Post Municipal Bankruptcy Leadership

08/07/17

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Good Morning! In this a.m.’s blog, we consider the fiscal challenge as election season is upon the Motor City: what kind of a race can we expect? Then we observe the changing of the guard in San Bernardino—as the city’s first post-chapter 9 City Manager settles in as she assumes a critical fiscal leadership role in the city emerging from municipal bankruptcy. Third, we consider the changing of the fiscal guard in Atlantic City, as outgoing (not a pun) Gov. Chris Christie begins the process of restoring municipal authority. Then we turn to what might be a fiscal turnaround underway in Puerto Rico, before, fourth, considering the special fiscal challenge to Puerto Rico’s municipios—or municipalities.

Post Municipal Bankruptcy Leadership. Detroit Mayor Mike Duggan, the city’s first post-chapter 9 mayor, has been sharing his goals for a second term, and speaking about some of his city’s proudest moments as he seeks a high turnout at tomorrow’s primary election mayoral primary election‒the first since the city exited municipal bankruptcy three years ago, noting he is: “very proud of the fact the unemployment rate in Detroit is the lowest it has been in 17 years: today he notes there are 20,000 more Detroiters working than 4 years ago. In January 2014, there were 40,000 vacant houses in the city, and today 25,000. We knocked down 12,000 and 3,000 had families who moved in and fixed them up,” adding: “For most Detroiters, that means the streetlights are on, grass is cut in the parks, busses are running on time, police and ambulances showing up in a timely basis and trash picked up and streets swept.” Notwithstanding those accomplishments, however, he confronts seven contenders—with perhaps the signal challenge coming from Michigan State Senator Coleman Young, Jr., whose father, Coleman Young, served as Detroit’s first African-American Mayor from 1974 to 1994. Mr. Young claims he is the voice for the people who have been forgotten in Detroit’s neighborhoods, noting: “I want to put people to work and reduce poverty of 48% in Detroit. I think that’s atrocious. I also want mass transit that goes more than 3 miles,” adding he is seeking ‘real change,’ charging that today in Detroit: “We’re doing more for the people who left the city of Detroit, than the people who stayed. That’s going to stop in a Young administration.” Remembering his father, he adds: “I don’t think there will ever be another Coleman Young, but I am the closest thing to him that’s on this planet that’s living.” (Other candidates in tomorrow’s non-partisan primary include Articia Bomer, Dean Edward, Curtis Greene, Donna Marie Pitts, and Danetta Simpson.)  

According to an analysis by the Detroit News, voters will have some interesting alternatives: half of the eight candidates have been convicted of felony crimes involving drugs, assault, or weapons—with three charged with gun crimes and two for assault with intent to commit murder, albeit, some of the offenses date back as far as 1977. (Under Michigan election law, convicted felons can vote and run for office, just as long as they are neither incarcerated nor guilty of crimes breaching public trust.

Taking the Reins.  San Bernardino has named its first post-chapter 9 bankruptcy city manager, selecting assistant City Manager and former interim city manager, Andrea Miller, to the position—albeit with some questions with regard to the $253,080 salary in a post-chapter 9 recovering municipality where the average household income is less than $36,000 and where officials assert the city’s budget is insufficient to fully address basic public services, such as street maintenance or a fully funded police department. Nevertheless, Mayor Cary Davis and the City Council voted unanimously, commenting on Ms. Miller’s experience, vision, and commitment to stay long-term, or, as Councilman Fred Shorett told his colleagues: “As the senior councilmember—I’ve been sitting in this dais longer than anybody else—I think we’ve had, if we count you twice, eight city managers in a total of 9 years: We have not had continuity.”  However, apprehension about continuity as the city addresses and implements its plan of debt adjustment remains—or, as Councilmember John Valdivia insisted, there needs to be a “solemn commitment to the people of San Bernardino” by Ms. Miller to serve at least five years, as he told his colleagues: “During Mayor (Carey) Davis’ four years in office, the Council is now voting on the third city manager: San Bernardino cannot expect a successful recovery with this type of rampant leadership turnover at City Hall…Ms. Miller is certainly qualified, but I am concerned that she has already deserted our community once before.” Ms. Miller was the city’s assistant city manager in 2012, when then-City Manager Charles McNeely abruptly resigned, leaving Ms. Miller as interim city manager to discover that the city would have to file for chapter 9 bankruptcy—a responsibility she addressed with aplomb: she led San Bernardino through the first six months of its municipal bankruptcy, before leaving without removing “interim” from her title, instead assuming the position of executive director of the San Gabriel Valley Council of Governments.

Ms. Miller noted: “I would remind the Council that I was here as your interim city manager previously, and I did not accept the permanent appointment, because I felt like I could not make that commitment given some of the dynamics…(Since then) this Council and this community have implemented a new city charter, the Council came together in a really remarkable way and had a discussion with me that we had not been able to have previously: You committed to some regular discussion about what your expectations are, you committed to strategic planning. And so, with all those things and a strategic plan that involves all of us in a stronger, better San Bernardino, yes I can make that commitment.” Interestingly, the new contract mandates at least two strategic planning sessions per year—and, she told the Council additional sessions would probably be wise. The contract the city’s new manager signed is longer than the city’s most recent ones—mayhap leavened by experience: the length and the pay are higher than the $248,076 per year the previous manager received. Although Ms. Miller is not a San Bernardino resident, she told the Mayor and Council she is committed to the city and said the city should strive to recruit other employees who do live in the city.

Not Gaming Atlantic City’s Future. New Jersey Governor Chris Christie’s administration last week announced it had settled all the remaining tax appeals filed by Atlantic City casinos, ending a remarkable fiscal drain which has contributed to the city’s fiscal woes and state takeover. Indeed, it appears to—through removal of fiscal uncertainty and risk‒open the door to the Mayor and Council to reduce its tax rate over the long-term as the costs of the appeal are known and able to be paid out of the bonds sold earlier this year—effectively spinning the dial towards greater fiscal stability and sustainability. Here, the agreements were reached with: Bally’s, Caesars, Harrah’s, the Golden Nugget, Tropicana, and the shuttered Trump Plaza and Trump Taj Mahal: it comes about half a year in the wake of the state’s tax appeal settlement with Borgata, under which the city agreed to pay $72 million of the $165 million the casino was owed. While the Christie administration did not announce dollar amounts for any of the seven settlements announced last week, it did clarify that an $80 million bond ordinance adopted by the city will cover all the payments—effectively clearing the fiscal path for Atlantic City to act to reduce its tax rate over the long term as the costs of the appeal are known and can be paid out of the municipal bonds sold earlier this year.  

In these tax appeals, the property owners have claimed they paid more in taxes than they should have—effectively burdening the fiscally besieged municipality with hundreds of millions in debt over the last few years as officials sought to avoid going into chapter 9 municipal bankruptcy. Unsurprisingly, Gov. Christie has credited the state takeover of Atlantic City for fostering the settlements, asserting his actions were the “the culmination of my administration’s successful efforts to address one of the most significant and vexing challenges that had been facing the city…Because of the agreements announced today, casino property tax appeals no longer threaten the city’s financial future.” The Governor went on to add that his appointment of Jeffrey Chiesa, the former U.S. Senator and New Jersey Attorney General to usurp all municipal fiscal authority in Atlantic City when, in his words, Atlantic City was “overwhelmed by millions of dollars of crushing casino tax appeal debt that they hadn’t unraveled,” have now, in the wake of the state takeover, resulted in the city having a “plan in place to finance this debt that responsibly fits within its budget.” The lame duck Governor added in the wake of the state takeover, the city will see an 11.4% drop in residents’ overall 2017 property tax rate. For his part, Atlantic City Mayor Don Guardian described the fiscal turnaround as “more good news for Atlantic City taxpayers that we have been working towards since 2014: When everyone finally works together for the best interest of Atlantic City’s taxpayers and residents, great things can happen.”

Puerto Rican Debt. The Fiscal Supervision Board in the U.S. territory wants to initiate a discussion into Puerto Rico’s debt—and how that debt has weighed on the island’s fiscal crisis—making clear in issuing a statement that its investigation will include an analysis of the fiscal crisis and its taxpayers, and a review of Puerto Rico’s debt and issuance, including disclosure and sales practices, vowing to carry out its investigation consistent with the authority granted under PROMESA. It is unclear, however, how that report will mesh with the provision of PROMESA, §411, which already provides for such an investigation, directing the Government Accounting Office (GAO) to provide a report on the debt of Puerto Rico no later than one year after the approval of PROMESA (a deadline already passed: GAO notes the report is expected by the end of this year.). The fiscal kerfuffle comes as the PROMESA Oversight Board meets today to discuss—and mayhap render a decision with regard to furloughs and an elimination of the Christmas bonus as part of a fiscal oversight effort to address an expected cash shortfall this Fall, after Gov. Ricardo Rosselló, at the end of last month, vowed he would go to court to block any efforts by the PROMESA Board to force furloughs, apprehensive such an action would fiscally backfire by causing a half a billion dollar contraction in Puerto Rico’s economy.

Thus, we might be at an OK Corral showdown: PROMESA Board Chair José Carrión III has warned that if the Board were to mandate furloughs and the governor were to object, the board would sue. As proposed by the PROMESA Board, Puerto Rican government workers are to be furloughed four days a month, unless they work in an excepted class of employees: for instance, teachers and frontline personnel who worked for 24-hour staffed institutions would only be furloughed two days a month, law enforcement personnel not at all—all part of the Board’s fiscal blueprint to save the government $35 million to $40 million monthly.  However, as the ever insightful Municipal Market Advisors managing partner Matt Fabian warns, it appears “inevitable” that furloughs and layoffs would hurt the economy in the medium term—or, as he wrote: “To the extent employee reductions create a protest environment on the island, it may make the Board’s work more difficult going forward, but this is the challenge of downsizing an over-large, mismanaged government.” At the same time, Joseph Rosenblum, the Director of municipal credit research at AllianceBernstein, added: “It would be easier to comment about the situation in Puerto Rico if potential investors had more details on their cash position on a regular basis…And it would also be helpful if the Oversight Board was more transparent about how it arrived at its spending estimates in the fiscal plan.”

Pensiones. The PROMESA Board and Puerto Rico’s muncipios appear to have achieved some progress on the public pension front: PROMESA Board member Andrew Biggs asserts that the fiscal plan called for 10% cuts to pension spending in future fiscal years, while Sobrino Vega said Gov. Ricardo Rosselló has promised to make full pension payments. Natalie Ann Jaresko, the former Ukraine Minister of Finance whom former President Obama appointed to serve as Executive Director of PROMESA Fiscal Control Board, described the reduction as part of the fiscal plan that the Governor had promised to observe: the fiscal plan assumed that the Puerto Rican government would cut $880 million in spending in the current fiscal year. Indeed, in the wake of analyzing the government’s implementation plans, the PROMESA Board appeared comfortable that the cuts would save $662 million—with the Board ordering furloughs to make up the remaining $218 million. The fiscal action came as PROMESA Board member Carlos García said that the board last Spring presented the 10 year fiscal plan guiding government actions with certain conditions, Gov. Rosselló agreed to them, so that the Board approved the plan with said conditions, providing that the government achieve a certain level of liquidity by the end of June and submit valid implementation plans for spending cuts. Indeed, Puerto Rico had $1.8 billion in liquidity at the end of June, well over the $291 million that had been projected, albeit PROMESA Board member Ana Matosantos asserted the $1.8 billion denoted just a single data point. Ms. Jaresko, however, advised that this year’s government cuts were just the beginning: the Board fiscal plan calls for the budget cuts to more than double from $880 million in this year, to $1.7 billion in FY 2019, to $2.1 billion in FY2020.  No Puerto Rican government representative was allowed to make a presentation to the board on the issue of furloughs.

Not surprisingly, in Puerto Rico, where the unemployment rate is nearly triple the current U.S. rate, the issue of furloughs has raised governance issues: Sobrino Vega, the Governor’s chief economic advisor non-voting representative on the PROMESA Oversight Board, said there was only one government of Puerto Rico and that was Gov. Rosselló’s, adding that under §205 of PROMESA, the board only had the powers to recommend on issues such as furloughs, noting: “We can’t take lightly the impact of the furloughs on the economy,” adding the government will meet its fiscal goals, but it will do it according its own choices, but that the Puerto Rican government will cooperate with the Board on other matters besides furloughs. His statement came in the wake of PROMESA Board Chair José Carrión III’s statement in June that if Puerto Rico did not comply with a board order for furloughs, the Board would sue.

Cambio?  Puerto Rico Commonwealth Treasury Secretary Raul Maldonado has reported that Puerto Rico’s tax revenue collections last month were was ahead of projections, marking a positive start to the new fiscal year for an island struggling with municipal bankruptcy and a 45% poverty rate. Secretary Maldonado reported the positive cambio (in Spanish, “cambio” translates to change—and may be used both to describe cash as well as change, just as in English.): “I think we are going to be $20 to $30 million over the forecast: For July, we started the fiscal year already in positive territory, because we are over the forecast. We have to close the books on the final adjustment but we feel we are over the budget.” His office had reported the revenue collection forecast for July, the start of Puerto Rico’s 2017-2018 fiscal year, was $600.8 million: in the previous fiscal year, Puerto Rico’s tax collections exceeded forecasts by $234.9 million, or 2.6%, to $9.33 million, with the key drivers coming from the foreign corporations excise tax, the sales and use tax, and the motor vehicle excise tax. Sec. Maldonado, who is also Puerto Rico’s CFO, reported that each government department is required to freeze its spending and purchase orders at 95% of the monthly budget, noting: “I want to make sure that they don’t overspend. By freezing 5%, I am creating a cushion so if there is any variance on a monthly basis we can address that. It is a hardline budget approach but it is a special time here.” Sec. Maldonado also said he was launching a centralized tax collection pilot program, with guidance from the U.S. Treasury—one under which three large and three small municipalities have enrolled in an effort to assess which might best increase tax collection efficiency while cutting bureaucracy in Puerto Rico’s 78 municipalities, noting: “We are going to submit the tax reform during August, and we will include that option as an alternative to the municipalities.”

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Solomon’s Choices: Who Will Define Puerto Rico’s Fiscal Future–and How?

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Good Morning! In this a.m.’s eBlog, we consider the growing physical and fiscal breakdown in the U.S. Territory of Puerto Rico as it seeks, along with the oversight PROMESA Board, an alternative to municipal bankruptcy. 

Tropical Fiscal Typhoon. U.S. Supreme Court Chief Justice John Roberts has selected Southern District of New York Judge Laura Taylor Swain, who previously served as a federal bankruptcy Judge for the Eastern District of New York from 1996 until 2000 to preside over Puerto Rico’s PROMESA Title III bankruptcy proceedings—presiding, thus, over a municipal bankruptcy nearly 500% larger than that of Detroit’s–one which will grapple with creating a human and fiscal blueprint for the future of some 3.5 million Americans—and force Judge Swain to grapple with the battle between the citizens of the country and the holders of its debt spread throughout the U.S. (Title III of PROMESA, which is modeled after Chapter 9 of the Municipal Bankruptcy Code and nearly a century of legal precedent, provides a framework for protecting Puerto Rico’s citizens while also respecting the legitimate rights and priorities of creditors.) For example, the recent Chapter 9 restructuring in Detroit sought reasonable accommodations for vulnerable pensioners and respected secured creditors’ rights.

The action came in the wake of Puerto Rico’s announcement last week that it was restructuring a portion of its nearly $73 billion in debt—an action which it was clear almost from the get-go that the requisite two-thirds majority of Puerto Rico’s municipal bondholders would not have supported. (Puerto Rico’s constitution provides that payments to holders of so-called “general obligation” bonds have priority over all other expenditures—even as another group of creditors has first access to revenues from the territory’s sales tax.) More critically, Judge Swain will be presiding over a process affecting the lives and futures of some 3.5 million Americans—nearly 500% greater than the population of Detroit. And while the poverty rate in Detroit was 40%, the surrounding region, especially after the federal bailout of the auto industry, differs signally from Puerto Rico, where the poverty rate is 46.1%–and where there is no surrounding state to address or help finance schools, health care, etc. Indeed, Puerto Rico, in its efforts to address its debt, has cut its health care and public transportation fiscal support; closed schools; and increased sales taxes. With the Bureau of Labor Statistics reporting an unemployment rate of at 12.2%, and, in the wake of last year’s Zika virus, when thousands of workers who were fighting the epidemic were let go from their jobs; the U.S. territory’s fiscal conditions have been exacerbated by the emigration of some of its most able talent—or, as the Pew Research Center has noted:  “More recent Puerto Rican arrivals from the island are also less well off than earlier migrants, with lower household incomes and a greater likelihood of living in poverty.”

For Judge Swain—as was the case in Detroit, Central Falls, San Bernardino, Stockton, etc., a grave challenge in seeking to fashion a plan of debt adjustment will resolve around public pensions. While the state constitutional issues, which complicated—and nearly led to a U.S. Supreme Court federalism challenge—do not appear to be at issue here; nevertheless the human aspect is. Just as former Rhode Island Supreme Court Judge Robert G. Flanders, Jr., who served as Central Falls’ Receiver during that city’s chapter 9 bankruptcy—and told us, with his voice breaking—of the deep pension cuts which he had summarily imposed of as much as 50%—so too Puerto Rico’s public pension funds have been depleted. Thus, it will fall to Judge Swain to seek to balance the desperate human needs on one side versus the demands of municipal bondholders on the other. Finally, the trial over which Judge Swain will preside has an element somewhat distinct from the others we have traced: can she press, as part of this process to fashion a plan of debt adjustment, for measures—likely ones which would have to emanate from Congress—to address the current drain of some of Puerto Rico’s most valuable human resources: taxpayers fleeing to the mainland. Today, Puerto Rico’s population is more than 8% smaller than seven years ago; the territory has been in recession almost continuously for a decade—and Puerto Rico is in the midst of political turmoil: should it change its form of governance: a poll two months’ ago found that 57% support statehood. Indeed, even were Puerto Rico’s voters to vote that way, and even though the 2016 GOP platform backed statehood; it seems most unlikely that in the nation’s increasingly polarized status the majority in the U.S. Congress would agree to any provision which would change the balance of political power in the U.S. Senate.

What Do Today’s Fiscal Storms Augur for Puerto Rico and New Jersey’s Fiscal Futures?

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eBlog, 03/13/17

Good Morning! In this a.m.’s eBlog, we consider the frigid challenges awaiting Puerto Rico in New York City’s Alexander Hamilton Building today, where even as a fierce winter storm promises heavy snow, the U.S. Territory of Puerto Rico will likely confront its own harsh challenge by the PROMESA Board to its efforts to reassert ownership and control of Puerto Rico’s fiscal future. Then we turn south to New Jersey, where there are fiscal and weather storm warnings, with the former focused on a legacy of public pension debt that Governor Chris Christie will bequeath to his successors.

Is There Promise or UnPromise in PROMESA? In the wake of changes made by Puerto Rico Governor Ricardo Rosselló Nevares to update its economic growth projections to address a concern expressed by the PROMESA Oversight Board, it remains unclear whether that will be certified by today—when the Board will convene in New York City in the Alexander Hamilton building to act on measures intended to guide the fiscal future of the U.S. territory over the next decade. The update was made in an effort to close a new gap between Puerto Rico’s projected revenue and expenditure projections, since the new economic projections altered all the Government’s revenue estimates. Gov. Rosselló, in an interview with El Nuevo Día, explained his administration had ordered four new measures to correct the insufficiency, which had been estimated at $262 million: the first measure would be an increase in the tax on tobacco products, an increase projected to add around $161 million in public funds, nearly doubling the current rate. The Governor proposed eliminating Christmas bonuses from the highest salaries in the government and public corporations, albeit without providing details with regard to the distinction between an executive salary and a non-executive salary, stating the changes would generate savings of between $10 million and $20 million. He also said the revised, updated plan would reflect an additional $78 million by means of the reconfiguration of the property tax through an appraisal process, as well as modifications to achieve $35 million in savings by means of changing the amount of sick and vacation days which public servants accrue, noting: “We were able to evaluate some of the economic development projections, and, even though our economists don’t agree with the Oversight Board’s s economists, we’ve used the Board’s economic projections within our model for the sake of getting the fiscal plan certified…(Due to the changes) we’ve prepared, some initiatives to have additional savings of up to $262 million. We had already assuaged some of the Board’s concerns within the same proposal we had made, and those were clarified.”

The Governor indicated that the decision taken yesterday does not imply that he will support other proposals made by the Board, noting that he especially opposed the suggestions to reduce the working hours of public employees by almost 20% and cutting professional services in the government by 50%, in order to reduce costs immediately in an effort to ensure the government does not run out of cash by the first two quarters of the next fiscal year, admitting that current projections suggest they are short by around $190 million, and warning: “This (the Board’s proposals) has a toxic effect on workers and on the economy.”

In response to the PROMESA Board’s apprehensions about the double counting of revenues in its submitted plan, the Governor noted: “We’ve established that our public policy is to renegotiate the debt. The idea is to keep everything in one place so we can work with it. The debt service will be affected depending on economic development projections, but we haven’t touched that part of the fiscal plan. We’re focusing on preparing the collection areas, because we’re aware that (government revenues) have been overestimated in the past. We’ve answered questions about healthcare, revenue, government size, and we’ve worked on the pension category within our administration’s public policy about protecting the most vulnerable as much as possible.”

As for today’s session in New York, noting that he believes the government has succeeded in answering the Board’s questions and concerns, and, using the Board’s economic growth numbers, the Governor believes the updated plan will address the revenue gap without major cuts, noting: “That’s no small thing. We’ve been able to dilute it and make the impact progressive, in the sense that those who have more have to contribute more, and keep the most vulnerable from losing access. We’ve established a plan of cost reduction. Now, the plan guarantees structural changes in the government so it operates better, as well as changes to the healthcare model and the educational model. It defends the most vulnerable, it doesn’t reduce the payroll by 30% or 20%, and it doesn’t reduce working hours like they’ve asked, and we reduced tax measures.” Nevertheless, Gov. Rosselló noted that the Board’s proposed service delivery cuts of as much as 50% affect health care and education—defining those two vital government services as ones in which such deep proposed cuts could trigger a drop in the economy by 8% or 9%, noting: “I’m very aware that the ones that are in the middle of all this are the people of Puerto Rico.” Indeed, the plan considers cuts to retiree pensions, lapses in the basic coverage of the Mi Salud healthcare program, a freeze in tax incentives, agency mergers, privatizations, and reductions in transfers to the University of Puerto Rico and to municipalities. On the revenue side, the Governor’s proposal seeks to increase the collection of the Puerto Rico Sales and Use Tax, the property tax, and corporate taxes. In addition, it boosts the cost of insurance, penalties, and licenses granted by the Government.

With or without the endorsement of Governor Rosselló’s administration, when the PROMESA Board meets today in the Alexander Hamilton US Custom House, the agenda includes certifying a plan that some argue goes far beyond not only considering the Governor’s proposed fiscal recommendations, but to some marks a transition under which the PROMESA Board members will “will become both the Legislative and Executive powers in Puerto Rico.” That is to note that this and ensuing fiscal budgets, or at least until the government of Puerto Rico is able to balance four consecutive budgets and achieve medium- and long-term access to financial markets—will first be overseen and subject to approval by the Oversight Board, as well every piece of legislation which has a fiscal impact.

Balancing. The undelicate federalism balance of power will be subject to review next week, when the House Committee on Natural Resources’ Subcommittee on Insular Affairs has a scheduled PROMESA oversight hearing.

The Stakes & States of Yieldy—or Kicking the Pension Can Down the Road.  Alan Schankel, Janney Capital Markets’ fine analyst has now warned that the Garden State’s lack of a significant plan to address New Jersey’s deteriorating fiscal conditions will lead to more credit rating downgrades and wider credit spreads, writing that New Jersey is unique among what he deemed the nation’s “yieldy states,” because the bulk of its tax-supported debt is not full faith and credit, lacks a credit pledge, and some 90% of the debt payments are subject to annual appropriation. If that were not enough, Mr. Schankel wrote that the state is burdened by another fiscal whammy: it sports among the lowest pension funding levels of any state combined with a high debt load and other OPEB liabilities. Mr. Schankel warned the fiscal road ahead could aggravate the dire fiscal outlook, noting that the recent sales tax reduction from 7% to 6.625%, combined with phasing out the estate tax under last year’s $16 billion Transportation Trust Fund renewal, will reduce the state’s annual revenue by $1.4 billion by 2021—long after Gov. Christie has left office, noting that the state’s unfunded pension liabilities worsened when in the wake of FY2014—16 revenue shortfalls, New Jersey reduced pension funding to a level below the scheduled-ramp up Gov. Chris Christie had agreed to his as part of New Jersey’s 2011 pension reform legislation, emphasizing that public pension underfunding has been “aggravated by current leadership,” albeit noting that such underfunding is neither new, nor partisan: “This long history of kicking the can down the road seems poised to continue, and although New Jersey appropriation backed debt offers some of the highest yields among all states, we advise caution…Given the persistent lack of political willingness to aggressively address the state’s financial morass, we believe the future holds more likelihood of rating downgrades than upgrades.”

Fiscal & Service Solvency

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eBlog, 03/10/17

Good Morning! In this a.m.’s eBlog, we consider the long-term recovery of Chocolateville, or Central Falls, Rhode Island—one of the smallest municipalities in the nation; then we head West, even as no longer young, to consider the eroding fiscal situation confronting California’s CalPERS’ pension system, before, finally considering how Congress and the President, in trying to replace the Affordable Care Act, might impact Puerto Rico’s fiscal and service-related insolvency.

The Long & Exceptional Fiscal Road to Recovery. It was nearly five years ago that I sat with my class in a nearly empty City Hall in Central Falls, or Chocolateville, Rhode Island, the small (one square mile former mill town of indescribably delicious chocolate bars) with the newly appointed Judge Robert Flanders on his first day of the municipality’s chapter 9 municipal bankruptcy after his appointment by the Governor: a chapter 9 bankruptcy which that very same evening so sobered the City of Providence and its unions that their contemplation of filing for chapter 9 was squelched—and the State initiated its own unique sharing commitment to create teams of city managers, state legislators and others to act as intervention advisory teams so that no other municipality in the state would fall into insolvency. Our visit also led to our publication of a Financial Crisis Toolkit, which we promptly shared with municipal leaders across the State of Michigan at the Michigan Municipal League’s annual meeting in Detroit.
Today, it is Mayor James Diossa who has earned such deserved credit for what he describes as the “efforts and dedication to following fiscally sound budgeting practices,” efforts which, he said, “are clearly paying off, leaving the city in a strong position.” In the school of municipal finance, those efforts were rewarded with the credit rating elevation in its long-term general obligation rating three notches to BBB from BB, with credit analyst Victor Medeiros describing the fiscal recovery as one where, today, the city is “operating under a much stronger economic and management environment since emerging from bankruptcy in 2012…The city has had several years of strong budgetary performance, and has fully adhered to the established post-bankruptcy plan….The positive outlook reflects the possibility that strong budgetary performance could lead to improved reserves in line with the city’s new formal reserve policy.” The credit rating agency added that the city’s fiscal leadership had succeeded in ensuring strong liquidity, assessing total available cash at 28.7% of total governmental fund expenditures and nearly twice governmental debt service, leading S&P to award it a “strong institutional framework score.” That score should augur well as the city seeks to exit state oversight a year from next month: a path which S&P noted could continue to improve if it can build and sustain its gains in reserves and adhere to its successful financial practices, particularly after the city exits state oversight, or, as S&P put it: “Improving reserves over time would suggest that the city can position itself to better respond to the revenue effects of the next recession,” noting, however, the exceptional fiscal challenge in the state’s poorest municipality.

 

How Does a Public Pension System Protect against Insolvency? In California, the Solomon’s Choice awaits: what does CalPERS do when retiree of one of its members is from a municipality which has not paid in? In this case, one example is a retiree of a human services consortium which had closed with nearly half a million dollars in arrears to CalPERS. The conundrum: what is fair to the employee/retiree who fully paid in, but whose government or governmental agency had not? Or, as Michael Coleman, fiscal policy adviser for the League of California Cities, puts it: “Unless something is done to stem the mounting costs or to find ways to fund those mounting costs for employees, then the only recourse, beyond reducing service levels to unsustainable levels, is going to be to cut benefits for retirees,” an action which occurred for the first time last year, when CalPERS took such action against the tiny City of Loyalton, a municipality originally known as Smith’s Neck, but a name which the city fathers changed during Civil War—incorporated in 1901 as a dry town, its size was set at 50.6 square miles: it was California’s second largest city after Los Angeles. Today, Loyalton, the only incorporated city in Sierra County, helps us to grasp what can happen to public pension promises when there are insufficient resources: what will give? The answer, as Richard Costigan, Chair of CalPERS’ finance and administration committee puts it: “We end up being the bad person, because if the payments aren’t coming in, we’re left with the obligation to reduce the benefit, as we did in Loyalton…Otherwise the rest of the people in the system who have paid their bills would be paying for that responsibility.”
As all, except readers of this blog, are getting older (and, hopefully, wiser), cities, counties, states, and other municipal entities confront longer lifespans, so that, similar to the fiscal chasm looming in California, the day could be looming that what was promised thirty years ago is not fiscally available. In the Golden State, CalPERS has been paying benefits out faster that it has been gathering them, leading, at the end of last year, the state agency to reduce the assumed return on its investments to 7 percent from 7.5 percent—an action which, in turn, will requisition higher annual contributions from municipal and county governments, actions mandated by its fiduciary responsibility. While the state agency does not negotiate or set benefits, it does manage them on behalf of local governments, most of which are fulfilling their obligations.

 

Unpromising Turn. The PROMESA oversight board, deeming Puerto Rico’s liquidity to be critically low, has demanded the U.S. territory immediately adopt emergency spending cuts, writing to Gov. Ricardo Rosselló in an epistle that unless the government immediately adopted emergency measures, it could be insolvent in a “matter of months,” suggesting the government consider the immediate implementation of furloughs of most executive branch employees for four days each month, and teachers and other emergency personnel positions, such as law enforcement, two days a month; the Board urged Puerto Rico to put in place comparable furlough measures in other government entities, such as public corporations, authorities, and the legislative and judicial branches, in addition to recommending cutting spending for professional service contract expenditures by half. In addition, threatening public service solvency, the PROMESA Board directed the reduction of healthcare costs by negotiating drug pricing and rate reductions for health plans and providers. Mayhap most, at least from a governing perspective, critically, the PROMESA the board called for the Fiscal Agency and Financial Advisory Administration to implement a new liquidity plan by immediately controlling all Puerto Rico government accounts and spending, writing: “Given Puerto Rico’s lack of normal capital market access and our need to focus on a sustainable restructuring of debt is neither practical nor prudent to address this cash shortfall with new short-term borrowing,” warning Puerto Rico could face a cash deficit of about $190 million by the start of the new fiscal year, and that the Employment Retirement System and the Teachers Retirement System funds will be insolvent by the end of the calendar year. Adding to the threatening fiscal situation, Puerto Rico anticipates the loss of some $800 million in Affordable Care Act funding in the coming fiscal year.

 

Doctor Needed. As the U.S. House of Representatives reported out of two committees, yesterday, legislation to partially replace the Affordable Care Act, bills which, as introduced by the House Republicans—with the blessing of the Trump White House, omitted Puerto Rico, raising the specter that Congress could also fail to fund the U.S. territory’s Children’s Health Insurance Program, omissions Gov. Rosselló’s representative in Washington, D.C. warned might have implications threatening the reauthorization of the Children’s Health Insurance Program (CHIP), which could happen this summer, attributing  Puerto Rico’s exclusion from the two initial bills seeking to repeal and replace Obamacare—the first aimed at granting tax credits instead of direct subsidies, and the other which seeks to convert Medicaid in the states into a plan of block grants, like in the Island—to its colonial status: “As a territory, Puerto Rico isn’t automatically included in health reform legislation. It already happened with Obamacare. The Republican plan is a reform bill for the 50 states.” Indeed, Governor Rosselló’s fiscal plan complied with the PROMESA Oversight Board’s mandate to exclude any extensions of the nearly $1.2 billion in Medicaid funds currently granted under the Affordable Care Act, funds which could be depleted by the end of this year—and without any explanation for such clear discrimination against U.S. citizens.

Federalism, Governance, & Bankruptcy

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eBlog, 2/15/17

Good Morning! In this a.m.’s eBlog, we consider the evolving governance challenge in New Jersey and the state takeover of fiscally troubled Atlantic City—a breach into which it appears the third branch of government—the judiciary—might step. Next, we turn to whether governmental trust by citizens, taxpayers, and voters can be exhausted–or bankrupted–as the third branch of government, the judiciary–as in the case of New Jersey–could determine the fate of the former and current mayors of the fiscally insolvent municipality of Petersburg, Virginia. Finally, we try to get warm again by visiting Puerto Rico—where the territorial status puts Puerto Rico between a state and a municipality—what Rod Serling likely would have deemed a fiscal Twilight Zone—further complicated by language barriers—and, in a country where the federal government may not authorize states to file for bankruptcy protection, in a governance challenge with a new Governor. No doubt, one can imagine if Congress appointed an oversight board to take over New Jersey or Illinois or Kansas, the ruckus would lead to a Constitutional crisis.

We Await the Third Branch. The first legal action challenging the State of New Jersey’s takeover of Atlantic City finances will be decided at the local level in the wake of U.S. District Court Judge Renee Marie Bumb’s decision to remand the case back to Atlantic County Superior Court. The case involves a lawsuit from the union representing Atlantic City firefighters which alleges state officials are unlawfully seeking to lay off 100 firefighters and alter the union’s contract; Judge Bumb held that the federal court lacks jurisdiction, since the complaint does not assert any federal claims, thereby granting International Association of Firefighters Local 198’s “emergency motion” to remand the lawsuit to New Jersey state court, saying it was inappropriate for the defendants to remove the action to federal court. Thus, the case will revert to New Jersey Superior Court Judge Julio Mendez, who temporarily blocked the state-ordered firefighter cuts at the beginning of the month. The case involves the suit filed by the International Association of Fire Fighters, Local 198, and the AFL-CIO challenging the state’s action to proceed with 100 layoffs and other unilateral contract changes under New Jersey’s Municipal Stabilization and Recovery Act—the legislation enacted last November in the wake of the New Jersey Local Finance Board’s rejection of Atlantic City’s rescue plan. The suit claims the act violates New Jersey’s constitution. This legislation, which was implemented last November after the New Jersey’s Local Finance Board rejected an Atlantic City rescue plan, empowers the state alter outstanding Atlantic City debt and municipal contracts. Prior to Judge Mendez’s Ground Hog Day ruling, the state was planning to set up changes to the firefighters’ work schedule, salaries, and benefits commencing by cutting the 225-member staff roughly in half beginning in September.

Hear Ye—or Hear Ye Not. A hearing for the civil case brought against Petersburg Mayor Samuel Parham and Councilman and former Mayor W. Howard Myers is set for tomorrow morning. Both men are defendants in a civil court case brought about by members of registered voters from the fifth and third wards of Petersburg. Members of the third and fifth wards signed petitions to have both men removed from their positions. The civil case calls for both Parham and Myers to be removed from office due to “neglect, misuse of office, and incompetence in the performance of their duties.” The purpose of hearing is to determine trial date, to hear any motions, to determine whether Mayors Parham and Myers will be tried separately, and if they want to be tried by judge or jury. James E. Cornwell of Sands Anderson Law Firm will be representing messieurs Myers and Parham. (Mr. Cornwell recently represented the Board of Supervisors in Bath County, Virginia, where the board was brought to court over a closed-doors decision to cut the county budget by $75,000 and eliminate the county tourism office.) The City Council voted 5-2 on Tuesday night to have the representation of Mr. Myers and Mayor Parham be paid for by the city. Mayor Parham, Vice Mayor Joe Hart, Councilman Charlie Cuthbert, former Mayor Myers, and Councilman Darrin Hill all voted yes to the proposition, while Councilwoman Treska Wilson-Smith and Councilwoman Annette Smith-Lee voted no. Mayor Parham and Councilmember Hill stated that the Council’s decision to pay for the representation was necessary to “protect the integrity of the Council,” noting: “It may not be a popular decision, but it’s [Myers and Parham] today, and it could be another council tomorrow.” Messieurs Hill and Parham argued that the recall petition could happen to any member of council: “[The petitions] are a total attack on our current leadership…We expect to get the truth told and these accusations against us laid to rest.” The legal confrontation is further muddied by City Attorney Joseph Preston’s inability to represent the current and former Mayors, because he was also named in the recall petition, and could be called as a witness during a trial.

Federalism, Governance, & Hegemony. Puerto Rico Gov. Ricardo Rosselló has said that he is setting aside $146 million for the payment of interest due on general obligation municipal bonds, noting, in an address to the Association of Puerto Rico Industrialists, that he plans to pay off GO holders owed $1.3 million, because the Commonwealth defaulted on its payment at the beginning of this month, so, instead, he said the interest would be drawn from “claw back” funds, a term the government uses to describe the diversion of revenue streams which had supported other municipal bonds. Now the Governor has reported the $146 million would be held in an account at Banco Popular, ready to be used to meet subsequent general obligation payments to bondholders—noting that the funds to be used had not been “destined” to be used for essential services for Puerto Rico’s people; the Governor did not answer a question as to which bond revenues were being clawed back; however, his announcement creates the potential to partially address the nearly 9 month default on a $779 million payment.

But mayhap the harder, evolving governance issue is the scope of the PROMESA Board to “govern” in Puerto Rico: the statute Congress enacted and former President Obama signed does not vest authority in the PROMESA Oversight Board to review all legislation introduced by the current administration before its approval—thus, the growing perception or apprehension is the implication that Congress has created an entity which is violating the autonomy of the Government of Puerto Rico. It is, for instance, understood that Congress and the President lack the legal or Constitutional authority to take over the State of Illinois—a state which, arguably—has its own serious fiscal disabilities. Thus, it should come as no surprise that Gov. Rosselló’s administration is feeling besieged by disparate treatment at the receipt of a letter sent by the PROMESA Board at the beginning of this month—an epistle in which Board Chair José B. Carrión requested that the Puerto Rican Government discuss with the Board the implications of any new legislation before submission, citing §§204, 207, and 303 of PROMESA as part of the “many tools that can be deployed in terms of legislation.” Unsurprisingly, Elías Sánchez Sifonte, Gov. Rosselló’s representative to the Board, wrote that the Board’s “request to preliminarily review all legislation, as a right they can exercise, is not considered in PROMESA, and it violates the autonomy of the Government of Puerto Rico,” noting that Governor Rosselló’s administration “is working and will continue to work in cooperation with the Oversight Board on all issues” considered under PROMESA. Nevertheless, in the epistle, Mr. Sifonte wrote that “nowhere” in §204 is there any mention that the Government of Puerto Rico must submit its legislation for revision, rather: “It only requires that the legislation be submitted to the Board after it has been properly approved,” even as Mr. Sifonte acknowledged in the letter that after the Fiscal Plan has been certified, the Commonwealth must forward any adopted legislation to the PROMESA Board, accompanied by a cost estimate and a certification stating if it is consistent with the fiscal plan. Moreover, Mr. Sifonte added, because there is currently no fiscal plan, such a certification is not applicable, although a cost estimate is—the deadline for the fiscal plan is February 28th at the latest.

Moreover, according to Mr. Sifonte, “[o]nce the Plan is certified, every piece of legislation to be submitted will be consistent with the Fiscal Plan and will be accompanied by the proper certification, which, in his view, means that it should be protected from Board review, according to the Congressional report that gave way to PROMESA, adding that his purpose in communicating was to “help” both Puerto Rico and the PROMESA Board understand and respect each other’s authority—or, as he noted: “PROMESA’s broad powers are recognized, and we recognize all of the Board’s powers contained within the law. What shouldn’t happen is for them to want to go further, despite those extensive powers, and occupy a space that belongs to the officials elected by the people, because then that would in fact infringe upon the full democracy of our country,” adding that “the administration’s intention is not to interfere with the Oversight Board while the members carry out their mission under the federal statute, but the letter seeks to clarify “the autonomy of Puerto Rico’s Government, which is safeguarded under PROMESA.” The letter also states that the Government’s interpretation of PROMESA is based on Section 204(a)(6), which establishes that the Oversight Board may review legislation before it is approved “only by request of the Legislature.” Finally, Mr. Sifonte addressed a fundamental federalism apprehension: referencing §207 of PROMESA, which establishes that “the territory” cannot issue, acquire, or modify debt, he wrote that Puerto Rico has not issued, nor does it intend to issue any debt, referencing the Puerto Rico Financial Emergency & Fiscal Responsibility Act, and emphasizing this statute marks a change in public policy, with the intention of paying the creditors, just as Governor Rosselló this month had announced. Finally, he noted: the “inappropriateness” of the Chairman’s proposition, where—under the protection of §303 of PROMESA—he tells the Government that “the compliance measures under PROMESA should be a last resort and hopefully won’t be necessary,” noting that that provision “expressly says that the Government of Puerto Rico retains the duty to exercise political power or the territory’s governmental powers.”

The Avoidance of Fiscal Contagion

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eBlog, 12/15/16

Good Morning! In this a.m.’s eBlog, we consider the role of leaders appointed or named by municipalities with regard to the integrity of coming back from chapter 9 municipal bankruptcy or insolvency; then we turn to some of the critical factors which have played key roles in San Bernardino’s emergence from the nation’s longest municipal bankruptcy, before, finally, heading into the frigid physical gale and fiscal maelstrom of Atlantic City to consider not only the challenge for a state in taking over a municipality—but also the challenge of avoiding fiscal distress contagion.

Doubting Governance. The Detroit News, in its analysis of state and federal court records, tax filings, and interviews; reported that said analysis raised questions about the ability of some Detroit Development Authority (DDA) members to oversee one of the largest publicly subsidized downtown construction projects since Detroit emerged from chapter 9 municipal bankruptcy. The paper’s analysis also revealed a shortcoming of the city’s appointment process—noting it omitted any requirement for DDA members to undergo criminal or financial background checks, despite the fact that the Motor City’s DDA has approved some $250 million in taxes on Little Caesars Arena, even as the DDA is “dominated by tax delinquents with financial problems and in some cases criminal records,” according to public records.

As in most cities, the arena is being financed via the issuance of municipal bonds, under an agreement approved three years ago, where municipal taxes are to be dedicated to paying off $250 million worth of bonds issued by a branch of state government financed by the Michigan Treasury department—a department which has charged a number of DDA members of being tax delinquents. The paper adds that a majority of those appointed have a “history of financial issues,” including more than $500,000 in state and federal tax debt, according to public records. The News noted that details about the DDA members’ financial history offered some insight into a municipal public authority which all too often operates in secret—in this instance an authority whose members are appointed by the Mayor, approved by the City Council, and who then work with professional staff from the nonprofit Detroit Economic Growth Corp.; however, unlike almost every municipal or county public authority, the DDA board does not post agendas, minutes, or accurate meeting schedules; its members are not required to submit to a criminal or financial background check. (Members on the board are not compensated.) Indeed, Mayor Mike Duggan’s chief of staff Alexis Wiley, responding to inquiries by the News, said: “Really, every single person on the board has served the city of Detroit well…They’ve had personal financial challenges, but they have displayed good judgment as board members.” Malinda Jensen, the Detroit Economic Growth Corp.’s senior vice president of board administration and governmental affairs, in a statement to the News, noted: “The public funds contributing to the repayment of construction bonds to build the downtown arena come from a dedicated stream of revenue authorized by state law, approved by the DDA board as a whole, ratified by several votes of the full City Council…audited by independent accountants, and safeguarded in the terms of the sale of the bonds to financial institutions…Those funds are very well protected.” She added: “No individual on the board has any direct ability to access any public funds, and all decisions of the DDA are by majority votes in a public meeting,” adding that the DDA has a quarter-century of clean audits by an independent certified public accounting firm, she said. And DDA members are barred from voting on issues in which they have a direct financial interest, Ms. Jensen added, noting: “We all were impacted in some way through this financial crisis…I’d be curious about what some of that had to do with some of the reports you are hearing on some of these individuals.”

Would that governance and personal integrity were so simple, but, in this case, it turns out that two DDA members with a history of financial problems are also high-ranking members of the Mayor’s administration, with one running Detroit’s neighborhoods department—in this case a long-time municipal employee who has worked for every Mayoral administration since former Mayor Coleman Young, but who has also filed for bankruptcy, lost a home to foreclosure, and failed to pay $250,691 in state and federal taxes, according to public records—and served two years in federal prison in the wake of being found guilty in 1984 of receiving more than $16,000 in illegal payoffs from a sludge-hauling company—at the very time he was serving as Detroit’s Director of the city’s ill-fated Water and Sewerage Department. The paper notes that his colleague at City Hall, Corporation Counsel Melvin “Butch” Hollowell, has faced his own series of state and federal tax liens over the most recent five years: he has been accused of failing to pay more than $60,000 in federal and state taxes, although he has, according to public records, this year managed to pay off all of the debt. The News quoted University of Virginia Law School tax expert George Yin about its findings with regard to the troubled financial records of DDA members, and their fiscal integrity as it relates to their public responsibilities to oversee publicly funded sports arenas—to which Mr. Yin responded: “Given the kind of doubtful or questionable nature of public subsidies for these facilities, you want the people making decisions to be people whose judgment has been proven to be right over and over again.”

The Precipitous Road to Bankruptcy’s Exit Ramp. The City of San Bernardino, once the home to Norton Air Force Base, Kaiser Steel, and the Santa Fe Railroad—yesterday, some twenty-two years later, received a report from the Inland Valley Development Agency’s annual review that, for the first time, it has more than restored all of the jobs and economic impact lost when the base closed: indeed, the review found that the 14,000-acre area of the former base now employs 10,780 people and is responsible for an economic output of $1.89 billion, surpassing the totals lost when the base closed in 1994. What has changed is the nature of the jobs: today these are predominantly logistics, with Amazon’s 4,200 employees and Stater Bros. Markets’ 2,000 employees accounting for more than half of the total. Economist John Husing, whose doctoral thesis studied the economic impact of Norton Air Force Base, yesterday told the San Bernardino Sun: “The jobs that have come in are comparable or better than the jobs that were lost…Because of the spending pattern difference between civilians and military personnel, you only needed 75 percent of the number of people working there to replace the economic impact,” adding that that was because much of the spending by Norton’s employees was at the on-base store, so the money did not recirculate into the local economy—adding that that job total does not include an additional 5,000 part-time jobs created by Amazon and Kohl’s during the Christmas shopping season; nor does it include an additional 5,000 indirect jobs that help build nearly $1.9 billion of total economic benefit. Moreover, with the exception of the San Bernardino International Airport itself (the fourth-largest source of jobs in the project area, with 1,401), the major employers are not directly tied to the former role of the base. Nevertheless, as Mr. Burrows noted: it took planning and preparation to get those companies to come to San Bernardino: “Without a lot of inducement from us—infrastructure, roadway improvements, Mountain View Bridge, for example, we wouldn’t have those jobs…“It’s been a longtime strategic effort, and we’re very pleased that we’re seeing some results.” Mr. Burrows added, moreover, that the Inland Valley Development Agency has more projects (and more jobs) in the works for 2017, including continued infrastructure work and a focus on workforce development: “We’re particularly going to focus on our K-12 schools, San Bernardino Valley College, and the (San Bernardino) Community College District in making sure we’re doing more on the workforce development side.” To do so will be a regional effort, via the agency—which is composed of representatives from San Bernardino County and the cities of Colton, Loma Linda, and San Bernardino—who are responsible for the development and reuse of the non-aviation portions of the former Norton Air Force Base. San Bernardino Mayor Carey Davis noted the Development Authority’s “development of the Norton Air Force Base has proven to be a great asset to the San Bernardino community. We have positively impacted the economy with the creation of jobs and new business,” adding it was “a fine example of the progress we have made in rebuilding San Bernardino.”

Fiscal Distress Contagion & State Preemption. The Atlantic City Council had a quick meeting yesterday in the wake of the state pulling two ordinances for further review—measures which would have raised rates and revised regulations for Boardwalk trams and adopted a redevelopment plan for Atlantic City’s midtown area, with the state asking the Council to pull the ordinances “indefinitely,” according to Council President Marty Small. Subsequently, Timothy Cunningham, the Director of the New Jersey Division of Local Government Services Director and the quasi-takeover manager of the city government, said his agency has had insufficient time to review the ordinances, stating:  “We’ll just revisit them in the new year…I don’t think there’s any objection to them. Just not enough time to fully vet them.” The statement reflects the post-state takeover governance and preemption of local authority. In this case, the issue in question relates to proposed tram rules, including increasing fares to $4 one way and $8 all day in the summer, and $3 one way and $6 all day in the off season—compared to $2.25 one way and $5.50 for an all-day pass. The ordinance would also have allowed the trams to carry advertisements—from which, according to sponsor Councilman Jesse Kurtz, the city would receive half the revenue from the ads.

Nevertheless, the discordant governance situation and unresolved insolvency of the city do not, at least according to Moody’s analyst Douglas Goldmacher, appear to be contagious, with the analyst writing there is only a “relatively mild” chance that the massive fiscal and governance problems of Atlantic City will contaminate Atlantic County: “While Atlantic City remains the largest municipality in the county and its casinos are currently the largest taxpayers, the county’s dependence on Atlantic City’s tax revenues continues to decline.” Moreover, he wrote: “State law offers considerable protection from the city’s financial trauma, and the county has demonstrated a history of strong governance.” Mr. Goldmacher added that the neighboring county has managed to partially offset Atlantic City’s declining tax base and gambling activity with growth in other municipalities—with Atlantic City’s share of the county tax base less than half what it was at its peak of 39% in 2007. The report notes that the county also benefits from a New Jersey statute which insulates the county from the city’s fiscal ills, because cities are required to make payments to counties and schools prior to wresting their share—noting that Atlantic City has never missed a county tax payment and was only late once—and, in that situation, only after special permission was granted in advance. Thus, Mr. Goldmacher wrote: “While Atlantic City has endured political gridlock, the county has achieved structural balance and demonstrated stability through budgeting accuracy, strong reserves and contingency plans…The county also has substantial fund balance and other trust funds and routinely prepares multiple budgets and tax schedules to account for Atlantic City’s uncertain fate.”