Remembering & Thanking Those Who Serve

September 11, 2018

Good Morning! In this morning’s eBlog, we remember those who died on 9/11; we remember those leaders, like then Arlington County Deputy Fire Chief Jim Schwartz, who became the incident commander that morning, in command of all local, state, and federal responders, demonstrating that while the federal government can shut down, city and county governments are the only governments in this country that can never shut down, but rather, as Detroit’s Emergency Manager, on the first day of Detroit’s chapter 9 municipal bankruptcy, emailed to every employee of the city: they were to report to work, on time—and the critical operations were to ensure every street light and traffic light was working—and there was a prompt and effective response to every 911 call. This foggy morning, we consider too, the challenge to Wilkes-Barre, Pennsylvania—a municipality where the population has declined more than 50% since 1930–denied state fiscal assistance, and awaiting the physical wrath of Hurricane Florence, before, finally, assessing changes to halt the shipping discrimination against the U.S. territory of Puerto Rico.

The Bar against Wilkes-Barre. Officials in Wilkes-Barre are regrouping after the coordinators of Pennsylvania’s Act 47 program for struggling municipalities rejected the city’s request made last June 29th for distressed status—a denial having the effect of barring the city from filing for chapter 9 municipal bankruptcy. Mayor Tony George and the city’s consultant, Public Financial Management, were scheduled to meet this week with representatives of the state Department of Community and Economic Development, the overseer of the state’s program for distressed cities. Under the state’s Act 47, the Dept. of Community and Economic Development is authorized to declare certain municipalities as financially distressed—a declaration which provides for the restructuring of debt of financially distressed municipalities, limits the ability of financially distressed municipalities to obtain government funding, authorizes municipalities to participate in federal debt adjustment actions and bankruptcy actions under certain circumstances, and provides for consolidation or merger of contiguous municipalities to relieve financial distress. That means a scheduled call at the end of this week with Pennsylvania DCED could be determinative with regard to a possibility the state could reverse its position and declare the municipality financially distressed.

Mayor Anthony George, last June, had applied for Act 47 “distressed” status, the same month in which S&P dropped the municipality’s credit rating to BBB (minus) with negative implications, noting: “[T]he CreditWatch listing means we believe there is at least a one-in-two chance that we will lower the rating within the coming 90 days following the receipt of information from the city regarding its plans in response to the state’s rejection…Any action on our part regarding the rating—either keeping it the same or revising it downward—hinges on our better understanding of those plans.” DCED, five weeks later, convened a hearing at City Hall, where Mayor George projected an FY2019 shortfall of $3.5 million—one which, according to a DCED overview, could spike to $16 million by FY2021. Under Act 47, the city would have been enabled Wilkes-Barre to triple its emergency services tax to $156 a year, as well as gain access to a $3 million interest free, 10-year loan—as well as gain authorization to enact a commuter tax. However, DCED hearing officer and former York Mayor Kim Bracey, in her final report, wrote that Wilkes-Barre should continue to pursue measures through the state’s early intervention program, in which the city enrolled two years ago. State lawmakers formalized early intervention in 2014 as part of the DCED Act 47 process.

With the greatest number of municipalities of any state in the nation, the process, however, appears confusing—or, as Mayor George put it: “I don’t understand what you [DCED] want us to do.” According to Professor David Fiorenza, the city can fix the deficit with two or three financial decisions that can lay the groundwork for long-term surpluses: “Cities can’t have it both ways, that is, when they have surpluses in their budgets they want less state intervention and when there are deficits they want the commonwealth to be there for the bailouts.” (Professor Fiorenza was a former chief financial officer of Radnor Township.)

The Mayor and his staff expect to learn more from the state DCED Friday via a conference call—weather, of course, permitting. In this instance, the call comes a week Pennsylvania DCED Secretary Dennis Davin stated the state would not declare the municipality financially distressed—noting that, instead, Mayor George should pursue other options to avoid the invocation of Act 47. (According to the Department, a quarter of the city’s current budget relies on intergovernmental assistance, versus 55% from local taxes.)

The municipality’s request for distressed status, however, is not supported by its state representatives, Sen. John Yudichak (D-Plymouth Township) and Rep. Eddie Day Pashinski (D-Wilkes-Barre), who had secured $260,000 in state funds to enable the municipality get Wilkes-Barre into the state’s Early Intervention Program (EIP), writing, in late July, in opposition to Mayor George’s request, noting that the intervention program also had a five-year timetable—from which the city had four years remaining, adding that the city was making progress with the help of PFM as evidenced in the municipal bond restructuring, which, they noted, had improved its cash flow, with Rep. Pashinski adding: “We’re trying to preserve the integrity of the city.”

At the end of last month, Sec. Davin had written: “Opportunities remain to keep the city out of financial distress status: Each and every viable option must be considered, including modest gains in the fund balance and earned income tax collections, the need to perform a property reassessment and recommendations for asset monetization.”

The clock on all this is ticking, with S&P indicating at least a “one-in-two chance” that it would lower its rating within 90 days of receiving any information from the city regarding its follow-up plans, adding: “Any action on our part regarding the rating–either keeping it the same or revising it downward, hinges on our better understanding of those plans.” From his perspective, Professor David Fiorenza of the Villanova School of Business noted: “The state made the right decision…I hope this decision will send the message to Pennsylvania cities and municipalities to take care of their financial house as these deficits can be remedied.” According to the Wilkes-Barre-based Pennsylvania Economy League, 44 of Pennsylvania’s cities, or 77.2%, have experienced population declines since 2010—complicating its efforts to refinance its long-term debt: the city issued $52 million in municipal bonds two years ago to refinance debt and adjust balloon payments to level, and tapped minimum municipal obligation relief under state law to reduce its 2017 pension payment to $5.6 million from $6.5 million. But the state relief program expires this year, while the city’s obligation is projected to spike to $7.1 million in 2020.

Hurricane Relief? Puerto Rico government officials are scheduled to meet at the White House this week to discuss a possible, temporary modification of the Jones Act (as opposed to the Jones-Shafroth Act) to create a five-year administrative exemption in U.S. cabotage statutes, amendments to allow maritime transportation of natural gas between the mainland and Puerto Rico on non-US ships. The Merchant Marine Act of 1920, also known as the Jones Act, provides for the promotion and maintenance of the U.S. merchant marine–§27 of the Act addresses cabotage, as opposed to cottage cheese: it provides for the regulation of the U.S. merchant marine and the regulation of maritime commerce in U.S. waters and between U.S. ports, mandating that all goods transported by water between U.S. ports be carried on U.S. flag ships, constructed in the United States, owned and crewed by U.S. citizens and U.S. permanent residents. Under the cabotage laws, the maritime cargo between U.S. ports and Puerto Rico must be accomplished in U.S. owned, registered, and crewed boats—that is, at a much greater than free market cost. A temporary administrative exemption, such as the one proposed by Puerto Rican leaders, would have to be granted “in the interest of the national defense” of the U.S., according to a 2013 report from the Government Accountability Office. The protectionist statute means the cost of providing relief to Puerto Rico in the wake of Hurricane Maria was far greater than for other Caribbean nations. Now, the Puerto Rico Electric Power Authority (PREPA), and Puerto Rico Senate Vice President appear hopeful that the U.S. territory and the Southern States Energy Board, a potent combination of the governors of 16 states, Puerto Rico, and the U.S. Virgin Islands, might be able to gain an exemption in these discriminatory cabotage laws, with a meeting scheduled next week at the White House to promote the idea that international vessels could also transport natural gas products between U.S. ports and Puerto Rico.

Unsurprisingly, the concept has the support of the Southern States Energy Board, which brings together 16 Republican governors along with the Democrats of the U.S. Virgin Islands and Puerto Rico, and proposes a more comprehensive exemption, to include all energy products. During their September 16-18 meeting in Biloxi, Mississippi, the Southern States Energy Board anticipates considering a resolution by Arkansas State Senator Gary Stubblefield (R-Branch, Arkansas) seeking to have President Trump issue an Executive Order granting a 10 year exemption in the transportation of energy products between Puerto Rico and the mainland—and urging the Congress to enact a permanent waiver.

Why Is the Road Still Full of Mud?

eBlog

September 4, 2018

Good Morning! In this morning’s eBlog, we consider, as Tropical Storm Florence heads west across the Caribbean, efforts in the Congress with regard to addressing Puerto Rico.

‘Twas in another lifetime one of toil and blood
When blackness was a virtue, the road was full of mud
I came in from the wilderness a creature void of form
“Come in,” she said,
“I’ll give you shelter from the storm.”

With Congress returning this morning, Puerto Rico’s quasi Member of Congress, Jenniffer Gonzalez, who is permitted to vote in Committee, but not in the House, is seeking to make sure that Puerto Rico’s fiscal and physical future will gain constructive input in the House Natural Resources Committee as part of Chairman Rob Bishop’s (R-Ut.) hearing on the status of Puerto Rico and its pro-security project. With fewer than 30 days left in this Congress, she is anxious that the territory be a priority. Thus, she is attempting to find a way to depoliticize the island’s electric power tussles, especially with regard to the AEE, or Governing Board of the Authority Electrica, noting: “I’m going to make a report with the recommendations to discuss it with him and the Commission’s technicians,” adding, moreover, she intends to press on the longstanding issue with regard to Puerto Rico’s political status, related to her proposed pro-identity project 6246, which proposes the creation of a Congressional working group to adopt a transition process for the territory to statehood by January of 2021. She noted she was hopeful Chairman Bishop would not only call a public hearing, but also set a vote on the legislation. For his part, the Chairman noted: “We’re going to have the public view. From there, we start.” She added that she is deferring to the Equality Commission created by Puerto Rico Gov. Ricardo Rosselló Nevares. Nevertheless, with so few days remaining in this Congress, Sen. Marco Rubio (R-Fl.) has continued to warn there are insufficient votes to push forward the statehood proposal in the Senate.

The Puerto Rico governance challenge was further conflicted and muddied by the unelected PROMESA oversight Board, which has demanded Gov. Rossello Nevares to eliminate any reference to statehood from the fiscal plan, notwithstanding, as Commissioner Gonzalez tweeted, that the PROMESA statute “establishes that the Board cannot interfere with the future political status of the island.”

A Delicate, if stormy, balancing act. Part of the political challenge for Commissioner Gonzalez is to balance efforts to obtain equitable federal storm relief funds for Puerto Rico, even as she is seeking more equitable political respect and balance for Puerto Rico. Part of that includes her efforts to gain passage in the House this month of legislation to authorize the Department of Homeland Security to conduct a study on drug trafficking and the potential for terrorism, especially in the maritime zone which surrounds Puerto Rico and the U.S. Virgin Islands.

Inequitable Arithmetic? Hurricane Maria caused at least 2,975 deaths—more than any U.S. storm in a century. Now authorities have raised the death toll to 2,975, surpassing Hurricane Katrina (1,833) and the Okeechobee hurricane in Florida, which killed 2,500 people. Hurricane Maria, which made landfall in Puerto Rico nearly one year ago, with deadly winds gusting up to 120mph, wrought destruction across the island, cutting power, communications and drinking water to nearly every home. Yet, unlike U.S. responses to the hurricane in Houston, the FEMA response and death tolls were radically different. The government, two weeks after the devastating storm, reported the official death toll to be just 16 people. Indeed, President Donald Trump made much of the low death count when he visited San Juan on October 3rd to throw rolls of paper towels; he said: “We’ve saved a lot of lives…If you look at a real catastrophe like Katrina and the hundreds that died…16 versus literally thousands of people…you can be very proud.” Although the death toll rose slowly over the weeks that followed, from 16 to 64 deaths, it remained surprisingly low given the severity of the storm. But that number hardly appeared credible. Last December, the New York Times analyzed mortality reports, and estimated Maria had killed as many as 1,052 Americans in the period to October 31st. A paper published in the New England Journal of Medicine last May surveyed hurricane survivors and calculated that anywhere between 793 and 8,498 people had perished.

Unsurprisingly, Puerto Rico Governor, Ricardo Rosselló Nevarez doubted that figure—a figure which mostly relied on direct deaths from flying debris and the like, overlooking deaths from power cuts and lack of water that led to medical complications. Thus, last February the Governor commissioned an independent report by epidemiologists at George Washington University to arrive at a more accurate count—a report which GW on August 28th. The new report calculated a final death toll based on the observed excess mortality over and above what might be expected in normal weather, arriving at an estimated final death toll of between 2,658 and 3,290—a number which would make Maria the worst hurricane to affect the U.S. in more than a century.

Absurd Counting. It seems impossible to comprehend how the official death toll has remained at 64 for so long. Notwithstanding the difficulty—I can hardly forget when our volunteer team from Arlington County, Virginia raced down to Biloxi, Mississippi—only to find street signs had been blown away, causeways smashed, and electricity out, so that it was a severe challenge to even found our way—and that to respond to a fierce storm where the official death count is still disputed—and where the Mayor of New Orleans had simply said the death toll would a “shock the nation.” In contrast, the drastically inaccurate number in Puerto Rico may well have lessened the urgency of relief efforts: just one third of Americans reported they made contributions in the immediate aftermath, which is low by the America’s generous standards. That miserly response, with Puerto Rico in quasi-chapter 9 bankruptcy—and an economy projected to shrink 8% this year, and the Commonwealth’s young and talented leaving for the mainland in droves—not to mention the sharp, 50% reduction in tourists has, has increased the perception of disparate treatment as Puerto Rico is still waiting for as much as $80 billion of federal funds to help its recovery. Delegate Gonzalez notes the federal government “will continue to be supportive” of Gov. Ricardo Rossello’s accountability efforts, adding: “The American people, including those grieving the loss of a loved one, deserve no less.”