About Frank Shafroth

Frank Shafroth is the former Director of Legislative Affairs and Intergovernmental Relations for the Municipal Securities Rulemaking Board (MSRB). Mr. Shafroth worked with the executive leadership to manage the MSRB's strategic relationships with state, local and the federal government and monitor legislative and congressional activities that affect the municipal bond industry and the authority of the MSRB. He currently serves as the the Director for the Center of State and Local Leadership and Assistant Professor at George Mason University. Mr. Shafroth has more than 30 years of experience on Capitol Hill and representing state and municipal issues before Congress. Previously, he was chief of staff to Congressman Jim Moran (D-VA), advising the Congressman on economic, tax, housing and community development legislative issues. He was also director of government relations for Arlington County, Virginia, and has served as director of state and federal relations at the National Association of Governors and the National League of Cities. Mr. Shafroth was also a Peace Corps volunteer in Liberia and Colombia and, early in his career, served as a congressional aide and staffer on various House and Senate offices and committees.

The Challenges of Reopening the Motor City

Questioning Gubernatorial Authority in the Coronavirus Pandemic

As the U.S. economy has shed jobs at a level comparable to the Great Depression–and as over 300 department stores are expected to be shuttered–victims of not just the stay-at-home prescriptions, but also the eroding bricks and mortar economy; cities and counties–even as they are the first level of response to this devastating crisis, have remained the first responders at this time of unprecedented need. And, it appears likely they will not be able to look to the federal government for help: The Trump Administration and U.S. Senate continue to oppose coronavirus pandemic relief to the nation’s cities and counties.

Now, as the nation contemplates the hazardous process of reopening, Michigan Rep. Paul Mitchell, (R-Dryden) has formed a ballot committee aimed at collecting signatures to restrict the unilateral emergency powers which Gov. Gretchen Whitmer used to combat COVID-19. Last week, the Representative announced his filing of a lawsuit against the Governor, alleging her executive orders had violated his rights. He has formed a ballot committee, Say Yes to MI Constitution, which could initiate a proposal to go before the Legislature. Should said group collect more than the requisite 340,000 signatures, its proposal could gain the approval of the Republican-controlled Legislature, thereby enabling it to become law without Gov. Gretchen Whitmer’s signature.

The issue of re-opening, a political issue at every level of government, is likely more resonant in Michigan, where memories of Flint and Detroit’s chapter 9 municipal bankruptcy are resonant, with home sales dropping by 46 percent.

In a statement, the Congressman noted: “Michiganders elect members of the Legislature to represent them in our government. Unfortunately, Gov. Whitmer is misusing her powers to rewrite laws, court decisions, and insists she can dial up these powers whenever she sees fit…That is not the way our Michigan Constitution works, and I am forming this ballot committee to make that crystal clear. The Legislature and the people of Michigan should always have a voice.”

Gov. Whitmer has previously been clear that she is making use of her executive authority to protect people’s lives “whether you agree with me or not.” State Democrats have labeled discussed attempts to change the state law which  grants the Governor emergency powers to be “playing politics.”

Rep. Mitchell is expected to make public coalition members and specific ballot language in the near future.

Mayhap adding fuel to the proverbial fire, Michigan Senate Majority Leader Mike Shirkey (R-Clarklake) called for a petition drive to repeal the 1945 state statute which provides governors in Michigan the sole authority to declare a state of emergency authority granted, as in most states,  but does not appear to give the Legislature input on the matter.

In Michigan, the emergency declaration grants the Governor authority to issue unilateral orders, like the stay-at-home restriction. Such authority, such as we witnessed in the wake of the terrorist bombing of the Murrah Building in Oklahoma City, or as used by former President Franklin Roosevelt to declare war after the bombing at Pearl Harbor–or former New York City Mayor Rudy Giuliani, in regard to which, in his memoir, former New York Governor Pataki wrote: “Governor, you have extraordinary powers to extend my term in office.”

In a radio appearance, Majority Leader Shirkey added: “I think it’s probably the No. 1 priority right now: That allows true representative government…to take over.” Thus, on Wednesday last, Republicans in the Michigan Legislature filed suit to challenge Gov. Whitmer’s emergency powers in state court. Rep. Mitchell’s new ballot committee: “Say Yes to MI Constitution, ” was officially formed last Tuesday, according to state records.

 

A Once & Future City in the Age of the Covid Pandemic?

The City of Petersburg, Virginia, one of the nation’s oldest, has been at cornerstones in history: the site of a long siege by former Union General Ulysses S. Grant during the Civil War, and a trail and water transportation hub. But, in a state which does not provide the option of chapter 9 municipal bankruptcy, this municipality–with a poverty rate of 27.6%, double the U.S. average, has experienced its greatest levels of poverty among young women and children under 11, and high levels of violent crime, now has a Detroit-like drinking water threat: a threat so severe that Virginia Health Commissioner M. Norman Oliver yesterday wrote to order the restoration of running water to City Manager Aretha Ferrell-Benavides warning that shutting off  of its residents for the remainder of Virginia’s COVID-19 state of emergency. (As Detroit was sinking into chapter 9 municipal bankruptcy, one of the first critical issues for the city’s emergency manager to address was the threatened cutoff of water to low-income residents of the city.)

Commissioner Oliver, in his order to Manager Aretha Ferrell-Benavides, wrote that shutting off water is a danger to public health during the lingering health crisis: “Without running water, Petersburg residents are at higher risk for serious illness from COVID-19…Residents must stay at home and frequently wash their hands. Persons with long-term health problems or other chronic conditions, the elderly, and those who are immuno-compromised must have running water to protect themselves and prevent the spread of the disease.

The city had shut off water to 730 accounts for nonpayment between last July and last January, just before Gov. Ralph S. Northam, the nation’s only medical doctor and Governor, issued Executive Order 51.

Even though the city has not shut off water to any account for nonpayment since last January 31st, an estimated 150 of those accounts are still without water, albeit the city  reports 78 of those to be vacant properties.

Coronavirus Complications

Commissioner Oliver subsequently followed up, noting: “I appreciate the City’s efforts to date to restore water service at every residence in the City. However, due to the current COVID-19 pandemic, and the inextricable public health link between access to water and the ability to lessen the threat of contracting and transmitting COVID-19, I am providing you with the enclosed certification that ceasing to provide water endangers the health of the occupants of the premises and the health of others.”

Governance Challenges

In response to these events, Ward 1 Councilor Treska Wilson-Smith asked city leaders to consider an amnesty program for those without water during the COVID-19 crisis–a request in response to which Mayor Samuel Parham said that amnesty would be irresponsible to the rest of the city’s residents who pay their bills. Indeed, at its last City Council meeting, the Council voted to prosecute over 100 residents who had been “stealing” water from the city.

Del. Lashrecse D. Aird, whose district includes the City of Petersburg, and who is a member of the Health, Welfare and Institutions Committee, as well as the Appropriations Subcommittee, was critical of the city’s decision to keep water services shut off, calling it “inhumane” on May 5th. At his press conference on May 8th, Gov. Northam said it was “unacceptable” that anyone was without running water during this pandemic which requires good hygiene.

The Virginia Department of Health’s Office of Drinking Water (ODW) also received a letter from Queen Zakia Shabazz of the Virginia Environmental Justice Collaborative on April 30th, asking that Petersburg “restore water services to the vulnerable residents of Petersburg.” That office contacted Petersburg’s Department of Public Utilities to investigate the number of residents without water before Oliver sent his order to the City of Petersburg. He has asked for notification when water has been returned to all who are disconnected.

Petersburg reports it plans to provide an update this week., while Commissioner Oliver’s order will be in effect until the state of emergency declared by Executive Order 51 is over.

Left cloudy for this historic city at this time of crisis is how that restoration can be financed–and at what cost.

Fiscal, Physical, and imposed oversight Storms Swamp Puerto Rico

Puerto Rico has formally requested the PROMESA Financial Control Board to delay austerity measures for at least two years, warning it simply lacks the fiscal resources to meet its obligations to municipal bondholders as the government is still taxed with the now double relief challenges  from the recent terramotos, or earthquakes, as well as the health care earthquake created by the coronavirus epidemic. Government officials said that they had submitted a revised fiscal plan requested by the Board, adding  that the U.S. territory is bracing for billions of dollars in losses as a result of eroding tax revenues and sharp declines in tourism.

The U.S. territory’s filing came as FEMA announced it was extending its suspension of field operations related to a series of earthquakes because of the coronavirus lockdown. The most recent terramoto, a magnitude 5.5 earthquake last Saturday caused damage in several southern towns, continuing a string of quakes which began late last December and which have wreaked an estimated $1 billion in damage. Puerto Rico cited those costs, even as it looked ahead physically and fiscally to the looming hurricane season–one which is expected to be more active than usual, as well as a COVID 19 hurricane pandemic hurricane which Puerto Rican leaders estimate will have a $5.7 billion adverse impact on the economy in its request for a delay in austerity mandates.

The quasi-chapter 9 plan of debt adjustment imposed by the PROMESA Board states: “Puerto Rico must be realistic and prudent in conserving its resources in preparation for unknown and unexpected events that are becoming increasingly inevitable.”

Last week, the PROMESA Board ordered that Puerto Rico’s municipios pay a total of $66 million owed to the central government despite some mayors or alcaldes warning that such a move would leave them bankrupt, leading Omar Marrero, the Executive Director of the Puerto Rico Fiscal Agency and Financial Advisory Authority,  to note that he hopes to reach “reasonable agreements” with the PROMESA Board in upcoming weeks regarding the revised fiscal plan.

The first version of said plan was filed on Sunday, exactly three years after Puerto Rico filed for the biggest quasi municipal bankruptcy ever after announcing it could not pay its more than $70 billion public debt load, with officials stressing in their plan that COVID-19 will have “much broader and more profound” ramifications on Puerto Rico’s economy than any previous disaster despite the federal aid received. The U.S. territory is in the midst of a two-month lockdown as economists warn the real gross national product could contract by nearly 8% next year.

Physical & Fiscal Storms

The U.S. Territory of Puerto Rico Monday reported it has asked the PROMESA Board to delay austerity measures for at least two years, warning the island lacks sufficient fiscal resources to pay bondholders as it struggles with the costs of recent terramotos or earthquakes, much less the the COVID-19 crisis and the aftermath of hurricanes Irma and Maria. Officials noted they had submitted a revised fiscal plan requested by the PROMESA Board and said the U.S. territory is bracing for billions of dollars in losses as a result of shrinking tax revenue and a drop in tourists. The territory’s response came as FEMA announced it was extending its suspension of field operations related to a series of earthquakes due to a coronavirus lockdown–and after, last Saturday, a magnitude 5.5 earthquake caused damage in several southern municipios, continuing a string of earthquakes that began in late December and have caused an estimated $1 billion in damage.

The government cited those costs, as well as an upcoming hurricane season that is expected to be more active than usual, in addition to the coronavirus pandemic, which officials estimate will have a $5.7 billion impact on the economy in its request for a delay in austerity measures. The unelected and unrepresentative Board plan notes: “Puerto Rico must be realistic and prudent in conserving its resources in preparation for unknown and unexpected events that are becoming increasingly inevitable.”

The PROMESA Board offered no immediate response, adding to fiscal uncertainty, especially with regard to whether it would accept the proposed changes, which include a rejection of pension cuts sought by the Board.

The Board’s actions came after, last week, the Board mandated Puerto Rico’s municipios pay a total of $66 million owed to the central government despite some mayors or alcaldes warning that such a move would leave them bankrupt.

Omar Marrero, the Executive Director of the Puerto Rico’s Fiscal Agency and Financial Advisory Authority (FAFAA), said in a statement that he hopes to reach “reasonable agreements” with the Board in upcoming weeks regarding the revised fiscal plan.

 

Helping Coronavirus Municipal Fiscal State & Local Fiscal Pandemic Recovery

While the federal government has been slow to address state and local fiscal distress created by the coronavirus pandemic, an innovative fiscal partnership in the Garden State might set a fine example for other states to consider.

New Jersey Governor Phil Murphy has joined forces with the New Jersey Infrastructure Bank to implement a backstop program to help address the signal municipal market disruptions to the state’s local governments created by the coronavirus pandemic. Together they have implemented a backstop municipal bond note program via a $50 million liquidity investment: the goal is to help mitigate adverse fiscal impacts to New Jersey’s local governments. Lt. Governor Sheila Oliver noted: “Governor Murphy and I are grateful that New Jersey’s I-Bank is able to step up in these uncertain times to help maintain fiscal solvency in all 565 of our municipalities…This investment will help calm concerns in our local government units about market volatility. DCA is proud to partner with I-Bank and the New Jersey Department of Treasury to promote economic stability as we ride out this unprecedented crisis.”

The I-Bank Bond Anticipation Note (BAN) Program provides liquidity for municipalities in New Jersey which experience difficulty rolling over municipal bond anticipation notes at tis time of such significant stress in the markets at a time when cities and counties are confronted with such a disruptive municipal bond market.  The Executive Director of I-Bank, David Zimmer, noted:  “This liquidity program is just one example of how the Governor is employing the state’s agencies and authorities to proactively address the financial impact of the virus on communities in New Jersey.”

On a key step, New Jersey’s I-Bank has amended its investment policy to permit it to invest in local government unit BANs in certain circumstances, with the purchase program a limited and specialized resource made available only to participants in I-Bank associated financing programs to address failed sales occurring during BAN rollovers.

This program is designed to ensure solvency and fiscal stability for New Jersey’s cities and towns: with the state’s experiences from Atlantic City’s takeover to successfully avoid fiscal insolvency, this new fiscal intervention provides protection against potential defaults, specifically setting the following general terms:

  • A time limit for the period for which the Governor authorized the State of Emergency: the program is authorized only during a period for which the Governor has declared a State of Emergency;
  • that only those BAN rollovers which require fiscal assistance, as defined by I-Bank, may participate;
  • members of the I-Bank, the state Treasurer’s Office, and the financial advisor to the I-Bank have the authority to determine the appropriate amount of available funds and liquidity to be invested;
  • the emergency fiscal program will be by sector, issue, and credit limits; there will be interest rate guidelines, and a maturity limit of 90 days for any BAN submitted for consideration; and,
  • The Director of the Division of Investments in the New Jersey Department of Treasury must approve the purchase of any BAN through the program.

New Jersey Division of Local Services Director Melanie Walker, noted:  “I’m thrilled that I-Bank is focusing their resources on municipal needs in these challenging times to help ensure that all of our local units remain fiscally stable throughout this crisis. I want to thank I-Bank and the Department of Treasury for their diligence and cooperation in getting this program off the ground so quickly;” while Michael Kanef, the State’s Director of the Treasury’s Division of Public Finance noted: “Treasury was pleased to be a part of this coordinated effort to help address the liquidity challenge many governments are facing right now…We are hopeful that this additional protection will play a significant role in helping our municipalities weather this time of great uncertainty.”

 

The Mortal Challenge to Reopening Government in the New Age of the Coronavirus

The governance challenge with regard to balancing public safety with economic safety has much greater stakes in this new age of the corona virus. More than a century ago, President Abraham Lincoln rendered those immortal words: “With malice toward none, and charity to all; with firmness in the right as God gives us to see the right, let us strive on to finish the work we are in: to bind up the nation’s wounds…to do all which may achieve…a just and lasting peace.”

This century’s battle too could cause the loss of thousands upon thousands of American lives. Decisions made by state leaders when to re-open their respective states as they gaze upon this pandemic’s battle fields strewn with unnumbered Americans is a war they understand they must win–but know not at what terrible price it will reap in human lives and livelihoods.  Yet, as they grieve, they respect that this balance between public health and safety will too require the state economy to survive.

So it is that the Michigan Senate has formally urged Gov. Gretchen Whitmer to expand the number of people who can go to work during the COVID-19 pandemic and to allow elective procedures in hospitals–with legislators making that urging wearing masks for protection.  The Republican-controlled Senate met briefly on Tuesday, voting on two resolutions which made recommendations for Governor Whitmer, who had requested the the Legislature to extend her emergency declaration  by 28 days–a deadline set to expire Friday.

Unsurprisingly, many Republicans, who are in the majority in each house, are of the view that 28 days is too long. Rather, they would prefer, as did many in he Congress during the Civil War, to have the executive branch cede some executive powers which the then President ad now the Governor have because of a crisis threatening so many American lives. The Legislators in Ann Arbor are seeking that the Governor either give up some of her unilateral powers during the emergency or that she take other actions to ease some of the mandates she imposed more than a month ago to protect and save lives of her citizens.

“Businesses have shown that they can maintain day-to-day operations with enhanced safety protocols,” as, outside the chamber, approximately 30 protestors had gathered to support his message, chanting at the elected officials: “Open Michigan now!”
At present, unsurprisingly, nearly three quarters of the state’s 38,210 confirmed coronavirus cases, live in the greater Detroit metropolitan area, comprised of Macomb, Oakland, and Wayne counties–counties which, as the City of Detroit entered into chapter 9 municipal bankruptcy, were, per force, party to and benefitting from the resolution of the nation’s largest ever chapter 9 municipal bankruptcy.

The new Senate resolutions are hortatory: they do not carry the force of state law; rather they formalize a request to Gov. Whitmer to act: to balance human safety against economic safety. Indeed, one resolution, offered by State Senator Lana Theis (R-Brighten) urges the Governor to allow elective procedures in hospitals and to “allow health care providers the freedom to determine their capacity to handle elective procedures.”

U.S. Senatorial Bankruptcy?

The coronavirus has killed tens of thousands of Americans: it is wreaking havoc to our economy due to an economic downturn regarded as several times worse than the Great Recession. The anemic response from the White House and U.S. Senate, where Senate Majority Leader Mitch McConnell (R-Ky.) declared he is opposed to any further federal aid to towns, cities, counties, and states–suggesting states simply declare bankruptcy instead demonstrated a bankruptcy of Congressional and Presidential leadership and understanding of our Constitution. As we have previously noted, states lack the right to file for bankruptcy–an avenue only available to cities and counties where authorized under state law.

Cities and counties lacked authority to file bankruptcy until 1988, and then only have been permitted to file if authorized by state law, and many municipal finance experts believe it may be unconstitutional for Congress to allow states to declare bankruptcy, some assessing it would be unconstitutional. As Michael Decker, the senior vice president for federal policy at the Bond Dealers of America put it:  “Bankruptcy is just not a viable solution to the issues state and local governments are facing.”

For his part, Majority Leader McConnell this week suggested it would be better for states to be able to declare bankruptcy rather than have the federal government provide more money to help them through the coronavirus crisis, stating on talk show host’s Hugh Hewitt’s program: “I would certainly be in favor of allowing states to use the bankruptcy route…There’s not going to be any desire on the Republican side to bail out state pensions by borrowing money from future generations.”  His comments came as he and his leadership team have taken no steps to address the looming bankruptcy of Social Security.

In an uneasy effort to avoid irresponsibility, a senior aide to Leader McConnell claimed the Senate Leader’s comments came after he was asked specifically about the issue, asserting the Leader does not perceive Senate action to authorize states to file for bankruptcy as being a priority for the next coronavirus bill, adding, mysteriously, that the Leader was well aware of the law. But the aide said Leader McConnell’s larger point was that some states were in tough financial straits due to prior mismanagement or overspending–a risible statement coming from a Majority Leader’s office presiding over the greatest deficits and national debt in the nation’s history–seemingly oblivious to American history–and that it was the states which created the federal government, not vice-versa, much less that our U.S. bankruptcy code does not include provisions which allow states to declare bankruptcy. Only municipalities, since authorized by law in 1988, have the ability to file for bankruptcy under Chapter 9 of the code, but only if their state authorizes them to do so.

Chapter 9, as we encountered its impact on the ground in both Detroit and Central Falls, Rhode Island, on the respective days these two municipalities filed for chapter 9 municipal bankruptcy demonstrated that unlike the federal government, cities and counties–the critical responders to the 9/11 terrorist attacks on New York City and the Pentagon–do not shut down. It was, after all, Arlington County, Virginia’s then-Deputy Fire Chief who was the incident Commander at the Pentagon on 9/11, and New York City’s Mayor in command of the response from City Hall.

As we noted, on the dark day when the City of Detroit’s Emergency Manager filed in the U.S. Bankruptcy Court, his response to me that his first actions, early that morning, had been to email every employee of the city to advise them he expected them to report on time to work with a positive attitude–and the first priorities were to ensure that every street light and traffic light was working–and that every 911 call receive a prompt and professional response.

Can a State Impair its own Obligations? Northern Kentucky Law Professor Kenneth Katkin has noted that a federal law permitting states to file for bankruptcy would set up a debate with regard to whether Congress’s ability to write bankruptcy laws preempts the prohibition in the U.S. Constitution on states impairing their own obligations under contracts. As we have previously noted, any such Congressional effort would appear to be in conflict with the 10th Amendment, which provides that powers not delegated to the federal government, nor prohibited to the states, are reserved to the states.

Eric Kim, the head of the state government group at Fitch Ratings, said that companies will file bankruptcy to address long-term liabilities, but states’ main issue is currently the economy and lower revenues rather than long-term liabilities, noting: “Declaring bankruptcy doesn’t fix the economy.”

Brian Sigritz, Director of state fiscal studies at the National Association of State Budget Officers, said states on the whole were in a strong fiscal position prior to the coronavirus-related economic downturn, experiencing strong revenue growth and putting more money into their rainy-day funds, adding: “They had been taking steps to prepare for the next downturn,” he said, but “No one was planning for a decline like this.”

Pensionary Blues. Nevertheless, just as the White House and Congress near the precipice of Social Security bankruptcy, scrupulously avoiding critical actions to ensure its long-term solvency, Illinois Senate President Dan Harmon (D.-Ill.) wrote to his state’s Congressional delegation asking for $10 billion in pension relief, arguing that state pension payments are crowding out funding for other services, noting that such crowding out will be exacerbated this year due to revenue losses.

A Pause, not Relief? For a President and a Congress overseeing the greatest debt and deficits in American history, the issue of the role of states and municipalities and counties is now in the bull’s eye. The federal government has, in recent years, shut down–an option which is not an option for cities and counties, who, consequently, bear the greatest human and fiscal costs of this crisis. Unsurprisingly, notwithstanding the greatest deficits and debt in American history, additional aid to cities, counties, and states is becoming a key issue in the debate in Congress over subsequent coronavirus relief legislation. While such funding for states is a top priority for many Democrats, who support quick Congressional action on another bill, Senate Majority Leader McConnell has said he wants to take a “pause” to see which parts of previous bills are working and which are not, noting: “I think this whole business of additional assistance for state and local governments need to be thoroughly evaluated.”

How Are the Coronavirus Relief Funds Allocated to State & Local Governments?

 

 

What Fiscal Tools Will the Coronavirus Relief Act Offer State & Local Leaders? 

The Congressional Budget Office (CBO) on Friday released an updated coronavirus pandemic report and pursuant federal government spending spree on health care, testing, and aid to businesses and households–finding the assistance will increase the federal budget deficit by nearly 400% to some $3.7 trillion, adding to the already record $24.6 trillion national debt, noting that in just the six remaining months of the year, such an increase will make more dire the fiscal challenge the President and Congress have gravely ignored: the looming insolvencies of Social Security and Medicare.

The new CBO report specifically focuses on Title V of the Corona Virus Relief Fund, Public Law 116-136,  The CARES Act, which explores the allocations of $150 billion in relief funds to local and state governments, U.S. territories, and tribal areas based on population, with local governments with populations of at least 500,000 eligible to receive such funds directly from the Treasury. The $139 billion for states is based upon population, with such allocations based upon population, with no state to receive less than $1.25 billion–and some $8 billion set aside for tribal areas, and $3 billion for territories, including the District of Columbia the Puerto Rico.

The report notes that CARES funding may not be used directly to account for revenue shortfalls related to response costs for the pandemic, but notes that such federal funds may “indirectly” assist with revenue shortfalls in instances where “expenses paid for by the Coronavirus Relief Fund would otherwise widen the gap between government outlays and receipts.”

The report specifically describes the fiscal impact from the abrupt decline in economic output in the wake of COVID-19, and how its outbreak has altered the fiscal outlook for cities, counties, and states–which, for the most part, very unlike the federal government, are mandated to balance their budgets on an annual basis–reporting that “[E]arly evidence suggests that the COVID-19 economic shock will have a notable impact on state and local budgets.”

While the Act does not specifically bar cities, counties, and towns and townships from receiving assistance directly from state governments, because, as the report notes, relief assistance under the Act is generally provided to state governments, those local governments of sufficient size, as measured in the most recent census may receive the funding directly.

What happens where populations are served by more than one government? Cities, towns, and townships are, depending in which state they might be located, often provide overlapping public services. Treasury Secretary Steven Mnuchin’s office has provided clarifications that, in such instances, all overlapping governments are eligible for assistance; however, direct federal assistance to larger cities or counties will be calculated using only their unique population–or will be reduced by any amounts also “attributable to small localities receiving assistance,” meaning, for example, a county government would only use its actual population for its direct assistance application.

U.S. Senate Majority Leader Opposes Letting States File for Bankruptcy Protection

U.S. Senate Majority Leader Mitch McConnell today stated he favors granting states overwhelmed by the costs of covid-19 to be granted authority to file for bankruptcy: “I would certainly be in favor of allowing states to use the bankruptcy route…It’s saved some cities, and there’s no good reason for it not to be available.” Leader McConnell added: “My guess is their first choice would be for the federal government to borrow money from future generations to send to them now so that they don’t have to do that…That’s not something I’m in favor of…You raised yourself the important issue of what states have done, many of them have done to themselves with their pension programs: There’s not going to be any desire on the Republican side to bail out state pensions by borrowing money from future generations.”

His rejection came as the National Governors Association, headed currently by Maryland Governor Larry Hogan (R) has requested at least $500 billion in federal assistance for the states , but Leader McConnell took credit for blocking the effort.

The NGA bipartisan effort reflects the states’ desperate need for resources to fight the coronavirus, including testing, even as revenues are dropping through the bottom as businesses across the nation have been forced to close–putting states and local governments under tremendous emergency response pressure even as anticipated tax revenues are drying up–and federal assistance has been scant.

While municipalities, after 11 years, in 1988 gained the authority to file for chapter 9 municipal bankruptcy (if permitted by the state), no state has defaulted on its debts since 1937.  Yet today, there is a triple fiscal whammy: an estimated (by the PEW Center) $1 trillion unfunded gap–and one more likely than not to grow.

Even though it was the states that created the federal government–a federal government which by chapter 9 municipal bankruptcy standards would be eligible for filing for bankruptcy; there is also a governance issue: would filing for bankruptcy erode states’ 10th Amendment provisions which provide that powers not delegated to the States by the Constitution, nor prohibited by it to the States, are reserved the the States respectively, or the people.

Moreover, the Constitution’s Contract Clause prohibits state governments from “impairing he obligation of contracts.” And, the Supreme Court, in 1977, reiterated that a “state cannot refuse to meet its legitimate financial obligations simply because it would prefer to spend the money (on something else.)”

Just as it took the National League of Cities 11 long years to, in 1988, secure passage of federal legislation to allow cities in states that permitted to file for chapter 9 municipal bankruptcy, for states, the road would be steeper: Congress and the President would have to act–and the respective state would have to enact legislation to enable such a filing.

Another hurdle would be in the third branch of government, the U.S. Supreme Court, which would have to rule whether the contracts clause of Article 1, Section 10 of the Constitution bars states from seeking bankruptcy, even were Congress to grant such authority.  Perhaps Leader McConnell, who has presided over the largest federal deficits in the nation’s history, could press the Justices to rule swiftly on these extraordinary federalism issues.

 

Drive-by Coronavirus Testing in the U.S. Territory of Puerto Rico

Beginning last Tuesday or Martes, San Juan resumed rapid covid-19 testing by servi-car, becoming the first municipality on the island to offer such tests–indeed, one of the first in the United States. San Juan Mayor Carmen Yulín Cruz Soto reported that the patients who were summoned for the service established by the municipality at the Río Piedras Diagnostic and Treatment Center (CDT) for molecular samples for Covid-19 began to benefit from the testing on April 21st, noting: “Appointments for the Río Piedras CDT service for Covid-19 samples were made this week beginning Tuesday, April 21. People with suspicious symptoms for Covid-19 will be able to go to the Río Piedras CDT or to the Emergency Room of the Municipal Hospital.” Indeed, Mayor Cruz showed tables indicating that until last Friday the tests carried out reached 1,905, of which 126 were positive cases, 1,617 were negative cases, and 162 tests are pending results: Of the 126 positive cases, there were 63 from San Juan, the rest from other municipios in Puerto Rico.

In the capital city, when a test is done, in the Health System of the city, not only is a molecular test done, but if it is positive, it will be evaluated daily by a group of doctors who will be able to detect if at any point in your illness you need to have care specialized or be transferred to a hospital institution. Or, as the Mayor noted: 

“It is not only the test is the accompaniment and that we do not let them go through this disease alone.” 

On the other hand, he indicated that this week the municipality of San Juan will continue cleaning and disinfecting the squares and streets in the busiest areas in San Juan. The cleaning plan is carried out as follows:

Monday, Wednesday and Friday: Old San Juan (squares and streets), Urban Bay, Paseo La Princesa and La Perla.

· Tuesday and Thursday: Santurce Market Square, Loíza Street and Ashford Street.

“I urge all Sanjuaneros and Sanjuaneras to follow the recommendations for isolation and remain in their homes. If they have any acute symptoms related to Covid-19 (dry cough, fever or respiratory distress, they should go to an emergency room. The Municipality of San Juan keeps all its Diagnostic and Treatment Centers operating, but only the molecular test is done in the CDT of Río Piedras and in the Municipal Hospital.”