How Can Neighboring States Be So Different?

November 22, 2019

Good Morning! In this morning’s eBlog, we consider how two adjacent states could abruptly veer in opposite fiscal and economic directions.

Just as we have observed this morning, in Virginia, with regard to the issue of reversion, neighboring communities or jurisdictions in the U.S. can have quite distinct goals and aspirations. That is, proximity does not necessarily breed similarity. This we peer far south of Virginia to Alabama and Mississippi, two neighboring states, but states which, despite considerable common heritage, and which, until two years ago had similar declines in unemployment, abruptly, in mid-2017, no longer moved apace: Alabama’s fiscal ship rose higher as its began to experience the fastest decline in unemployment in the nation, whilst its neighbor, Mississippi saw its level stagnate. Then, this year, Moody’s noted a remarkable fiscal recovery, revising Mississippi’s general obligation or g.o. bond rating from negative to stable, crediting the upward signal to Mississippi’s conservative fiscal management and discipline in addressing its economic challenges. Unsurprisingly, Mississippi Treasurer Lynn Fitch noted: “This is great news for Mississippi taxpayers: “S&P’s upwards revision is a clear sign to the markets and potential bond buyers that Mississippi is a good place for their investment.  And, as we approach two upcoming bond sales this fall, including one focused exclusively on transportation and infrastructure needs, the timing of this upgrade couldn’t be better.” Indeed, she added the S&P report makes clear that the “revision reflects our view of Mississippi’s concerted effort to build reserves; a demonstrated commitment to improve the funding ratio of the state’s pension system; and new revenue streams, along with conservative budgeting practices, that should contribute to greater flexibility in future budget years.” Just two weeks ago, Treasurer Fitch led a team, including PERS Executive Director Ray Higgins and Department of Finance and Administration Executive Director Laura Jackson, to New York City to meet with analysts at S&P, Fitch Ratings, and Moody’s, where their presentations highlighted recent positive actions to mitigate some of the concerns the rating agencies have noted in past reports, such as our unfunded pension liability, low educational attainment, and reliance on one-time moneys in budgeting. The Treasurer noted: “All of the credit rating agencies have demonstrated increasing concern about rising pension liabilities, not just in Mississippi but across the nation…But, the action taken by the PERS Board in June to institute a new funding policy and bring additional money into the trust fund clearly made a very positive impact.  The rating agencies wanted to see action, and Mississippi showed them just that,” as she noted that now: “Now, all three of Mississippi’s credit ratings are strong and positive…Taxpayers will benefit from recent efforts to meet economic challenges head-on, such as putting money back into the Rainy Day Fund and strengthening PERS’ funding policy.  Better ratings mean the bond issuances currently in the works for capital and transportation improvements across the State will yield better deals for taxpayers.”

Last month, Standard and Poor’s (S&P Global) revised Mississippi’s general obligation debt outlook from negative to stable, also largely crediting the State’s recent proactive approaches to facing pension debt, infrastructure, and budgeting challenges.  Their presentations highlighted recent positive actions to mitigate some of the concerns the rating agencies have noted in past reports, such as our unfunded pension liability, low educational attainment, and reliance on one-time moneys in budgeting.

Notwithstanding the neighboring states’ shared heritages, Tara Hutchison, the Alabama Dept. of Labor’s Communications Director, notes that Alabama and Mississippi’s labor markets are as different as apples and oranges—as are their sizes: Alabama has a state population nearly 60 percent greater than Mississippi’s—and an even greater disparity with regard to urbanization: the Birmingham metropolitan area has twice as many people as Mississippi’s Jackson. Indeed, according to U.S. Commerce Department recently released data, not only is Alabama’s economy twice the size of Mississippi’s, but it also has grown almost thrice as fast over the past year, adjusted for inflation—albeit, growth in the two states has slowed in recent quarters; moreover, their respective economic expansions have been slower than the rest of the country since the Great Recession—in some part, it appears, because of their reliance on production and manufacturing jobs—a reliance subject to the nation’s capital, where trade disputes have had serious, adverse impacts, often in industries vulnerable to trade disputes. In addition, there is another difference: Mississippi relies more on low-wage versions of these production jobs than does any other state in the country; whereas Alabama began to diversify beyond low-skilled manufacturing when its economic base began to erode in the 1990s; today the state, according to Ms. Hutchison, is a “manufacturing-heavy state: We have been ever since the textile mills started going down.” Indeed, the state continues to attract new heavyweight employers: at the end of last year, Mazda Toyota Manufacturing, a joint venture between the two automakers, announced they would invest $1.6 billion in a new SUV plant in the high-tech metropolis of Huntsville, best known as the home of NASA’s Marshall Space Flight Center: this new plant is projected to employ as many as 4,000 Alabamans by early 2021.

According to data of the U.S. Department of Labor, in Alabama and Mississippi, poultry processors added more jobs than any other production industry between 2016 and 2019, and they paid just $640 a week; however, in Alabama, poultry was followed by several construction and contracting sectors, which paid an average of as high as $1,016 a week; whereas in Mississippi, nothing came close to chickens; and the gap was similar in services, where the categories with the most growth in Alabama were fast-food restaurants, computer systems design, engineering, and data processing. Three of the four paid relatively well. In Mississippi, the largest growth was in the lower-paying warehousing sector.

Taking State Action. According to Ms. Hutchison, Alabama’s low unemployment has spurred aggressive training programs, as she notes that Lockheed Martin has partnered with the state on a free apprenticeship program which recruits and trains candidates in skills such as soldering or wrangling cables: “We’re having to make a concerted effort to go out and target other populations that wouldn’t get as much attention when we have high unemployment…We’re going to have to target those who have traditional barriers” to employment, such as disabilities or a criminal record.

Next door, in Mississippi, the state’s reliance on low-wage industries has been inextricably tied to its large unskilled workforce; thus local leaders are focusing on programs to train workers; however, that is a challenge, since only 23.2 percent of the state’s adults had a bachelor’s degree or higher in 2018, according to the Census Bureau—a level lower than any state but West Virginia and about 33 percent below the national average—or, as Corey Miller, an economic analyst put it: “The education, training and skills that employers want? They may not be finding it,” later adding that because the state’s workers are less skilled, it has taken them longer to train and find work even as the labor market tightens. However, in the case of Alabama and Mississippi, it turns out that statistical factors may be even more important than structural ones: state unemployment rates are first released as preliminary estimates, so gaps in the data may not be as dramatic as they first appear.

Rising Rebels. Mississippi occupied the cellar amongst all states five years ago, but has since moved up six spots in the Best States for Business due to its improved economic climate relative to the rest of the nation; nevertheless, the state still finished in the bottom two rankings in two of six key categories, including labor supply and growth prospects: the state ranks in the bottom three on both college and high school attainment rates.

Moreover, it is the state with the lowest median household income in the nation (at $43,781), and carries the country’s highest poverty rate—likely adversely impacting assessed property values and undercutting fiscal options for education. If there is a bright star in its economic firmament, it is that its largest employer is the U.S. Army base of Redstone Arsenal near Huntsville, with dozens of suppliers setting up facilities in Alabama, including Honda Motor, Hyundai Motor, Mercedes-Benz, and Toyota Motor; indeed, the state has become a hub for automotive activity over the last two decades—in some part because its business tax costs are 18% below the national average according to Moody’s Analytics, and the state offers a very pro-business incentive climate.

The Challenge of Federalism in Puerto Rico–and the Challenge of Blight Reoval in Detroit

 

November 20, 2019

Good Morning! In this morning’s eBlog, we consider the ongoing federalism challenges in Puerto Rico to assess its path to statehood and its fiscal and physical challenges, before heading to the Motor City, where Mayor Duggan’s efforts to accelerate blight removal suffered a setback.

Problemas en Puerto Rico.  The finances of Puerto Rico’s municipios mostly held steady or improved in FY2018, but not in the capital city of San Juan. A public policy organization, ABRE Puerto Rico announced these results at the beginning of the week as part of its annual municipal study. (ABRE awards Puerto Rican municipalities the grades A, B, C, D, or F.) Compared with the previous fiscal year, 42 municipios retained their old grades, 12 were given a lower grade, 18 were given a higher grade, and 6 did not participate. Abre co-founder Arnaldo Cruz noted: “Given the unstable situation in Puerto Rico, in this edition, we expected a greater deterioration of municipal finances,” particularly given that Hurricane Maria took place about three months into the fiscal year: “However, the numbers reflect that municipios, in the aggregate, substantially improved their fiscal indicators. This means that, for the most part, municipios exercised fiscal discipline in 2018.” Mr. Cruz said most of the municipalities had not been able to calculate the hurricane’s damage to their physical assets by the end of FY 2018. The municipios’ fiscal report card matters, because, according to the PROMESA Oversight Board’s March 2017 fiscal plan, the municipios had $556 million in municipal bond debt outstanding as of February 2017. Second, as of FY2019, Puerto Rico’s central government provided $220 million each year in subsidies to the municipios: the PROMESA Board has promised to reduce those subsidies continuously until zeroing them out in FY2024.

ABRE flunked San Juan, the U.S. territory’s largest city, San Juan, noting its financial ratios had declined. San Juan also received an F from ABRE in FY2107; at the end of FY2019, San Juan had current liabilities of $247 million, long-term debt of $889 million, and unfunded pension liabilities of $1.3 billion—leading John Hallacy of the Bond Buyer, after noting Puerto Rico’s annual general revenues were $428 million and annual debt service expenditures of $91 million, to write that the ratio of debt service to general revenues was “very high,” indeed; “extraordinary.” San Juan ended its fiscal year with a negative General Fund balance of $90 million and a negative total position of $1.313 billion.

Over the course of FY2018, the municipios in the study reduced their operating expenses by 15%, while losing 7% of their income—a healthy fiscal direction, as they increased their general fund balance 6%–and reduced their long-term debt by 6%, mainly because they were restricted from issuing new loans: as of June 30, 2018, the 72 municipios in the study had $4.3 billion of long-term debt plus $4 billion of net position liability for pensions.

Puerto Rico is currently the jurisdiction with the greatest social inequality in the United States and is among those jurisdictions topping that category in the world.

Detroit’s Blight Removal Hits a Road Block. The Detroit City Council has voted 6-3 to reject Mayor Mike Duggan’s $250 million bond proposal to speed up blight removal in the post-chapter 9 city—a program which, to date, has been successful in razing thousands of blighted homes which had made parts of the city crime-ridden wastelands on the day the city went into municipal bankruptcy—on which day my hotel advised it was unsafe for me to walk a few blocks to the Governor’s downtown Detroit offices. The blight removal program did, however, trigger a federal investigation—after which Mayor Duggan vowed to work with the City Council to hammer out a plan to accelerate blight removal. In rejecting the Mayor’s plan, which he submitted last September, the Council noted apprehensions with the demolition program, as well as budget concerns.  City Council President President Brenda Jones, was joined by President Pro Tem Mary Sheffield, and Councilmembers Roy McCalister, Andre Spivey, James Tate, and Raquel Castaneda-Lope in opposition, with the outcome marking a setback for the Mayor’s plans to rid the Motor City of abandoned homes by mid-2025. Nevertheless, the Mayor remained committed, noting he was committed to working with the Council to “hopefully move forward later in the year” on a blight removal plan, stating: “I respect that decision…I didn’t hear any council members say it wasn’t important to get blight out of our neighborhoods…We knew going into this that we’ve had problems with the demolition program.” Mayor Duggan was silent with regard to whether he will continue to push for a spring initiative or instead refocus on November of 2020. (The City Council has until 4 p.m. Monday to file a motion to reconsider the vote, while Mayor Duggan needs approval from City Council by Dec. 17th to get his bond proposal on the March 10 Presidential primary ballot.

Prior to the Council vote, Detroit city Ombudsman Bruce Simpson addressed Council with regard to complaints he received regarding blight removal, noting he became aware in the fall of a potential conflict of interest involving demolition work being awarded to a city employee who had gone through the proper application channels without the conflict being flagged. The now former employee, Mark Green, who is CEO of demolition firm Detroit Next Inc., won the city contracts when he was still a Detroit firefighter, according to a report from the Detroit Free Press. Similarly, a report by Detroit’s auditor general has cited unreliable data, documentation issues, and other problems with the city’s demolition work. Some demolitions were halted last year over lead concerns, and several companies were suspended from the program over potential conflicts of interest.

What Lies Ahead? In response to the demolition issues, Mayor Duggan on Tuesday said: “In this business, the one way to make sure you never make a mistake is don’t do anything. We move very hard,” noting he was confident he could have showed voters a viable plan to transfer the demolition program from the Detroit Building Authority to the city and iron out its problems; nevertheless, the Council’s vote signaled members want to see that plan before a proposal is put on the ballot. These efforts have been funded primarily by $265 million in federal assistance—but the Motor City’s federal Hardest Hit grant funding for blight demolition is nearly depleted. As of September, Detroit was approximately halfway through the Mayor’s demolition campaign that began in 2014, with approximately 19,000 vacant homes to go. The Mayor noted that about $8 million is allocated for blight removal through the spring. As part of the proposed bond, $50 million would have been pulled from FY2021 to be used in 2020, with the Mayor noting that city CFO Dave Massaron is looking into ways that could still be accomplished, stating: “We’re gonna have to slow demolitions down temporarily…One way or another, we’re gonna find a way not to shut down demolitions.” Notwithstanding, the Mayor remains committed to working with the Council to “hopefully move forward later in the year” on a blight removal plan, as he stated: “I respect that decision…I didn’t hear any Councilmembers say it wasn’t important to get blight out of our neighborhoods …We knew going into this that we’ve had problems with the demolition program.”

Mayor Duggan was silent with regard to whether he will continue to push for a spring initiative or instead refocus on November of 2020, as, meanwhile, the City Council has until 4 p.m. Monday to file a motion to reconsider the vote. Mayor Duggan needs approval from City Council by Dec. 17 to get his bond proposal on the March 10 Presidential primary ballot, meaning the last day Council can vote before its Nov. 27-Jan. 6 winter recess is next Tuesday.

Ahead of Tuesday’s vote, Detroit’s city Ombudsman Bruce Simpson addressed the Council about complaints he received regarding blight removal, stating he became aware in the fall of a potential conflict of interest involving demolition work being awarded to a city employee who had gone through the proper application channels without the conflict being flagged. The now former employee, Mark Green, who is CEO of demolition firm Detroit Next Inc., won the city contracts when he was still a Detroit firefighter, according to a report from the Detroit Free Press.

In perhaps the quote of the week, Mayor Duggan said: “In this business, the one way to make sure you never make a mistake is don’t do anything. We move very hard,” adding he was confident he could have showed voters a viable plan to transfer the demolition program from the Detroit Building Authority to the city and iron out its problems; however, the Council’s vote signaled members want to see that plan before a proposal is put on the ballot. (Detroit’s blight removal efforts have been funded primarily by $265 million in federal funding; now, however, the Motor City’s federal Hardest Hit grant funding for blight demolition is nearly depleted: as of September, the city was about halfway through Mayor Duggan’s demolition campaign that began in 2014, with approximately 19,000 vacant homes to go. The Mayor stated that about $8 million is allocated for blight removal through the spring. As part of the proposed bond, $50 million would have been pulled from FY2021 to be used in 2020, noting that CFO Dave Massaron is looking into ways that could still be accomplished: “We’re gonna have to slow demolitions down temporarily…One way or another, we’re gonna find a way not to shut down demolitions.”

November 15, 2019

Good Morning! In this morning’s eBlog, we consider the ongoing federalism challenges in Puerto Rico to assess its path to statehood and its fiscal and physical challenges.

Unreconstructed. The American Society of Civil Engineers (ASCE) this week reported that the U.S. Territory of Puerto Rico’s public infrastructure is failing—in no small part due to the hold imposed on federal aid, noting that Puerto Rico needs up to $23 billion in public infrastructure investment over the next decade, because, in the wake of hurricanes Irma and Maria, which devastated Puerto Rico, the territory’s bridges, dams, drinking water, ports, roads, and power grids have reached a breaking point, even as federal recovery assistance remains not just tardy, but also inadequate, with the Society, in its report released this week, assigning Puerto Rico’s public infrastructure with a failing overall grade of D-, with its report card marking the first evaluation the organization has completed relating to the territory’s public infrastructure: the report found that the infrastructure needs on the island are huge; it calculated that Puerto Rico must increase received investment by $1.23 billion to $2.3 billion annually and putting it at $13 to $23 billion over the next decade, not counting deferred maintenance and hurricane-related recovery projects.

Although the report primarily addresses the FEMA’s slow release of some $42.5 billion, noting the territory had received only $15 billion as of last May, the report was similar to the views of Members of the House Appropriation Committee’s Subcommittee on Transportation and Housing and Urban Development last month, when they specifically pointed out the unexplained Department of Housing & Urban Development’s seeming withholding of some $19.9 billion in recovery assistance via the CDBG Disaster Recovery Fund, with the withholding justified after the Department refused to post the notice that would instruct Puerto Rico with regard to how to apply for and spend the federal dollars available to it. Ergo, because the CDBG disaster fund is not authorized, Puerto Rico does not have access to those dollars until the notice is posted.

Discrimination? HUD released similar notices for other disaster-stricken cities, counties, and states on the mainland, but held back in the case of Puerto Rico, because of what it described as its concerns with regard to government corruption in Puerto Rico, according to HUD Principal Deputy Assistant Secretary for Community Planning & Development David Woll, who described Puerto Rico a “very high-risk grantee,” because of the large amount of money and corruption issues that have troubled the territory, stating: “We want to have a belts and suspenders plan in place to make sure that, A) we’re protecting taxpayers, but B—more importantly—the money is going to the people of Puerto Rico, and not being wasted or abused.” Unsurprisingly, House Transportation Housing & Urban Development Subcommittee Chair David Price (D-NC.) was not satisfied with that response, noting that even after the notice is posted, there will be multiple opportunities to make sure the funds are being spent appropriately—or, as the Civil Engineers noted, once available, the federal dollars from the CDBG disaster recovery program can be spent on projects laid out in the ASCE report, such as hardening electrical grids in order to minimize the impact of future storms. (In its post-hurricane report. ASCE noted that Hurricanes Irma and Maria destroyed much of Puerto Rico’s electric grid in 2017, causing the U.S. territory to experience the longest blackout in American history and the second-longest blackout in the world). Thus, as Chair Price put it: “We’ve seen the urgent need for this funding…And yet, it has been held back.”

Congress had sought to compel HUD to post the Puerto Rico disaster funding notice last June as part of a supplemental appropriations measure by mandating HUD to act by last September 4th; however, HUD was unresponsive—leading Chair Price to note: “The administration has a duty to faithfully execute the law: Why didn’t HUD follow the law, and issue the Federal Register notice for mitigation funding for Puerto Rico?” In addition, the concern was not partisan: Rep. Mario Diaz-Balart (R-Fl.) also expressed dismay that the federal assistance has not yet been released, saying he was “troubled” that the agency missed the statutory deadline for publishing the notice. Rep. Pete Aguilar (D.-Ca.) added: “What it looks like is that you don’t believe that these individuals deserve this money, that these individuals deserve access to disaster recovery dollars.” Asst. Secretary Woll responded: “That’s just not true,” claiming HUD was “working extremely hard” to get the money to Puerto Rico.

Fiscal Disparity. The callous treatment by HUD comes against an entity somewhere between a state and a municipality, but, compared to states, income in Puerto Rico is almost half of what it is in the poorest U.S. state, Mississippi: the average income of Puerto Rican drivers, for instance, is equivalent to 45 percent of their counterparts in Mississippi; the median income of full-time Puerto Rican workers is $ 23,538. That same indicator for Mississippi, the poorest state in the United States, is 57 percent higher ($ 37,001), according to U.S. Census Bureau data—even as, according to the Institute of Statistics Cost of Living Index, the cost of living in Jackson, Mississippi is 9 percent lower than in San Juan: in other words, Puerto Rican workers earn less and have to spend more to survive compared to workers in the poorest mainland state.

Pay or salaries is, if anything a matter of even greater disparities: the average income of Puerto Rican drivers is equivalent to 45 percent of their counterparts in Mississippi; the same applies to construction workers (46 percent), firefighters (51 percent), the medical diagnostic industry (57 percent), educators (67 percent) and engineers (67 percent). Retired Public Administration Professor Mario Negrón Portillo notes: “Generally speaking, public employees are all underpaid, especially in Puerto Rico. Some are considerably underpaid, like teachers, police officers, and firefighters. There are exceptions to these bad salaries, such as Cabinet secretaries and judges,” adding that: “When you compare their salaries (judges) with that of police officers, the difference is incredibly huge.” He added, referring to the proposal to increase the salaries of judges in Puerto Rico between 30 and 44 percent. Puerto Rico Supreme Court Chief Justice Maite Oronoz Rodríguez. Noted the legislation including this initiative responds to the fact that judges’ salaries have not been updated since 2004 and to a drastic increase in the number of resignations recorded this year in this branch of Puerto Rico’s government: the proposed increase seeks to match the salary of judges in Puerto Rico to that of their stateside counterparts. According to economist José Alameda, the consumer price index has been showing annual increases of about 1.1 percent over the past decade: based on that, an adjustment in the purchasing power of judges, whose salaries have not increased since 2004, should be around 16.5 percent and not 30 percent, as proposed for municipal judges or the 44 percent for Supreme Court justices. Indeed, if the same percentage were applied to the minimum wage paid in Puerto Rico by federal law, which has not changed since 2007, workers who earn the lower salaries in Puerto Rico would receive at least $ 8.45 per hour, equivalent to an annual salary for these workers of an increase from $ 15,080 to $ 17,576. (Currently, a single mother with an income of $ 16,910 is considered poor under federal standards.)

Nevertheless, last week, José Ledesma, President of the Puerto Rico Chamber of Commerce spoke at a hearing before the legislature against an increase in the minimum wage. Economist José Joaquín Villamil noted: “I think that, as a matter of justice, the minimum wage could be increased to recover the loss in purchasing power. In 15 years, inflation has eaten up a portion of that $ 7.25 (federal minimum wage). At the very least, we should compensate for that erosion. There shouldn’t be much controversy over that: I think additional raises (to adjustment) should depend on the economy. You can’t increase salaries more if the economy isn’t growing.” He added that, with very few exceptions, Puerto Rico’s private sector has the financial capacity to assume an increase in salaries, so that workers can recover the purchasing power loss: the Planning Board estimates that, between 2007 and 2017, it took $1 to buy what cost 85 cents back then. Professor Portillo noted: “Perhaps, there are some companies that find it difficult to cover a raise, but the vast majority of businesses should not have problems. Maybe, the grocery store on a corner in Morovis, which has a minimum profit margin, has problems, but large chains, supermarkets, and stores in shopping malls, I don’t think they would have problems.”

This redistribution of wealth becomes clear when considering that, according to the Planning Board, the pay to workers in Puerto Rico represents a smaller portion of the net income generated by the island annually. In 2009, for example, workers were compensated with 61 percent of net income, which is the earnings generated after covering obligations. Estimates for 2018 suggest that this percentage dropped to 51 percent.

Puerto Rico is currently the jurisdiction with the greatest social inequality in the United States and is among those jurisdictions topping that category in the world.

 

The Suffering of Flint’s Children, and the Seemingly Unending Federalism Challenges for the U.S. Territory of Puerto Rico

November 8, 2019

Good Morning! In this morning’s eBlog, we consider the ongoing federalism challenges in Puerto Rico, and assess the ongoing fiscal and physical challenges to Flint’s public school children.

Suffer the Innocent Children. One of the critical factors in Detroit’s chapter 9 municipal bankruptcy was the decrepit and dangerous state of the city’s public schools—physical effects which discouraged families with children from wanting to be in a city that is disproportionately dependent upon income taxes compared to most U.S. cities. They reasonably feared about the danger of the schools’ drinking water—and of crime. Fear which, four years ago, was justified when the state diagnosed high levels of lead. That is, some five years after the State of Michigan had switched the drinking water supply for the city of Flint, leading to the seepage of lead into drinking fountains at schools and in homes, the health problems not only increased medical care costs, but also undercut assessed property values and taxes. What parents would want to purchase a home where the nearby public schools could devastate the health of their children? Indeed, the contamination in Flint exposed nearly 30,000 schoolchildren to a neurotoxin known to have detrimental effects on children’s developing brains and nervous systems. Requests for special education or behavioral interventions began rising four years ago, when the water contamination became public, bolstering a class-action lawsuit that demanded more resources for Flint’s children.

In Flint, the percentage of the city’s students who qualify for special education services has nearly doubled to more than a quarter of its children compared to when the lead crisis first was detected—and, since last year, the city’s screening center has received more than 1,300 referrals—out of which approximately 70 percent of the students evaluated have required school accommodations for issues such like attention deficit hyperactivity disorder, also known as A.D.H.D.; dyslexia; or mild intellectual impairment, said Katherine Burrell, the associate director of the center.

“We have a school district where all that’s left are damaged kids who are being exposed to other damaged kids, and it’s causing more damage,” said Stephanie Pascal, who has taught in Flint for 23 years. But medical experts report there is no way to prove that the lead has caused the barrage of disabilities, while pediatricians in Flint caution against over-diagnosing children as irreparably brain damaged—fearing, understandably, the stigma to any family or business considering moving there. Interestingly, the Michigan State Department of Education, in challenging a class-action suit filed by the American Civil Liberties Union of Michigan and the New Jersey-based Education Law Center, has enlisted an expert who testified that the real public health crisis was not the lead-contaminated water, but rather the paranoia of parents, students, and teachers exposed to it—an expert who asserted that many of the problems uncovered by the lead testing might well already been in existence. Understandably, with the lack of confidence in what has been determined, Lisa Hagel, the Superintendent of the Genesee Intermediate School District, of which Flint’s schools are a part, noted: “What the research says is that as they get older, and cognitive demands get harder, we will start to see the demands get higher, and the resources are not going to be there.” The fiscal challenge is disheartening: between 2009 and 2013, some 41.5% of Flint’s residents lived below the federal poverty level—nearly three times as much as the state average: a quarter of the city’s families have an annual income of less than $15,000, and the city’s child poverty rate is 66.5%.

Reading, Writing, & Arithmetic. Flint’s schools, as the city’s tax base shrunk, contributed to an exodus from its public school to charter schools, increasingly contributing to public schools left with a small but troubled and impoverished student body. More than half a century ago, Flint enrolled nearly 50,000 students in more than 50 buildings; today, it educates 4,500 students on 11 campuses—while 55% of its school children attend charter schools, the second highest charter enrollment in the country. Five years ago, at the onset of the drinking water lead contamination, Flint’s school district had a $21 million budget deficit—a deficit which mean the math forced a subtraction of more than 200 staff members, including special education teachers: the system was transferring millions of dollars from its operating budget to pay for special education, and, in violation of federal law, it was segregating special education students from their peers for most of the school day. Flint’s teachers were—and remain–among the lowest paid in Genesee County.

Doing the Tax Math. Even prior to the discovery of the city’s lead contamination, the city’s public schools were leaking to charter schools—meaning the city’s core public schools were, increasingly, left with a smaller student body—and less support for the kinds of tax revenues needed to sustain a healthy system—and a serious fiscal challenge: with the schools not a draw, assessed property values were at greater risk. Indeed, over the last half century, enrollment at public schools has declined from nearly 50,000 students in more than 50 buildings to today’s 4,500 students on 11 campuses, while about 55 percent of the city’s kids today attend charter schools—the second highest charter enrollment in the country. Perhaps unsurprisingly, with the syphoning off of so much in special education funds, today the city’s public school teachers are among the lowest paid in Genesee County.

The suit here accuses the school systems of violating federal and state laws, including the federal Individuals with Disabilities Education Act, by:

  • failing to identify students who could qualify for special education services, and
  • failing to provide the mandated instructional services to those who do qualify and by punishing children for disability-related behavior.

The suit charges that students were denied assessments for education plans or behavioral intervention plans, and then were segregated from their peers, secluded and restrained, repeatedly sent home from school, expelled or arrested.

Impeachment? Federal Bureau of Investigation agents have arrested Puerto Rico Sen. Abel Nazario, the former Mayor or Alcalde of Yauco, who was first elected 19 years ago, representing the New Progressive Party (PNP). He was subsequently reelected in 2004, 2008, and 2012; he also serves as the Vice President of the PNP. The arrest was for allegedly conspiring to commit fraud; he also faces bribery charges for mishandling federal funds in his municipio of Yauco from the time of his public service as Mayor for allegedly conspiring to have employees bill the municipality for federal funds while working on his Senatorial campaign, as well as on other pro-statehood party members’ campaigns, according to the federal indictment. Unsurprisingly, the Senator has asserted the charges are “totally false.” He has pled not guilty and been released without bail. Nevertheless, Puerto Rico’s  District Attorney W. Stephen Muldrow noted that this “prosecution and that of other public officials involved in these types of schemes will be punished, and as a promise to taxpayers that such violations of the public trust will not be tolerated.” For Sen. Nazario, this arrest marked his second, after, last year in September, he was arrested related to accusations of defrauding his employees while serving as Mayor: according to the U.S. Attorney’s Office, his employees were mandated to put in two hours of voluntary labor per day—a mandate the Department of Labor identified as a violation. In response, Sen. Nazario agreed to pay almost $600,000 in back wages to 177 employees—and asserted he would not retaliate against the workers. Now he awaits trial in that case.

On the governance front, Puerto Rico Senate President Thomas Rivera Schatz asked for Sen. Nazario’s resignation shortly after his arrest, writing in a Facebook post that while the situation “is unfortunate for him and his family, it’s even worse for the people of Puerto Rico who watch these events with anguish that lacerate the trust in government institutions.” In response, Sen. Nazario said he believes the charges against him have not affected his work in the Senate, nor have they diminished people’s trust in the government, adding: “That’s why I’m addressing this in front of you and in front of the people…I’m never going to resign. I’m innocent, and innocent people do not resign. Only people who are afraid resign.” In the face of the events, however, Senate President Rivera Schatz filed a complaint with the Puerto Rico Senate Ethics Commission.

Edgardo Rosado, a spokesperson for Sen. Nazario, has asserted that the Senator is innocent, adding that the arrest is tied to an ongoing federal case involving people accused of charging the U.S. territory’s government for services which were never provided; other suspects have already been accused in that case, including a former director of the Puerto Rico Senate Government Affairs Office.

It seems the Senator is not alone: seven others have been accused of theft or bribery during his term as Mayor; moreover, he was not alone: the Justice Department accused Sen. Nazario and two former aides of illegally using municipal funds to pay five persons who actually worked for his Senate campaign—not for the town. The five people — known in Puerto Rico as fantasma or “ghost” employees, were also paid to campaign for other candidates whose support the Senator had hoped to gain for a bid to become the next Puerto Rico Senate President, according to the indictment.

A Setback for Statehood? The Senator, whose party supports statehood for Puerto Rico, has denied the charges, deeming them “totally false.” However, widespread popular anger over political corruption has become a potent political force in Puerto Rico, indeed, a major factor which contributed to the resignation last summer of former Gov. Ricardo A. Rosselló, also a New Progressive. Or, as Senate President Schatz put it: “It’s unfortunate for him and his family, but even more so for the people of Puerto Rico, who watch with anguish events that lacerate the trust in government institutions.”

Nevertheless, Sen. Nazario said on Wednesday that he would not step down, claiming: “I am innocent…The innocent don’t resign.”

Fantasma Government Employees? The issue of ethics has not been invisible, notwithstanding the Puerto Rican Senate’s own challenge with “fantasma” or “ghost” employees. Last May, federal authorities arrested the executive director of the Senate Office of Government Affairs and two other persons fraud charges, accusing them of being part of a scheme to obtain government contracts for work which they did not complete or performed improperly, and to submit and approve bills based on falsified time records and other documentation—including: Edwin Torres Gutiérrez, who was a special assistant to Mr. Nazario when he was Mayor; Claribel Rodríguez Canchani, who was the Yauco’s Human Resources Director. This investigation began after a routine audit of the town’s records by the Puerto Rico Comptroller’s Office three years ago last August 2016—an investigation which determined employees who were showing up for work only sporadically or not at all. Indeed, according to the authorities, Mr. Torres had instructed the five irregular employees to report to the town hall either once a week or once a month, albeit, when he learned that the municipio was under investigation, Mr. Torres Gutiérrez told them to begin start appearing twice as often, according to authorities, adding that when the irregular employees did come in, it was to collect paychecks and attend meetings with former Mayor Nazario and Mr. Torres about Mr. Nazario’s campaign, not to do any municipal work. The five employees submitted timecards with their work hours left blank. Mayor Nazario ordered his aides to process them and approve payments based on “false or no documentation,” according to federal prosecutors, with W. Stephen Muldrow, the U.S. Attorney for Puerto Rico noting: “This prosecution serves as a warning to other public officials involved in these types of schemes that they will be punished, and as a promise to taxpayers that such violations of the public trust will not be tolerated.” (The Labor Department’s Office of Inspector General was also involved in the investigation.)

Former Mayor Nazario, it appears, in not a stranger to unethical behavior: he was previously arrested a year ago last September, when he was vice president of the New Progressive Party, with federal authorities charging him with defrauding employees by requiring them to work two “voluntary” hours a day without pay, in violation of Labor Department regulations. The former Mayor initially agreed to pay nearly $589,000 in back wages to 177 employees; however, he later withheld the funds, according to the authorities, leading to his arrest. He has denied the charges and is awaiting trial in that case.

Will the President Be Impeached?What are the Chances for Statehood for Puerto Rico?

November 1, 2019

Good Morning! In this morning’s eBlog, we consider yesterday’s 232-196 vote in the U.S. House of Representatives to agree to impeachment procedures, before slipping south to assess the option for statehood in the U.S. territory of Puerto Rico.

Impeachment? The House yesterday voted 232-196 in support of advancing impeachment inquiry procedures: Republicans were unanimous in opposing the resolution, and two Democrats voted against it. The vote sets the stage for a public phase of impeachment proceedings related to the Trump administration’s policy on Ukraine. The next steps will likely force the Trump administration to determine whether or not to cooperate with the investigation in the wake of weeks spent complaining about the lack of transparency in the process thus far—and opens the door to Republicans to be able to request documents and testimony and issue subpoenas, albeit Democrats reserve the right to veto their demands. The procedures center on a July 25 phone call during which President Trump is reported to have asked Ukraine’s President to “look into” former Vice President Joe Biden and his son Hunter Biden’s business dealings in Ukraine, a contact that triggered an intelligence community whistleblower complaint alleging the President solicited foreign election interference. The President has insisted the call was “perfect” and about fighting corruption in Ukraine, not politics. To date, the White House has refused to cooperate with the impeachment inquiry since House Speaker Nancy Pelosi (D-Ca.) announced it just over five weeks ago. The White House has derided the investigation as illegitimate and unconstitutional, accusing Democrats of not affording the President due process and flouting past precedent by failing to hold a vote to formalize the investigation. The President and Republican allies have also criticized House Democrats for holding closed-door depositions as part of the first phase of the inquiry.

Nevertheless, the vote yesterday appeared to create little increased likelihood that the White House would be forthcoming. The President tweeted: “Republicans are very unified and energized in our fight on the Impeachment Hoax with the Do Nothing Democrats, and now are starting to go after the Substance even more than the very unfair Process.” White House efforts to block witnesses from testimony have also, for the most part, been unsuccessful, as Democrats have ushered in a number of current and former officials—both career and political appointees—to deliver private testimony under subpoena.

The Steep Step from Territory to Statehood. Puerto Rican leaders are making another effort to achieve statehood again after, this week, Rep. Jenniffer González-Colón, Puerto Rico’s sole non-voting member of Congress, introduced a bill to create a path for the U.S. territory to become the 51st state. Her bill, the bipartisan Puerto Rican Statehood Admission Act, would fund a ballot referendum in Puerto Rico in November of 2020, asking voters if they want statehood or not—a slight variation of previous ballot measures which went nowhere. Indeed, should such a bill pass, it would mark the third time Puerto Ricans have voted on the statehood issue since 2012. However, even were the effort to succeed, there would appear to be little certainty of a guarantee of statehood, because the result of such a vote would not be legally binding. Ergo, Thus, even if a majority of Puerto Ricans voted for statehood, the final decision rests with Congress, as has been the case previously—not to mention the U.S. Senate, where Senate Majority Leader Mitch McConnell (R-Ky.) has shown little interest in admitting Puerto Rico into the union.

Nevertheless, Puerto Rican leaders are pushing forward anyway. Part of their hopes rest with Democratic control in the U.S. House. Although Puerto Rico has been a territory under the Jones-Shafroth Act for more than a century, all Puerto Ricans are U.S. citizens, albeit the 3.4 million Americans who reside in Puerto Rico have fewer Constitutional rights than anyone living in the 50 states. U.S. citizens in Puerto Rico cannot vote for President in the general election or elect a voting member of Congress. Unsurprisingly, the question with regard to whether or not Puerto Rico should become a state has been the most divisive issue in Puerto Rico for decades. But Puerto Rico’s financial crisis, which began in 2006, began to revive support for statehood. The devastating aftermath of Hurricane Maria contributed to making the issue more urgent to resolve.

It appears the greatest obstacle for statehood is that our Constitution sets no clear, legal process for a U.S. territory to become a state—notwithstanding that some previous Presidents have endorsed statehood, including, former Presidents George W. Bush and Barack Obama; Puerto Rican elected leaders have been asking for a clear path to statehood since the 1960s: Puerto Rico’s Congressional delegates (meaning they may not vote on the floor of the U.S. House) have introduced multiple (failed) bills over the years, which granted Puerto Rico statehood based on the outcome of a popular vote on the island. Three years ago, the pro-statehood political party won control over Puerto Rico’s legislature, as Governor, as well as the territory’s non-voting Member of Congress. Two years ago last June, after the pro-statehood party swept into power, Puerto Ricans voted to join the United States as the 51st state, marking the fifth time Puerto Rico has held a referendum on whether to join the republic: 97 percent voted aye—the largest majority ever; however, less than a quarter of registered voters turned out to the polls—likely attributable to a boycott from the anti-statehood political groups, who were upset with regard to the way in which the referendum was written.

Former Gov. Ricardo Rosselló was fulfilling his campaign promise to push forward with the statehood process, as part of the pro-statehood party; the second main political party in Puerto Rico is the Popular Democratic Party, which supports remaining a commonwealth, whilst a minority of citizens support full independence. That support in no small part likely relates to the issue of parity: more federal funds would flow to Puerto Rico if it were a state, albeit, some of that benefit would be offset for Puerto Ricans who would face increased federal tax liabilities.

In the wake of the 2016 election, non-voting U.S. Rep. Jenniffer González-Colón introduced two House bills that would allow Puerto Rico to become the 51st American state. When she introduced a statehood bill a year ago last June, she was able to secure support from 53 Republicans and Democrats co-sponsors for her proposed Puerto Rico Admission Act, which would have created a task force to immediately start the process of transitioning Puerto Rico into a U.S. State by January 1, 2021. Perhaps one of the strongest proponents of the effort was former President George H.W. Bush, who, in his first State of the Union Address in 1989 stated: “Personally, I strongly favor statehood,” as he urged Congress to act.