Motor City Makes Tracks & Puerto Rico’s Quasi Chapter 9 Municipal Bankruptcy Likewise!

January 31, 2020

Good Morning! In this morning’s eBlog, we consider the ongoing fiscal and physical recovery of Detroit from the largest municipal bankruptcy in U.S. history, before assessing the status of the quasi-municipal bankruptcy in the U.S. Territory of Puerto Rico.

The Railroad of Recovery. On Detroit’s first day of chapter 9 municipal bankruptcy, the clerk at the front desk of the hotel I had just spent the night in warned that it was too dangerous for me to even consider walking to the Governor’s downtown office—this on the day the Motor City filed for the largest chapter 9 municipal bankruptcy in U.S. history. Yet walk I did—a depressing walk through and past abandoned buildings and empty streets, over to Detroit’s former main train station, an abandoned architectural masterpiece appropriate to a city with the world renowned Detroit Institute of Arts, which has one of the largest and most significant art collections in the U.S. The empty train station, designed in the Beaux-Arts style by the same architects who created Grand Central Terminal in New York, has tall columns and vaulted ceilings which offer a hint of its past glory—but which, then—and still today, crumbling, empty of trains and passengers, adorned with graffiti and gaping holes through which sleet, rain, and snow can fall. Mayor Mike Duggan noted: “Michigan Central Station has long been a symbol of Detroit’s vibrancy, and then it became an international symbol of decline.”

But, courtesy of the Ford Motor Company, the station could become a centerpiece of the city’s extraordinary fiscal and physical recovery—one which is projected to transform the station, as well as an adjacent book depository, brass factory, and hosiery factory into a 1.2 million-square-foot transportation innovation district. Moreover, Ford is planning to lease space to companies working on mobility and transportation projects, such as smart vehicles, infrastructure, and parking: the innovation hub will also have shops, restaurants, art, and performance spaces as well as what I could barely find on that first day of bankruptcy: a boutique hotel on the top floors of the 15-story tower rising above the station. Thus, it appears the revitalized station could well be the centerpiece of a profound city core transformation.

Detroit’s plan of debt adjustment designed by then Emergency Manager Kevyn Orr, was, on that first morning, focused on vital public safety: making sure street and traffic lights worked, and 9-1-1 calls received immediate responses. The task in a rare city more dependent upon income than property taxes was how to incentivize families to move into the city.

Thus, both the plan of debt adjustment—with the marvelous adjustment to retain the world-renowned Detroit Institute of Art, as well as the imaginative and extraordinary insights and financial investments of Detroit billionaire Dan Gilbert  and the extraordinary series of investments—especially the acquisition and development of more than 100 properties in Detroit and Cleveland since 2011, have made the city a go-to metropolis—and an emerging U.S. technology hub: Fiat Chrysler has announced a $4.5 billion investment in five Michigan plants, creating about 6,500 jobs in Michigan; Waymo, the self-driving technology company owned by Alphabet, the parent company of Google, opened its first factory in Detroit late last year—in its own way commemorating Ford’s long history in the Motor City, thanks to its Model T, the first affordable mass-produced automobile, which was made at the company’s Piquette Avenue Plant, built in 1904.

Choo Choo! Michigan Central Station opened in 1913, replacing a station which had burned down—a station which by the war years of World War II saw more than 4,000 passengers passed through it each day. In this car manufacturing hub of the country, however, by the end of the war, car travel overtook train travel, contributing to the city’s fiscal foundering—and then the 1967 race riots crushed assessed property values, draining one of the city’s most valuable fiscal resources—and discouraged Michigonians from wanting to live in a rare city more dependent on income than property taxes. Thus, the last trains, operated by Amtrak, departed Michigan Central Station in 1988, after which the station closed and fell into disrepair.

Community Benefits. With trains no longer a centerpiece for the city’s physical and fiscal future, the City Council is considering lower project thresholds to trigger Detroit’s Community Benefits Ordinance, as well as more community meetings and longer agreement review times are among a list of proposed changes to the ordinance that locks in guarantees and other protections for communities. The Detroit City Council’s Legislative Policy Division has offered or proposed a list of 17 items to the community in order to trigger feedback to the City Council as it mulls over changes to a voter-approved ordinance which mandates developers to commit to hiring and other quality-of-life benefits for residents living in the area of proposed large-scale developments. Indeed, the City Council has been working for more than a year to draft possible changes to the ordinance: when Motor City voters passed the ordinance in 2016, it made Detroit the first city in the nation to require developers of large-scale projects to negotiate benefits packages with neighborhoods.

Nevertheless, critics of the new ordinance claim it includes no enforcement mechanisms—thus, the City Council has asked a legislative staff working group to review 62 recommendations during seven, five-hour meetings: it was from that list that the seventeen emerged: the Detroit community benefits ordinance applies to developments which meet at least one of three requirements: 1) if the development project is $75 million or more in value; 2) the project receives $1 million or more in property tax abatements, or 3) receives $1 million or more in value of city land sale or transfer.

When the ordinance is triggered, a Neighborhood Advisory Council is established with residents from the area the development will affect. That group is tasked with negotiating with the developer for benefits including hiring preferences, recreational amenities and funds for home repairs.

Interestingly, a team from Ford, which has its own vital stake in the effort, looked East to New York City—or, as a team member noted: “For this part, we have looked at images from the High Line in New York for inspiration,” referring to the elevated park on the West Side of Manhattan. The auto company, which is helping in the efforts to revitalize Corktown, Detroit’s oldest neighborhood, created by Irish immigrants about one mile west of downtown. Nevetheless, just as a train needs to be connected by tracks, so too connecting the various pockets of development in Detroit remains a challenge.

Not Disconnecting Neighborhoods. Just as a train must be connected to stations, so too Mayor Duggan has been focused on trying to ensure that revitalization efforts benefits all of the city’s residents: that remains a challenge, for while the city’s unemployment rate fell from more than 20 percent a decade ago  to 3.4 percent last November, it is still higher among African-Americans, who make up nearly 80 percent of the city. Moreover, in a city dependent on income tax revenues, Detroit still has one of the highest poverty rates in the nation—more than one-third, which, although reflecting an improvement from the nearly 40 percent of five years ago, remains a serious fiscal challenge.

Thus, finding ways to attract the city’s growing number of visitors and their influx of cash has been a key element of the Motor City’s recovery: some fourteen million visitors came to the area in 2013, according to the Detroit Metro Convention and Visitors Bureau, a number that jumped to nineteen million last year. Detroit has four major-league sports teams, all of which play in the downtown area. There are several arts venues in the downtown district, such as the Detroit Opera House and the Fox Theater, a performing arts center that opened as a movie theater in 1928. Aaron K. Foley, who was Detroit’s “chief storyteller” from 2017 to 2019, said he was “cautiously optimistic” about the city’s progress. His role was created by the mayor as an attempt to diversify the way Detroit was portrayed—noting he had become tired of people arriving in Detroit and “beelining to take photos of the empty buildings and empty train station…Detroiters have a name for that: ‘poverty porn.’”

Putting Puerto Rico’s Local Governments at Risk? An attorney for the PROMESA Board, Martin Bienenstock, has reported that mediation over Puerto Rico’s central government debt is making progress, with his comments coming as Judge Laura Taylor Swain ordered parties involved with the central government debt types to enter into mediation in July. Mr. Bienenstock added it was possible that in the coming month there would be an announcement manifesting mediation progress during a Title III omnibus bankruptcy hearing in the U.S. District Court for Puerto Rico, noting there had been progress in the mediation over Puerto Rico’s central government debt; he also said he hoped the PROMESA Board would make a Title VI bankruptcy filing for the Puerto Rico Industrial Development Company sometime after next month.

Title III of the PROMESA Act lays out a traditional court-supervised bankruptcy process; Title VI lays out a process for creditors to negotiate and approve agreements before the PROMESA Board presents them to the court. In addition, Judge Swain, on Wednesday, ordered some changes to how she will address issues related to municipal revenue bonds, with bonds from the Highways and Transportation Authority, Puerto Rico Infrastructure Finance Authority, and Convention Center District Authority affected. Judge Swain stated that instead of holding a hearing with regard to all revenue bond topics on February 27th, instead there would be a preliminary hearing on March 5 and maybe March 6 and that it would only covers issues of standing and security interest. She noted she wanted a “meet and confer” meeting with parties by February 7th and that she would push back arguments with regard to lifting stays on litigation for the revenue bonds to a date after March 6th.

Rocky Escuela Reopenings

The U.S. Territory of Puerto Rico has re-opened just 20 percent of its public schools this week, after delaying opening nearly three weeks amid ongoing terramotos or earthquakes which have shaken to he southern potions of the island: only 177 schools were certified to open yesterday after engineers inspected them for damage following the 6.4 magnitude earthquake on January 7–a quake which left one person dead and damaged hundreds of properties. Inspectors have been, so far, unable to determine whether some of these schools would be safe and able to withstand another: engineers have inspected 561 of Puerto Rico’s 856 public schools: at least 50 were determined unsafe to reopen, with 240,000 students out of school.

Since the terramoto on January 7th, there have been several aftershocks across the Puerto Rico, including a 5.9 magnitude earthquake on January 11th and a 5.0 magnitude quake that struck last Saturday. (Engineers automatically have to re-inspect schools after any earthquake that is magnitude 3.0 or higher, according to the AP.) The terramoto on January 7th razed the top two floors of a three-story school in Guánica, as engineers reported that 500 public schools in Puerto Rico were built prior to 1987, schools or escualas which fail to meet new construction codes, with officials noting that a plan to retrofit an estimated 756 buildings could cost up to $2.5 billion. 

Gov. Wanda Vazquez yesterday said her administration is trying to find alternative options for students who cannot return to schools, noting that holding classes outside poses problems for educators, including how students would receive meals, not to mention access to bathrooms and transportation.  Puerto Rico Secretary of Education Eligio Hernández said 51 schools are also scheduled to begin classes on February 3rd, telling reporters: “The Department of Education is going to take the time it needs and will take all necessary actions so that parents…feel satisfied.” 

 

Saying no to Flint & Putting Puerto Rico’s Local Governments at Fiscal Risk?

January 29, 2020

Good Morning! In this morning’s eBlog, we consider the exhaustion of still another avenue of relief for the City of Flint from the lead contamination of its drinking water; then we consider the ongoing questions with regard to the slow and seemingly discriminatory emergency response to the earthquakes in the U.S. territory of Puerto Rico.

No Recourse? The U.S. Supreme Court has declined to take a case stemming from the 2014 drinking water lead contamination crisis in Flint, Michigan. Approximately 25,000 people have sued over the crisis, in which a change in the source of the city’s water resulted in lead contamination. The case the Justices turned away without comment yesterday involves a lawsuit against the city and water regulators, most of whom were responsible for making sure federal clean water laws were followed. The lawsuit claims the officials failed to protect residents from a foreseeable risk of harm from exposure to lead. The lawsuit and others like it claim that the public has a constitutional right to “bodily integrity” that was violated. The city and officials have argued they should be immune from being sued, but lower courts have disagreed. The lawsuit and others like it are expected to go forward in lower courts.

Putting Puerto Rico’s Local Governments at Risk? The Trump Administration does not see the need for the new $3.35 billion emergency supplemental appropriations bill for Puerto Rico, which the House could pass and send to the Senate as early as next week. However, according to senior Trump Administration officials, while the House may begin to advance the bill next week, the Trump Administration’s position is that such legislation is not necessary right now, according to a senior Trump administration official, who noted that the federal government already plans to allocate funding for recovery efforts, so that this would “not be the time to rush” additional aid to the U.S. territory. The Trump administration believes that, through the major disaster declaration for 16 municipios, it will be able to channel the assistance the territory needs in the wake of last month’s earthquakes, so the Administration apparently views the effort by Democrats to be a political move by pushing a new emergency spending legislation. However, House Appropriations Committee Chair Nita Lowey (D-N.Y.) has introduced a bill proposing to allocate $3.35 billion to Puerto Rico, including $2 billion in CDBG Disaster Recovery grants, $1.25 billion for road repairs, and $100 million from previous allocations aimed at mitigating the catastrophe caused by Hurricane María to assist with the emergency caused by the earthquakes, which have caused hundreds of millions of dollars in damage and impacted hundreds of structures.

Presidential Campaign Issue? Presidential candidate, former New York City Mayor Michael Bloomberg has unveiled his policy plan—a plan distinct from other candidates, which includes supporting statehood for Puerto Rico. Mr. Bloomberg vows that, if elected, he would push for an independent review and restructuring of the agreements promoted by the PROMESA Board overseeing Puerto Rico’s public finances. Candidate Bloomberg has unveiled a policy plan criticizing the austerity measures that came along with the public debt restructuring process, noting: “Puerto Rico continues to be burdened by a federally-controlled debt restructuring process which has imposed draconian cuts to pensions, civil service pay, the university, and municipal governments that are the backbone of public safety and disaster response,” adding that in his “Mike’s Policy for Puerto Rico,” that a Bloomberg White House agenda would seek to replace “austerity measures with investments for economic growth.”

His proposal also stresses the issue of Puerto Rico’s exceptional poverty rate, currently around 43 percent—or twice that of the poorest mainland state U.S., Mississippi, noting that a Bloomberg Administration would advocate for full access for Puerto Rico to federal programs, such as Medicaid, the Child Tax Credit (CTC), and the Earned Income Tax Credit (EITC): “Mike’s plan provides for an independent audit, overseen by a representative board, of current debt and recent restructuring proposals, and implements a plan for debt relief based on the results.”

The former New York City Mayor suggested he would consult on the issue of statehood status with Puerto Rican voters. Without mentioning recent referendums on the island, which have been contested by the political opposition, the former Mayor said statehood is an alternative that most Puerto Ricans support: “Most Presidential candidates have been too afraid to back it. Not me. I’ll state it clearly: I support statehood for Puerto Rico. And as President, I will work to pass a bill making it a reality, subject to approval by the people of Puerto Rico-who will make the ultimate decision.”

His proposed plan also seeks to ensure a plan to respond and direct federal resources in case of a disaster, as well as a reconstruction plan; he vowed he would also support efforts to transform the power grid, to implement a plan for debt relief, and to use renewable sources and independent regulation.

The Presidential primary in Puerto Rico–with 51 delegates participating in the July Democratic convention in Milwaukee, Wisconsin, is scheduled for March 29th. To date, former Mayor Bloomberg would be the only one who has openly expressed his support for statehood among those considered as leading contenders.

Inequitable Response to Americans at Risk?

Good Morning! In this morning’s eBlog, we consider the ongoing, slow federal response to render physical and fiscal assistance to the growing list of municipios devastated by the series of earthquakes or terramotos which have struck the southern portions of the U.S. territory of Puerto Rico.

Putting Puerto Rico’s Local Governments at Risk?  A warehouse full of undistributed disaster recovery materials from Hurricane Maria appears to mark the latest governance challenge for the U.S. territory, after a private citizen discovered the warehouse, raising critical questions in a place of divided governance—a federally-imposed oversight board (PROMESA) and a Governor and legislature. Caught in the middle, American citizens took to streets to underline their frustration with regard to the ongoing issues of disaster recovery. Unsurprisingly, this latest lay in responding to the disasters, which have continued to impact the island. But, with an unequal response by the federal government compared to comparable disasters stateside, and with Puerto Rico still struggling to recover from three devastating earthquakes and hundreds of continued tremors in the southwest of the island, not to mention the devastation of Hurricane Maria, the Trump administration has added insult to injury by imposing unprecedented conditions or strings on the distribution of long-withheld recovery funds appropriated by Congress more than two years ago in the aftermath of Hurricane Maria—conditions which make it even more difficult and unlikely that the most vulnerable and poor Americans in Puerto Rico will ever be able to rebuild their homes and communities from the lingering damage—or, as one paper noted: “Never has an American jurisdiction been so restricted by the federal government in the use of disaster aid funds.”

Here, the restrictions include giving the authority and power to oversee recovery funds to the PROMESA Board—a board created far away in Washington, D.C. by Congress and the White House to impose fiscal oversight of Puerto Rico’s public debt—that is, a Board with no background or experience with regard to disaster recovery, but which has, nevertheless, imposed restrictive conditions on the use of recovery dollars, and imposed a new set of unfunded federal mandates via the imposition of a whole new system of property registry, disregarding the existence of local property law in Puerto Rico. Moreover, Trump Administration officials, including HUD Secretary Ben Carson, are, once again, arguing that withholding and restricting aid to Puerto Rico is the correct way to avoid the misuse of federal dollars—instead trying to work with and through those elected to serve the U.S. citizens and the local governments, which are the 9-1-1 first responders, and which have, to date, continued to step up to the challenge of supporting earthquake survivors and uncovering irregularities and ineptitude of their local government.

The international disaster recovery organization Oxfam has been working with civil society organizations in Puerto Rico in support of federal legislation to authorize the creation of a Civil Society Task Force as an alternative for the coordination of recovery funds, with a goal of helping Puerto Rico’s local and quasi-state leaders to be in the driver’s seat: fully engaged and empowered, to ensure the federal recovery dollars go to those who need it most.

Is FEMA’s Response to Puerto Rico’s cities and towns fair?

 

January 24, 2020

Good Morning! In this morning’s eBlog, we consider the ongoing, slow federal response to render physical and fiscal assistance to the growing list of municipios devastated by the series of earthquakes or terramotos which have struck the southern portions of the U.S. territory of Puerto Rico.

Putting Puerto Rico’s Local Governments at Risk?  Governor Wanda Vázquez Garced of Puerto Rico is seeking to extend her disaster declaration to 10 additional municipios in Puerto Rico, but her efforts come as to extend the federal assistance is running into a federal government bureaucratic storm, as the Governor has sought extension of the current FEMA help via a Presidential Disaster Aid proclamation to the municipios of Adjuntas, Cabo Rojo, Corozal, Jayuya, Lajas, Lares, Maricao, San Germán, San Sebastián, and Villalba. Her request came in the wake of learning that neighboring municipios of those she had already declared covered-Guánica, Guayanilla, Peñuelas, Ponce, Utuado, and Yauco—had subsequently reported severe damage, leading her to state: “That is why we are requesting to include these municipalities in the major disaster declaration signed by the U.S. President…The purpose is to provide them with the tools to respond to the situation we are facing and that directly affects our citizens.” She filed Puerto Rico’s request with FEMA Administrator, who could extend the disaster declaration, without necessarily requiring the White House participation.

Nevertheless, the Governor’s request could be confronted by a federal bureaucratic storm: FEMA, yesterday stated that in the wake of concerns with regard to what it termed “deficiencies in the distribution of aid to the victims of the earthquakes on the island,” and “given Puerto Rico’s significant history of fiscal irregularities and mismanagement, the federal government will continue to impose stringent fiscal oversight and risk management measures” to ensure that aid reaches those who need it most while protecting U.S. funds to ensure all disaster relief funding and resources are expended in a manner that directly assists the disaster survivors who need them most while protecting the U.S. taxpayers’ investment against the potential for waste, fraud, and abuse.”

FEMA’s apprehensions came as, in the wake of the discovery last weekend by citizens of an emergency warehouse in Ponce, owned by the government, with key supplies which had not been distributed to the victims of this month’s earthquakes.

To date, according to FEMA, the agency has committed $12.8 million to assist Puerto Rico following the January 7th earthquake and the aftershocks that have hit southern municipios and schools. FEMA has reported that, to date, it has provided the Puerto Rican government with 100 generators, 1.1 million liters of water, 20 tanker trucks, 5,000 cots, and nearly 163,000 meals to assist the victims, with an agency spokesperson noting: “The continued federal investment is to ensure Puerto Rico is rebuilt in a manner that is both fiscally sound and resilient against the impacts of future disasters.”

Governance & the Responsibility to Protect Its Citizens

January 21, 2020

Good Morning! In this morning’s eBlog, we consider the issue of “qualified immunity” for state and local leaders, here focusing on Flint, Michigan, before considering the inequitable treatment by HUD of U.S. citizens in the U.S. territory of Puerto Rico.

What Constitutes Safe Drinking Water? The Supreme Court on Tuesday cleared the way for drinking water crisis victims in Michigan to sue state and local government officials in Flint, where, for years, Flint city officials and state regulators have argued that they are protected by “qualified immunity” from being sued for their role in the water contamination crisis, notwithstanding that lower courts have ruled to the contrary. Indeed, in refusing to take earlier challenges involving the lead-tainted water, the Supreme Court has upheld those lower court rulings. Now, as Attorney Michael Pitt, co-lead counsel on the class action lawsuit, which includes thousands of Flint residents suing for damages from the 2014 incident, noted: “It’s time for the people of Flint to start feeling like they are going to get their day in court: This just moves the entire process closer to that day,” adding that his clients have, to date, “been denied justice.” Here the initial suit turned down by the high court was filed four years ago: that suit argued that officials, including then-Gov. Rick Snyder, reacted indifferently to the risk of bodily harm faced by residents when they were exposed to high levels of lead and other contaminants after Flint’s drinking water source was switched to draw from the Flint River in 2014—a switch which was made without properly treating pipes for corrosion, thereby letting lead and bacteria into the city’s drinking water. Last April, U.S. District Judge Judith Levy ruled that Gov. Snyder “was indifferent,” because instead of mitigating the risk of harm caused by the contaminated water, he covered it up. It appeared he had been worried about the political implications of the crisis, as well as about the need to return Flint to Detroit’s water system; however, in public, he denied all knowledge, despite being aware of the developing crisis. As a result, plaintiffs were lured into a “false sense of security.” More than a year later, Flint switched to drawing water from Lake Huron—a switch, however, which was made to too late to prevent a dozen fatalities: during the period that Flint’s tap water was drawn from the Flint River, a Legionnaires disease outbreak occurred, killing at least 12 people and hospitalizing dozens of others. Thus, although government officials initially claimed the water was safe to drink, a year and a half later they admitted it was not; indeed, it was not until late in 2016 that Flint’s water supply finally complied with federal safety standards; nevertheless, Mr. Pitt says it could be another year before an actual trial begins.

Previously, U.S. District Court Judge Judith E. Levy in Ann Arbor, Michigan had ruled that a lawsuit alleging the City of Flint and top state water officials violated Flint residents’ “bodily integrity” by exposing them to lead-contaminated water and hiding the contamination could move forward in court, before, last June, Judge Levy had issued a 101-page opinion granting Flint residents Shari Guertin, her minor child, and Diogenes Muse-Cleveland permission to move forward in the suit against the City of Flint, its former Emergency Managers Darnell Earley and Jerry Ambrose; former Department of Public Works Director Howard Croft; and eight former Michigan Department of Environmental Quality employees, holding that the plaintiffs’ bodily integrity claim could move forward because they were able to plead “that the conduct of many of the individual governmental defendants was so egregious as to shock the conscience and violate plaintiffs’ clearly established fundamental right to bodily integrity…” That claim had alleged the defendants violated the plaintiffs’ right to bodily integrity by knowingly and intentionally exposing them to lead-tainted water and hiding the dangers from them. However, Judge Levy dismissed the claim against Michigan Gov. Rick Snyder, former state DEQ official Patrick Cook, and former Flint water official Michael Glasgow, writing that the claims failed to directly connect them to the lead-in-water poisoning. Judge Levy’s order claimed the plaintiffs failed to show former Gov. Snyder had been directly involved in the decision-making process surrounding the water crisis , as well as failing to demonstrate that Mr. Cook was involved in misleading the public; he granted the plaintiffs permission to move forward with negligence claims against the two engineering firms hired to assess Flint’s water, Veolia North American and Lockwood, Andrews & Newnam, writing the plaintiffs were able to argue the engineering firms should have recognized their services as “necessary for the protection of plaintiffs and their property,” and that residents were “directly and proximately harmed” by their breach of duty. Judge Levy dismissed 12 other counts in the case, including due process, breach of contract. and negligence claims.

Putting Puerto Rico’s Local Governments at Risk?  The designation of “high risk” by the U.S. Department of Housing & Community Development (HUD) for the U.S. territory’s management of the Community Development Block Grant Program (CDBG) has, according to local elected leaders on the island imposed additional fiscal and governing burdens—or, as Alcalde or Mayor Luis Javier Hernández Ortiz of Villalba, a municipio where Hurricane Maria, two years ago last September, triggered numerous landslides, now, in the wake of the quakes, the municipality’s entire electrical system was destroyed.: Villalba’s emergency operations center and an assisted living center were among the many buildings destroyed; now a documentary describes the destruction of infrastructure in Villalba, and how volunteers, community members, the Mayor, and all emergency service personnel worked to save people’s lives; bridges were destroyed, and many areas where vital infrastructure was located were inaccessible. The geography of Villalba made restoring electricity and water services to Villalba extremely challenging. Two years ago, Mayor Hernández discussed other options for electrical power, such as micro-grids, for Villalba, with the Mayor of Hoboken, New Jersey, who reminded him that recovery from such a powerful hurricane would take years. Now the HUD designation means, as Mayor Hernández Ortiz put it: the “municipalities are going to be the most affected.”

Under the plan, the CDBG funds, which are unrelated to the reconstruction work, are to be remitted by Puerto Rico to municipalities with a population of 50,000 or less, with such funds to be used for paving roads, housing rehabilitation, housekeeper services, and direct citizen assistance programs. Last month, however, HUD informed the Puerto Rico Department of Housing, which manages those funds, that it had placed the program in the “high risk” category for failing to comply with applicable laws and regulations, and demonstrating poor performance, meaning, as Aibonito Mayor William Alicea: “That is going to be a problem for municipios…interfering with their ability to serve our citizens.”  Mayor Javier Hernández Ortiz noted that last year, when a number of Mayors flew to Washington, D.C. to urge changes in the administration of HUD programs in Puerto Rico—especially during the federal government shutdown, the federal shutdown had meant that there were mayors who stopped offering vital housing and community development services; Mayor Rosachely Rivera of Gurabo stressed that her municipality received payments in December corresponding to contracts from 2018, noting: “These funds, although regular, are literally the example that HUD uses to disburse those of CDBG-DR (for disaster recovery), which have not yet arrived.” Meanwhile, Puerto Rico’s Assistant Secretary of Strategic Housing Planning, Karen D. Ortiz Tirado, last week wrote that Puerto Rico had communicated to HUD in response to the audit and requested additional time to fully address one of HUD’s allegations, while Mayor Javier Hernández Ortiz reported the mayors had informed Gov. Rosselló Nevares’ administration of their discomfort with the situation and the need to reverse the change in the administrative structure of the CDBG funds. The mayor noted, however: “Nothing happened”

Quien es encargado? (Who is in charge?) Puerto Rico currently has some $70 billion in municipal debt—but it has a dual form of governance: an elected Governor and Legislature, and a federally appointed financial control board (PROMESA)—a board which has an uneasy balance of pressures between non-Puerto Ricans seeking full payment on municipal bond interest payments and an economy in decline. The PROMESA Board, created in 2016 to address the territory’s debt crisis, has leaned toward the conservative prescription of spending cuts and tax increases to restore fiscal discipline, restore growth, and provide for interest payments to bondholders, appears to demonstrate the imbalance between the potential societal costs of austerity in general versus the PROMESA Board’s fiscal plan ;potential impact on the vulnerable population of Puerto Rico in particular, where poverty is about three times the U.S. average. Indeed, at the first public PROMESA Board session, Board Member Andrew Biggs said he had done research showing that the best policy practices for countries struggling with debt are ones which place much more weight on spending cuts than on tax increases. Mr. Biggs, in a paper, “A Guide for Deficit Reduction in the United States Based on Historical Consolidations That Worked,” which he authored with Kevin Hassett and Matthew Jensen, noted: “The average expenditure share for successful consolidations is 80 percent if inclusive of our calculations and those from [others],” as the co-authors argued that cuts should be focused on government wages and the provision of social transfers, adding that government debt in major industrialized countries should be reduced: beginning first with large public debts and unfunded pensions “imply[ing] a redistribution between current generations and future ones who cannot vote.”

Center for a New Economy Policy Director Sergio Marxuach said that it was difficult to expand an economy while the PROMESA Board is cutting spending and increasing taxes. However, he said there were things that could be done now and more that could be done after structurally balanced budgets had been achieved and the board was gone.

Offering Shelter from the Physical & Fiscal Quakes

January 21, 2020

Good Morning! In this morning’s eBlog, we consider the governing challenges of reversion or surrendering of a municipality’s charter before considering the inequitable treatment by HUD of U.S. citizens in the U.S. territory of Puerto Rico.

Shaking Up Governance. The Trump administration appears to have reversed its policy of treating Puerto Ricans as if they were not Americans: the White House has announced a series of actions, highlighted by President Trump’s declaration of a major disaster, with his announcement coming some 19 days after a series of earthquakes or terramotos began on the southern side of Puerto Rico. The White House action finally freed up assistance to individuals who have been displaced from their homes. The series of earthquakes have also served to draw attention to the slow pace of reconstruction on the island in the wake of the devastation caused by Hurricane Maria in 2017: to date, only $14.9 billion has been disbursed out of the $48.35 billion allocated by Congress since Hurricane Maria, according to a federal government data transparency portal. Last Friday, Gov. Wanda Garced Vazquez said the new grants under the FEMA Individuals and Households Program will provide financial help for necessary expenses, such as temporary housing, home repairs, and other personal needs; and, last Thursday, HUD confirmed it was releasing $8.2 billion in Hurricane Maria aid which had been delayed for months. Both actions by the Trump Administration appeared to come only after bipartisan political pressure from Congress for the administration to act. The Executive Director of Puerto Rico’s federal affairs office in Washington, D.C., Jennifer Storinan, noted: “A major disaster declaration is needed to continue with the recovery.”

The declaration, while not explaining the reasons for the delay, came concurrent with the announcement of the selection of Robert M. Couch to serve as the Federal Financial Monitor to oversee the federal grant administration and disbursement of disaster recovery funds to Puerto Rico and the U.S. Virgin Islands.

The Trump administration had held back its disbursement of disaster aid because of concerns about financial corruption, and, last August, reported its intention to appoint a federal administrator, with HUD Secretary Ben Carson noting that Mr. Couch, a former HUD official, “has an extensive background with decades of private and public sector experience dealing with financial reporting, risk management, and executing the law: “Robert will be an asset in supporting HUD’s mission to continue aiding recovery efforts in Puerto Rico while ensuring that appropriated funds are used in a responsible manner and for their intended purpose.”

The HUD announcement also came with a pledge to publish a Federal Register notice to activate another $8.3 billion in aid in addition to the $8.2 billion, and an original $1.5 billion already disbursed. HUD said the Federal Register notice for the $8.3 billion tranche of funding will contain guidelines for establishing its plan to use long-term mitigation funds under the Community Development Block Grant-Disaster Recovery program, with the Department noting that these guidelines will mandate applicants “to develop thoughtful recovery plans informed by local residents.” Senate Minority Leader Chuck Schumer (D-N.Y.) said the HUD announcement is “not nearly enough: We will continue to fight this administration’s unnecessary bureaucratic barriers from causing any further delay in disbursing these funds to Puerto Rico…We will also continue pushing for the additional appropriated funds which are still senselessly held up: These funds must be put to use as Congress intended: to rebuild the island.”

Separately, the House Appropriations Committee last Thursday announced it intends to approve another round of $3.35 billion in assistance: this new round of disaster aid from Congress will include educational assistance which will be vital for the territory’s kids after the government extended its Christmas holiday winter break for all schools through at least this Wednesday so that buildings can be inspected for structural damage. Through last Thursday engineers had inspected 530 schools and certified them for reopening, according to Puerto Rico’s Federal Affairs Administration office in Washington. Communications and electricity were 99% restored, but the condition of the electrical grid remained fragile. Additionally, there still were 42 shelters operating in 14 municipios which were housing 7,468 people. Although the earthquake damage was concentrated in six municipalities on the southern side of the island, aftershocks and tremors have continued to occur island-wide.

Undelivered Shelter from the Storm

January 17, 2020

Good Morning! In this morning’s eBlog, we consider the continuing inequitable treatment by HUD of U.S. citizens in the U.S. territory of Puerto Rico.

Shaking Up Governance. House Democratic leaders have proposed a measure to allocate $3.350 billion to help Puerto Rico recover from this month’ terramotos or earthquakes. House Appropriations Committee Chairwoman Nita M. Lowey (D-NY) and Transportation, Housing and Urban Development Appropriations Subcommittee Chairman David Price (D-NC), in a statement yesterday in the wake of a statement from the White House that the Trump administration would no longer delay disaster recovery aid for Puerto Rico, noted: “It’s been 704 days since Congress appropriated disaster recovery funding for Puerto Rico to help our fellow Americans recover from devastating hurricanes. After broken promises, blown deadlines, and the illegal withholding of the Federal Register notice, HUD announced today that Puerto Ricans will finally have the opportunity to access the aid they so desperately need…As appropriators, we have fought for the release of the aid by questioning Secretary Carson, establishing a legal deadline for agency action, conducting an oversight hearing with HUD officials and the Inspector General, and withholding money from the Department in the most recent appropriations bill. It should never have come to this.” Nevertheless, she said: “There are still questions left unanswered, including why this necessary assistance was delayed in the first place. Today’s announcement seems to clear all major hurdles, allowing Puerto Rico to obtain $8.2 billion in unmet needs aid and begin the process of developing an action plan to spend $8.3 billion in additional mitigation resources.” Chair Lowey’s bill, if enacted, would result in $2 billion in CDNG funding, $ 1.250 billion to repair roads, and $100 million for educational needs. Earlier this week, Senate Minority Leader Chuck Schumer (D-N.Y.) joined 33 other Senate Democrats on a letter calling on the Trump administration to approve full aid to Puerto Rico in the wake of a series of earthquakes that have smote the U.S. territory so far this month, with the epistle noting that, in the wake of a particularly strong 6.4-magnitude quake January 7th, “more than one million of our fellow Americans in Puerto Rico were still without power” more than two days later: eight landslides had been recorded, over 2,000 individuals were in shelters including 125 minors, and the island’s communications grid was only 75 percent operational. Many schools have been closed indefinitely and will only be reopened upon inspection…These earthquakes make…even more unconscionable the Department of Housing and Urban Development’s inaction disbursing the $8.3 billion in Community Development Block Grants for Disaster Recovery funding appropriated by the United States Congress for mitigation projects in Puerto Rico.”

In the  nonce, the President has responded to a request from Governor Wanda Vázquez Garced, declaring six municipios as disasters zones eligible for FEMA assistance: Guánica, Guayanilla, Ponce, Peñuelas, Yauco ,and Utuado—albeit assistance upon which the Trump administration has imposed financial controls on Puerto Rico: in order to receive any of this desperately needed assistance, Puerto Rico must submit detailed budgets, ignore its $15-an-hour minimum wage on federally funded projects, and reform record-keeping around real estate properties. HUD reported it would make $8.2 billion available immediately through a credit line while publishing guidelines for Puerto Rico to draw up a plan for $8.3 billion in additional projects focused on mitigating risks from natural disasters—funds here which Congress approved a year ago as part of a $20 billion disaster package after two hurricanes ravaged Puerto Rico in 2017, destroying the power grid and causing thousands of deaths. A HUD official noted: “Now that proper financial safeguards are in place, we can move forward with confidence that these additional disaster recovery funds will reach those who need them the most,” with that statement coming as President Trump has repeatedly criticized Puerto Rico’s leaders as inept and sought to curb the U.S. territory’s access to federal funds, saying it has not properly spent money already received for hurricane recovery, while a spokesperson for the White House Office of Management and Budget said the President “is working to ensure the people of Puerto Rico are getting the funds they need, while also holding the Puerto Rican government accountable to ensure the money is well-spent.”

Unlike federal responses to such disasters in the rest of the United States, here, under the framework, Puerto Rico is mandated to demonstrate progress constructing a database for property registration, addressing the informal record-keeping which historically has been used. Without a proper title to prove they own their homes, many residents whose homes sustained damage have been barred from qualifying for federal grants and loans. The new federal mandates also override a minimum wage rule which had been put in place by former Gov. Ricardo Rosselló. Finally, unsurprisingly, Puerto Rico must also allow the PROMESA oversight board to track cash spent on disaster recovery and make sure the spending aligns with its long-term fiscal plans; critically, none of the grant funds can be used on Puerto Rico’s battered electrical infrastructure, which suffered further damage in the recent earthquakes near the island’s southwest. HUD has earmarked a separate $1.9 billion tranche for power grid improvements but has yet to release the desperately needed funds, much less provide information with regard to when it will—or how many American lives will be put at risk doe to its delays.

Municipal Reversion? & Has There Been Disparate Shelter from the Earthquakes in Puerto Rico?

January 15, 2020

Good Morning! In this morning’s eBlog, we consider the governing challenges of reversion or surrendering of a municipality’s charter before considering the inequitable treatment by HUD of U.S. citizens in the U.S. territory of Puerto Rico.

The Politics of Reversion? In a nation where thousands of local governments have reached a demographic tipping point where births exceed deaths, questions are cropping up with regard to how do cities and counties experiencing such tipping points afford the cost of governing. Thus it is in the Commonwealth of Virginia that legislators will consider whether to give Henry County and Martinsville residents the opportunity to vote on reversion during the 2020 legislative session—Martinsville, an independent city of less than 14,000, founded by American Revolutionary War General Joseph Martin. Indeed, Del. Danny Marshall (R-Danville) has introduced three bills in the General Assembly concerning Martinsville’s ability to surrender its city charter and become a town within the county. The Martinsville City Council voted unanimously last month to start the reversion process to address what officials assert is an unsustainable fiscal situation. House Bill 493 would require approval from Henry County voters before the city could revert; HB 492 would mandate approval by Martinsville voters before such a reversion. Currently, both measures are awaiting assignment to a committee in the Virginia House of Delegates.

As months of talking last year led to a unanimous vote by Martinsville City Council to revert to a town, it seems that Martinsville residents were not the only ones paying attention to the process. After all, such a change could have implications for Henry County, including for owners of businesses—or, as one such owner put it: “As business owners, that does mean a lot. You know when you have customers coming in it’s a difference between the two with the county and city.” The owner of the Coffee Cafe Shop in Collinsville said the possibility of Martinsville becoming a town and annexing her area makes her question the future of her shop: “It does make me wonder what’s in store for our business because it does affect it.”

And, of course, any such governance change will involve the Virginia Legislature: indeed, Delegate Daniel Webster Marshall III (R-14th district), made up of Danville and parts of Henry and Pittsylvania Counties), a race car driver and former Danville City Councilmember, has filed three bills regarding reversion: House bill 494 would require more than a simple majority vote to commence the reversion process; House bills 492 and 493 would allow people living in the city and the county to vote on a referendum to decide whether or not they believe the process should be allowed. Delegate Marshall said he sponsored the legislation in an effort to make the reversion issue fairer to all involved. As the Commonwealth law currently stands, the city controls most of the process, so the county has little to no choice in the matter. The Henry County Board of Supervisors submitted a legislative agenda to its state representatives, including Delegate Marshall, last October, asking for county voters to be given a choice, with the Delegate noting: “This is a big issue: If Martinsville says we want to revert, there could be additional cost to Henry County, and who’s going to pick that up? Henry County residents. A contract needs to be between agreeing parties….The citizens of Martinsville should be able to decide whether or not to revert.” (Del. Marshall introduced similar bills to give citizens a reversion vote in 2006 and 2014: the 2006 proposal died in committee, while the 2014 bill changed significantly from start to finish, eliminating any mention of Henry County voters taking part in the reversion process. The final version of the 2014 bill as approved stated, “Any reversion initiated by the Martinsville City Council shall require that each elected member of the City Council vote, unless otherwise prohibited by law, on the motion to initiate the reversion process.”

Will There Be Shelter from the Storm? Multiple strong and damaging terramotos or earthquakes have shaken southern Puerto Rico over the last three weeks, killing one American, causing many serious injuries and collapsed numerous buildings, including a multistory school in the town of Guánica, which, fortunamente, was empty at the time, with the terramotos the most damaging to strike the U.S. territory since 1918: Puerto Rico has been under a state of emergency since January 6th, with a flurry of earthquakes quakes, including onshore and offshore events near the Town of Indios and along Puerto Rico’s southwestern coast. To date, there have been 11 aftershocks.

The Department of Housing and Urban Development (HUD) has been tasked to administer relief, as well as to serve as the financial monitor of the disbursement of some $1 billion in CDBG disaster relief funds—assistance unsurprisingly containing new federal mandates on the territory with regard to the use of $8.285 billion for mitigation projects; however, to date, HUD has been slow: so far, the federal agency has made available just $1.507 billion of a pledged $20.5 IN Community Development Block Grant assistance; and, of that first disbursement, the government of Puerto Rico had only disbursed $ 10.8 million as of the end of last month. Nevertheless, in the wake of this month’s terramotos—and growing pressure from Congress, HUD has announced that the next $1 billion to be provided will come out of a $ 8,221 million item which was authorized eleven months ago—but which, 11 months later, remains undelivered. Indeed, since last September 4th, the U.S. Department of Housing & Urban Development has failed to publish the guidelines on CDBG mitigation funds, affecting a total of $10.3 billion, allocated to Puerto Rico: of those funds, guidelines on their use of some $8,285 million has been promised for inclusion straightaway in the be included in the immediate publication in the Federal Register. The remaining $1.932 billion, the authorization of which has been more delayed, is mandated for implementation of initiatives to rebuild the power grid.

Further complicating and delaying a response, those HUD emergency assistance funds will be subject to another layer of oversight—here from the PROMESA Board, as well as subject to new rules on the registration and ownership of properties—rules or federal mandates awaiting final agreement between FEMA and Puerto Rico before disbursement of funds for permanent reconstruction can go ahead, as per §428 of the Stafford Act—an agreement which was supposed to be finalized last October—and for which no new deadline has been established. The disbursement, which is now expected to be $ 1 billion, and the publication of the guidelines coincide with the appointment of attorney Robert Couch as financial monitor at HUD to control and supervise the management of the CDBG-DR funds.

The speed and efficacy of the HUD response to Puerto Rico, where HUD Secretary Ben Carson, the decorator chief of the President’s Cabinet, has referred to a “history of fiscal embezzlement” and corruption of the Puerto Rican government as a justification for the holdup of the first $1.5 billion in CDBG-DR funds; however, contrary to what HUD appears to have advised Congress, it seems HUD is intent upon awaiting the appointment of a federal monitor before disbursing any additional part of the funds and starting the process on mitigation projects.

Now a senior HUD official, according to the Puerto Rico El Nuevo Día,  yesterday, that now that the entire financial monitor team has been selected, “We can go forward with confidence that these funds earmarked for recovery will arrive to those who need them most.”

HUD, it seems, has not been driven by responsibility, equity, but rather fear of action by Congress, after, last week, the Hispanic Caucus discussed with House Speaker Nancy Pelosi (D-Ca.) the possibility of suing HUD to expedite the delivery of funds. And, Rep. Nydia Velázquez (R-P.R.) stated: “While it is a positive fact that the administration has released the brake that has impeded this assistance, it has been inexorably delayed: Congress approved that assistance to mitigate disasters almost two years ago, and these ongoing delays reflect the administration’s disdain for the people of Puerto Rico,” as she also pressed that President Trump declare municipalities in southern Puerto Rico to be a disaster zone.

On Tuesday, Sec. Carson informed Rep. Velázquez that a HUD official is on his way to Puerto Rico or was already on the Island; that official, Robert Couch, was a legal advisor to HUD during the George W. Bush administration, where HUD officials have indicated there will be a response team of ten to fifteen officials to oversee the ‘proper’ use of CDBG assistance.

Overtaxing a Municipality’s Homeowners?

January 14, 2020

Good Morning! In this morning’s eBlog, we consider taxing challenges in the Motor City.

The Detroit News has reported that Detroit overtaxed homeowners by at least $600 million after it failed to reduce assessed property values accurately in the years following the Great Recession, with the report coming in the wake of the city completing a state-ordered reappraisal of every residential property in 2017 to correct the problem. Nevertheless, the cost of those past mistakes has taken a toll: thousands of the city’s citizens today face foreclosure over back taxes—with that fiscal challenge coming despite the city’s success in poverty reduction and the increase in household median income by 20% since 2015: indeed, recent U.S. Census Bureau estimates today show that poverty in Detroit dropped for the third straight year in 2018 as 45,000 Detroiters moved out of poverty during that time, and Detroit household income grew 20% in three years, almost doubling statewide household income growth during this period.

On the housing front, of more than 63,000 Detroit homes with delinquent debt as of last fall, more than 90% were overtaxed—by an average of at least $3,700—between 2010 and 2016, according to calculations by the News, and the debt owed on about 40,000 of those homes is less than the properties were overtaxed over those seven years; thus, the inflated property tax bills have been an added burden to homeowners in the poorest big city in the nation, and call into question a tax system that has foreclosed on a third of city properties since 2008.

Of the 173,000 homes the News reviewed, more than 92% were, the paper reported, over-assessed between 2010 and 2016, on average, by $3,800, but over 92% were over assessed by twice as much as they should have been—and at least 59,000 properties which were over-assessed and taxed still owe back taxes currently—some $153 million. That creates a quandary for the city’s exceptional recovery from the greatest chapter 9 municipal bankruptcy in U.S. history: how does the city fix this costly over assessment and collection of at least 221 million?

Michigan law requires that assessments reflect a home’s market value—and homeowners may appeal. Similarly, Detroit officials have acknowledged their predecessors failed to fix the over-assessment problem quickly enough. However, Mayor Mike Duggan has stated that he cannot fully correct those past mistakes, in part because current Michigan law does not allow it; moreover, per the city’s plan of debt adjustment, Detroit simply lacks the requisite fiscal resources.

For his part, Mayor Duggan noted: “I think the rates should have come down sooner. But I dealt with what we had and moved as quickly as we could\…Folks had a process by which they could appeal it. Those years are closed. I don’t know any lawful way to go back and say to all the taxpayers of the city who did follow the process, ‘We’re going to raise your taxes to pay the taxes for people who didn’t.’”

Mayor Duggan is pressing the Michigan Legislature to enact mortgage or low-income homeowner relief legislation, which would erase significant portions of their mortgage debt. Alvin Horhn, the city’s Assessor, advised the Detroit News the city was unable to verify the $600 million overtax figure, but did did not reject it.  Median sales of single-family homes citywide and in most ZIP codes were rising between 2010 and 2017, according to ATTOM data. Given that upward trend, the analysis presumes that when the city lowered an assessment in 2017, it was because the city’s assessed valuation was too high, not that the property’s assessed value had declined.

Detroit CFO Massaron, in speaking to the paper, cautioned that, as in all cities, assessed values vary by neighborhood, thus, unsurprisingly, in some neighborhoods there may well have been genuine losses in value over the time period analyzed by The News: properties in those areas could appear in the analysis to have been overtaxed more than they were. Officials also acknowledged they simply lack sufficient records to identify those properties. Gary Evanko, Detroit’s Chief Assessor from 2013 to 2016, called The News analysis a “legitimate way” to measure the past problem, while Michigan State University Professor Mark Skidmore, who was one of the researchers to first identify Detroit’s over-assessment problem, believes the opposite trends of declining taxable values and rising sale prices likely means The News’ method underestimates the problem.

Prior to the Motor City’s municipal bankruptcy, Detroit’s Office of the Assessor simply—and understandably, lacked sufficient qualified staff—and had to balance revenue estimation and collection with the greater realization to the city from income tax revenues. The Michigan State Tax Commission seven years ago assumed oversight of the Assessors’ office and ordered the reappraisal, which took more than two years and cost $5.85 million.