explosion so powerful that the city was nicknamed “The Diamond City:” hundreds of thousands of immigrants flocked to the city. By 1806, it was incorporated as a borough; it became a city in 1871—as it gradually became a major U.S. coal center, and an early home to Woolworth’s, Sterling Hotels, Planter’s Peanuts, Miner’s Bank, Bell Telephone, HBO, Luzerne National Bank, and Stegmaier. But the coal which once contributed so much to the city’s growth, subsequently let it down: not only were there terrible mine disasters, but also the country began to switch to other energy sources. So, the city where Babe Ruth knocked one of his longest ever homes runs is, today, at risk of striking out at the plate.  The city, which a dozen years ago celebrated its 200th anniversary, is now seeking assistance via the state’s Act 47, with the Mayor citing—as additional factors, the lack of cooperation with area unions and his own City Council. He appears to be of the view that there was no other alternative to help stabilize the city’s finances other than filing for status under Pennsylvania’s Act 47 for Distressed Municipalities, noting: “My goal is to bring the city forward, and we’re stifled.”

In Pennsylvania there are four general methods of oversight used to aid local governments: Intergovernmental Cooperation Authorities, which are used with Philadelphia and Pittsburgh; ƒ School district assistance, which can come in the form of technical assistance, or schools which can be deemed in Financial Watch Status or in Financial Recovery Status; Early intervention program for municipalities before Act 475; and Act 47, or Pennsylvania’s Municipalities Financial Recovery Act of 1987.  What Is Pennsylvania’s Act 47? We will go into more depth about Act 47 because that is the program for which Wilkes-Barre recently applied. We also touch on the special consideration taken for Pittsburgh and Philadelphia as it relates to Act 47 as we close this commentary. The Pennsylvania Municipalities Financial Recovery Act of 1987, or Act 47 as it is commonly called, is an assistance program to help Pennsylvania municipalities after they file and are officially designated as “distressed.” Many states, such as the commonwealth of Pennsylvania, generally believe that the status of one of its municipalities can affect others throughout the state. This is even set forth in writing in PA’s Act 47, which states: “Policy—It is hereby declared to be a public policy of the Commonwealth to foster fiscal integrity of municipalities so that they provide for the health, safety and welfare of their citizens; pay principal and interest on their debt obligations when due; meet financial obligations to their employees, vendors and suppliers; and provide for proper financial accounting procedures, budgeting and taxing practices. The failure of a municipality to do so is hereby determined to affect adversely the health, safety and welfare not only of the citizens of the municipality but also of other citizens in this Commonwealth.”

How Does a Pennsylvania Municipality Become Part of Act 47? The Municipalities Financial Recovery Act authorizes Pennsylvania’s Department of Community and Economic Development (DCED) to validate municipalities as financially distressed. According to Act 47’s criteria, a municipality could be deemed financially distressed if it meets at least one of the following criteria: The municipality has maintained a deficit over a three-year period, with a deficit of 1% or more in each of the previous fiscal years. The municipality’s expenditures have exceeded revenues for a period of three years or more. The municipality has defaulted in payment of principal or interest on any of its bonds or notes or in payment of rentals due any authority. The municipality has missed a payroll for 30 days. The municipality has failed to make required payments to judgment creditors for 30 days beyond the date of the recording of the judgment. The municipality, for a period of at least 30 days beyond the due date, has failed to forward taxes withheld on the income of employees or has failed to transfer employer or employee contributions for Social Security; it has accumulated and has operated for each of two successive years a deficit equal to 5% or more of its revenues; and it has failed to make the budgeted payment of its minimum municipal obligation as required by §§302, 303, or 602 of the act of December 18, 1984 (P.L. 1005, No. 205), per the Municipal Pension Plan Funding Standard and Recovery Act, with respect to a pension fund during the fiscal year for which the payment was budgeted and has failed to take action within that time period to make required payments.

Pennsylvania’s Municipalities Financial Recovery Act authorizes Pennsylvania’s Department of Community and Economic Development to validate municipalities as financially distressed. Key criteria include: A municipality has sought to negotiate resolution or adjustment of a claim in excess of 30% against a fund or budget and has failed to reach an agreement with creditors; a municipality has filed for chapter 9 municipal bankruptcy; a municipality has experienced a decrease in a quantified level of municipal service from the preceding fiscal year, which has resulted from the municipality reaching its legal limit in levying real estate taxes for general purposes.  Act 47 offers aid to the commonwealth’s second class cities (defined as those with a population of 250,000 to 999,999) and below which are negatively affected by forces such as short-term swings in the business cycle, or those burdened by more harmful longer-term negative macro-economic shifts: state support or assistance is available in several forms in order to ensure municipalities can provide essential services without interruption.

Over the long-term, Act 47 is focused on balancing ongoing revenues with ongoing expenditures—and investing in the municipality so that growth occurs and, as in a chapter 9 plan of debt adjustment, a municipality can recover. The act provides state-sponsored emergency no-interest loans and grants in order to ensure distressed municipalities can continue meeting debt payments and creditor obligations. The Department appoints a recovery coordinator who creates and then leads in helping to implement a recovery plan. Unlike an emergency manager, the plan provides for a recovery coordinator, who may act as an intermediary between the Mayor and City Council–the recovery plan is similar to a plan of debt adjustment in that it details how the available assistance and other modifications will help the municipality regain its fiscal stability, including via commonwealth economic and community development programs, assistance while negotiating new collective bargaining contracts; and enhanced tax or revenue authority—a key of which is authority to levy a nonresident wage tax.