The Phyical, Fiscal, & Governing Challenges of Rcovery

eBlog

May 3, 2019

Good Morning! In this morning’s eBlog, we consider the obstacles to facilitating hurricane recovery assistance to Puerto Rico, before assessing the fiscal and physical status of Flint, Michigan.

Getting Aid to Puerto Rico. Senate Appropriations Chair Richard Shelby (R-Ala.) has offered the Democrats on the Committee proposed language which would accelerate the disbursement of funds to Puerto Rico, albeit with greater supervision and restrictions—but, critically, which would unblock the impasse so far barring Congress from passing legislation to address recent natural disasters. While the Chair has not made public his proposed language, he has shared it with Ranking Member Patrick Leahy (D-Vt.). Chair Shelby’s proposed language would not include new allocations for the U.S. territory in addition to the $600 million in food assistance funds which have not been opposed by the President—and $5 million focused on studying the impact of that nutritional aid. Here, Chairman Shelby’s offer came hours after on the pending disaster allocation project was reportedly briefly discussed at Tuesday’s Oval Office meeting with Senate Minority Leader Chuck Schumer (D-NY) and House Speaker Nancy Pelosi (D.-Ca.)—a meeting called by the President to discuss his newly proposed $2 billion infrastructure plan—a plan for which the proposed $2 billion remains unexplained and unfunded.

The Congressional Democratic Leaders left the session hopeful that there is interest to agree soon with consensus on a path to unblock critical natural disaster relief across the nation—relief to date blocked by the White House due to apparent opposition to any relief to Puerto Rico. There appeared to be some sense that the efforts have achieved progress—or, as one participant noted, in quoting the President: “I’m going to keep out” of this discussion—seemingly meaning he would not object. However, another source from the White House indicated that he understood that President Trump did not say that he would stay out of the discussions, but rather that an agreement must be reached; while Senator Marco Rubio (R-Fla) tweeted that some progress was occurring in bipartisan talks. The House version approved at the beginning of the year includes $600 million in food assistance for Puerto Rico, $25 million to restore the Martín Peña Canal, $5 million to finance a study on the elimination of emergency nutritional assistance in the wake of Hurricane Maria—and restoration of the matching of funds that the government of Puerto Rico has to make in order to obtain the reimbursements of FEMA for the emergency measures. (In the wake of the President’s refusal to grant more funds to Puerto Rico, President Trump accepted that the Senate bill included the allocations related to nutritional assistance, but no other initiative for the island.

The negotiations come as the House is scheduled to pass legislation next week that adds another $3 billion in appropriations to address the March floods in the Midwest—legislation which retains the funds originally ratified for Puerto Rico last January. Indeed, at the White House meeting, the House and Senate Democratic leaders, and the President, agreed to work towards a legislative plan that allocates $ 2 billion to finance improvements to the transportation infrastructure of the United States—albeit without any agreement from whence such funds would come.

Wherefore Restoration of Self-Governance Authority? Meanwhile it appears President Trump plans to nominate the current PROMESA Oversight Board members to serve their terms through the end of August—plans which have gained praise from Democrats in Congress, as it may avert an interruption of the Board’s efforts to bolster the U.S. territory’s economy and fiscal management. The announcement came as the PROMESA Board prepared to launch law suits seeking to claw back payments made on and fees paid for more than $6 billion of Puerto Rico bonds. That is, the ongoing governance quandary with regard to whether a federal circuit court, the unelected oversight board, or the U.S. citizens of Puerto Rico will actually be permitted to decide on the island’s future—a future further confused when, last February, the U.S. 1st Circuit Court of Appeals held in favor of municipal bondholders that the method of appointment of the board, as found in the Puerto Rico Oversight, Management, and Economic Stability Act, was unconstitutional: ergo, for the PROMESA Board to continue to operate beyond May 16th, the court ruled the President must nominate and the Senate confirm the Board members. The President, in a posting to the White House website, noted he intends to nominate the current seven members to serve out their terms. (According to the PROMESA each term is three years, so if the Senate confirms the members, their terms would end on Aug. 31st.)

It is unclear how the U.S. Senate will react—especially in the wake of a White House statement: “Mismanagement, corruption, and neglect continues to hurt the people of Puerto Rico who deserve better from their government…The most important component for future health and growth of Puerto Rico is financial constraint, reduced debt, and structural reforms…The work of the Financial Oversight and Management Board for Puerto Rico is providing the stability and oversight needed to address these chronic issues that will bring hope of a brighter future for Puerto Rico.” Given the exploding debt and deficits under the Trump administration, the statement appears most ironic.

Nevertheless, House Natural Resources Committee Chair Raúl Grijalva (D-Az.) hailed the move: “The President’s decision to nominate the members of the Financial Oversight and Management Board for Puerto Rico for Senate confirmation is welcome. Democrats supported PROMESA largely to enable Puerto Rico to restructure and reduce its debts. If the 1st Circuit’s ruling invalidating the original appointments had not been addressed, the Board would have collapsed and three years of work on debt restructuring would have been wasted….We are close to a final restructuring agreement on the largest remaining block of Puerto Rican debt, and it’s in the interests of the Puerto Rican people to finalize that agreement without interruption,” Chairman Grijalva noted, for his Committee, which oversees Puerto Rico. Similarly, Rep. Nydia Velázquez (D-N.Y) noted: “To essentially start over with new appointments to the Oversight Board would have injected serious uncertainty and chaos into the debt restructuring process…While I support the reappointment of these members to the Board, I will continue holding them to account to ensure they are always acting in the best interest of the people of Puerto Rico…Austerity measures are not the answer for Puerto Rico, and I’ll continue pushing the Board to put ordinary Puerto Ricans before Wall Street creditors and hedge funds.”

The PROMESA Board also released a statement welcoming the President’s announcement, with its statement coming in the wake of its request to the U.S. 1st Circuit Court of Appeals to extend the May 16 deadline for acting as the Board; the PROMESA Board has also filed a petition for certiorari with the U.S. Supreme Court to review the appeals court’s February decision.

Not in Like Flint. Five years on, the Flint water crisis is nowhere near over: the state-caused fiscal and physical emergency devastating lives, assessed property values, and public trust continues. The Flint River courses some 142 miles through mid-Michigan, before a noticeable change occurs as it flows southwest into the city of Flint, where, abruptly, it is marked by concrete slopes, capped with wire fences, flank the water—adjacent to decaying bridge piers protruding from the center of the river. It is almost as if it were a cemetery to mark the five years since the city’s water source switch which, in a decision by a state appointed Emergency Manager—it is, rather, as studies have demonstrated, a municipality with drinking water lead levels nearly twice the amount that is supposed to trigger action under U.S. Environmental Protection Agency standards: That is, it is a municipality where the state action threatens adverse neurological effects in children, including reduced IQ and aggressive behavior; in a 6-month-old weighing 18 pounds, it takes just 12 millionths of an ounce of lead in the child’s bloodstream, about the same as one grain of salt, to exceed the level that the Centers for Disease Control considers a risk for children. That is, for a mother and father—leaving seems a vital goal—but for the municipality, such departures can have devastating implications for assessed property values and income taxes. Perhaps fortunately for the city, its budget only assumes some $4.6 million in property taxes—less than a third of what it anticipates in income taxes; however, therein lies a fiscal risk: while the city’s water system operators report they have significantly reduced lead since 1991, when the U.S. Environmental Protection Agency first adopted a rule that mandates monitoring and treatment to reduce contamination caused by corrosion and other factors related to lead pipes, EPA notified the Governor there remained “serious and ongoing concerns with the safety of Flint’s drinking water system,” including “continuing delays and lack of transparency” in the state’s response. Flint switched back to the Detroit water system three and a half years ago, but public health effects from lead exposure prompted emergency declarations from the state and federal governments in early 2016. The city then launched an aggressive rehabilitation campaign, and, in the past three years, crews have explored 21,298 homes and replaced lead service lines at 8,260. The work should finish in July, according to Jameca Patrick-Singleton, Flint’s Chief Recovery Officer.

The most recent testing of Flint’s drinking water, sourced again from Detroit, marked lead at four parts per billion, well clear of the 15 that requires action. Those results account for a 90th-percentile rating: in other words, 90 percent of the homes comply with the federal standard. Nevertheless, Mayor Karen Weaver notes that tests will continue, and according to Patrick-Singleton, Mayor Weaver will not lift the city’s emergency declaration until the scientific and medical communities clear the drinking water.

Governance: Creating & Responding (or failing to respond) to a Human, Physical, & Fiscal Crisis.  Michigan Attorney General Dana Nessel’s office has fired special prosecutor Todd Flood from the Flint water criminal prosecution team because of documents discovered in a government building, which Michigan Solicitor Fadwa Hammoud confirmed Monday. Here, the special prosecutor’s contract expired on April 16, and he had been advised last week that the state would not be renewing his contract. The Solicitor Mr. Flood’s termination to the recent realization that legal “discovery was not fully and properly pursued from the onset of this investigation.” Last Friday, prosecutors asked a Genesee County judge for a six-month delay in the involuntary manslaughter case against former Michigan Health and Human Services director Nick Lyon after finding a “trove of documents” related to the Flint water crisis in the basement of a state building. (Mr. Flood had been named a special assistant attorney general in the Flint criminal cases after serving as a special prosecutor, serving more than three years: an appointee of former Attorney General Bill Schuette, Mr. Flood’s authority was curbed significantly when Mr. Hammoud was put in charge of the Flint prosecution, and then brought in Wayne County Prosecutor Kym Worthy to help the prosecution team.) Mr. Hammoud noted that Mr. Flood’s departure reflected the department’s commitment “to execute the highest standards” in the Flint prosecutions.

For his part, Mr. Flood noted: “In the time we have spent in Flint, we interviewed over 400 people, reviewed millions of
pages of discovery, and took pleas to advance the investigation: We conducted multiple court hearings and preliminary exams, placed hundreds of exhibits into evidence and successfully bound defendants over for trial. This complex case of official wrong-doing and betrayal of public trust has been prosecuted with the utmost attention to the professional standards that justice demands. I walk away knowing that I gave everything I had to give to this case. The people of Flint deserved nothing less.”

Mr. Flood originally charged 15 people in the Flint prosecutions; he struck plea deals with seven defendants who have pleaded no contest to misdemeanors; he successfully convinced 67th District Court judges to bind over for trial Mr. Lyon and former Chief Medical Executive Eden Wells on criminal charges related to the 2014-15 Legionnaires’ disease outbreak which led to the death of 12 individuals and sickened at least 79 others.

Preliminary exams against former gubernatorially-appointed Flint Emergency Manager Darnell Earley, and Howard Croft, Flint’s former Public Works Director, were recently suspended as the Attorney General’s office continues its review of all of the criminal cases; it remains unclear what connection the recently rediscovered boxes have to Mr. Lyon, who has been charged with involuntary manslaughter in the Legionnaires’ disease outbreak: he is accused of failing to warn the public in a timely manner about the respiratory disease before former Gov. Rick Snyder informed the public about it in mid-January 2016.

Will Justice Be Done? Mayor Weaver, in a statement Monday, noted: “I respect the decision that the Solicitor General has made regarding the changes to the prosecution team. I will continue to voice my desires to have truth, transparency, and justice for Flint residents…I ask that we not get caught up on the changes, but that we continue to keep the focus where it should be, and that is on making the residents whole after such a traumatic experience.”

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A Human Rights Perspective on Puerto Rico’s Fiscal and Physical Future

October 5, 2018

Good Morning! In this morning’s eBlog, we report on the consideration by the Inter-American Commission on Human Rights with regard to perspectives on statehood—and whether the federal government is violating human rights in the U.S. territory created by the Jones-Shafroth Act.

Unequal Treatment? The United States, today, at the Inter-American Commission on Human Rights (IACHR), meeting at the University of Colorado in Boulder, will defend itself from the denunciations of statesmen sectors who charge that the lack of voting rights for Puerto Ricans, who are U.S. citizens, represents a violation of human and civil rights. In a way, that seems ironic, as the co-author of the Jones-Shafroth Act, as Governor of Colorado, before serving in the U.S. Senate, kicked the issue off, performing—in a three-piece suit—the opening kickoff in a game at Folsom Field in Boulder in a game between the U. of Colorado and the Colorado School of Mines, prior to being elected to the U.S. Senate, where he co-authored the Jones-Shafroth Act—the issue under heated debate today, where the U.S. mission to the OAS, will seek to defend against a charge filed by statespersons who are seeking censure against the U.S. for denying Puerto Ricans who live in Puerto Rico equal rights to vote and be represented in Congress—and in the electoral college. Former Gov. Pedro Rosselló Rossello and attorney Gregorio Igartúa is representing Puerto Rico. The U.S. alternate representative to the Organization of American States, Kevin Sullivan, has been requesting—in writing—since last June, the dismissal of the complaints—complaints some of which date back to 2006—which were not even admitted for consideration until last Spring, noting that the current status violates the U.S. Declaration of Human Rights. The Trump Administration response is that, under the current territorial status, Puerto Rico “has a distinctive status, in fact exceptional,” with a “broad base of self-government.” The Administration also asserts that Puerto Rico has a limited participation in federal processes, through the Presidential primaries and the election of a non-voting Representative in Congress. Attorney Orlando Vidal, who has represented former Governor Rosselló González in this process, today’s will help educate about the lack of political rights under the current territorial status, or, as he put it: “Sometimes, it is necessary that someone from the outside, as the Commission is here, and with an independent and objective point of view, clarify situations that for many, for so long plunged into this issue, it is perhaps difficult to perceive clearly,” adding, there is an easily available “friendly solution:” to direct the admission of Puerto Rico as a state. Today’s Commission session will be chaired by Margarette May Macaulay of Trinidad and Tobago.

More than a decade ago, under the George W. Bush administration, Kein Marshall, the Administration’s Director of the Justice Department’s Legal Office, appearing before the House Subcommittee on Insular Affairs, had recommended calling a referendum: “territory yes or no,” followed by, if the current status was rejected, a consultation to determine whether a governing path forward would be statehood or independence—with Mr. Marshall defending, in his testimony, the report of the Working Group of the White House which, among other things, affirmed in 2005 that the power of the Congress is so broad that, if it wanted, it has the authority to cede the island to another country.

From an international governance perspective, in the international forum, it was two years ago that, in an explanatory vote, in October of 2016, the Obama administration supported a U.N. resolution in favor of self-determination and independence; shortly before, however, on June 30, 2016, President Obama had signed the PROMESA, a statute roughly modeled after chapter 9 municipal bankruptcy, except that, in imposing both a financial control board and a judicial process, the outcome, as we have seen, has been a ‘who’s on first, what’s on second’ process—with prohibitive fiscal costs, even as it creates the appearance of a denial of democracy for the U.S. citizens in Puerto Rico. It was 15 years ago that the IACHR determined, in analyzing a complaint filed by a civic group, that nations “cannot invoke their domestic, constitutional, or other laws to justify the lack of compliance with their international obligations.”

El Otro Lado. The other side, as it were, of the Jones‒Shafroth Act, was the Jones Act—an act sponsored by the co-author at the behest of the U.S. shipping industry which has vastly compromised the ability to provide assistance towards Puerto Rico’s recovery from Hurricane Maria—assistance desperately needed for this territory where an estimated 8,000 small businesses still remain shuttered—representing about 10% of the total according to the island’s Urban Retailers Association—and continues to undercut hopes for fiscal and economic recovery. The Jones Act, strongly lobbied for by the domestic shipping industry, mandates that  transportation of goods between two U.S. ports must be carried out by a vessel which was built in the U.S. and operated primarily by U.S. citizens—meaning the cost of materials to help the island recover cost far more than for other, nearby Caribbean nations—and meaning that millions of Americans, including Puerto Ricans following Hurricane Maria last year, are paying hugely inflated prices for gasoline and other consumer products which are vital to recovery—and to equity. The act mandates that carrying goods shipped in U.S. waters between U.S. ports to be U.S.-built, U.S.-registered, U.S.-owned, and manned by crews, at least 75% of whom are U.S. citizens. Mark J. Perry, a scholar at the American Enterprise Institute and Professor of Economics at the University of Michigan this week noted: “Because of this absurd, antiquated protectionism, it’s now twice as expensive to ship critical goods – fuel, food and building supplies, among other things – from the U.S. mainland to Puerto Rico, as it is to ship from any other foreign port in the world. Just the major damage done to Puerto Rico from the Jones Act is enough reason to tell us that now is the time – past due time – to repeal the anti-consumer Jones Act.”

As Arian Campo Flores and Andrew Scurria of Dow Jones last week pointed out, in Puerto Rica’s fiscal year which ended last June, the island’s economy had contracted by 7.6%. An estimated 8,000 small businesses remain shuttered; Teva Pharmacuticals has announced it will close a manufacturing plant in the municipio of Manati—and, manufacturing employment has decreased by 35%. More fiscally depressing: the Puerto Rico government is now projecting that its population will decline by 12% over the next five years—as an increasing number of young, educated, and trained citizens move to the mainland, leaving behind an older, poorer population.

Post Municipal Bankruptcy Futures

September 21, 2018

Good Morning! In this morning’s eBlog, we report on the unsafe conditions of Detroit’s public schools, and dismissal by the Trump administration for self-government in Puerto Rico, and, a year after Hurricane Maria’s devastating strike on Puerto Rico and underwhelming federal response, the U.S. territory’s continued inequitable status.  Unlike in corporate bankruptcies, in municipal bankruptcies, the challenge is not how to walk away from accumulated debts, but rather how to fiscally resolve them.  

Detroit’s Future? In Detroit, where, last week, organizations gathered at the Marygrove College campus to announce a new cradle-to-career educational partnership, including a state-of-the-art early childhood education center, a new K-12 school, and the introduction of an innovative teacher education training modeled after hospital residency programs; Superintendent Nikolai Vitti has announced the closure of thirty-three more schools because of high levels of copper and/or lead, bringing the total number of schools with tainted water to 57 buildings. The Superintendent’s warning noted: “Of the results just received, 33 of 52 schools have one or more water sources with elevated levels of copper and/or lead…This means that 57 of 86 schools where test results have been provided have one or more water sources with elevated levels of copper and/or lead (this does not include the previous 10 Di-Hydro schools where copper and/or lead was detected).” He added the results were incomplete: the district is still awaiting results for 17 schools. He noted: “As you know, drinking water in these schools was discontinued as we await water test results for all schools. Although the kitchen water has only been turned off in schools where levels were determined high, we have been using bottled water to clean food in all schools: As a reminder, we have not used water to cook food in our kitchens for some time and instead have delivered pre-cooked meals to students. We plan to install filters for kitchen sinks to remedy challenges in kitchens.” Last week, the Superintendent, in a state hyper aware of the physical and fiscal threats of contaminated or unsafe water, that a $2 million water station system would address water quality issues, and School Board Member Deborah Hunter-Harvill confirmed, in the wake of the tests: “We completed our community meeting, and we’ve taken down recommendations and suggestions to make certain our kids are safe.” But who will finance the corrections is unclear: School Board member LaMar Lemmons said he supports spending $2 million to fix the water problems, and he continues to blame the state for neglecting school buildings during a decade of state control, which ended in 2017: “Under the $2 billion (spent) for new school construction and renovation, they did a terrible job. There is no excuse for these schools to not have been maintained.” Supt. Vitti said the most practical, long-term, safest solution for water quality problems inside the schools would be water hydration stations in every building, system currently in use in Flint, Royal Oak, Birmingham and in Baltimore, he noted, adding, in an email earlier this week: “Moving forward, we will continue to use water coolers district-wide and are actively working through the bid processes to make a recommendation to the board for the use of hydration stations. This will occur within the next couple of weeks. The hydration stations would be installed in all schools by next school year and replace the need for water coolers.”

The health apprehension came in the wake of, just days before the first day of class at the beginning of this month, the Superintendents’ decision to shut off drinking water inside all 106 school buildings after finding, in an initial check at 6 schools, high levels of copper and/or lead. The checks themselves are costly: they require stations in every school, one per every 100 students, with a resulting tab of $2 million, after taking into account stations in faculty rooms and gymnasiums, according to Supt. Vitti, who stated he intends to provide information to the Detroit School Board to consider next month, noting that, if the funds are approved, the system could be installed in the next school year. The delay comes at a physical and fiscal cost: the school district is spending $200,000 on bottled water and water coolers for the next several months, with Supt. Vitti reporting the cause of the water contamination is likely the result of the aging of the system’s public infrastructure, as well as older plumbing systems, warning that lower usage of water due to smaller enrollment sizes can lead to copper and lead buildup. Because DPS’ schools were built for use by thousands of students, the sharp decline in attendance has adverse effects, and, as the Superintendent noted: “The reality is our schools are vastly different: some are new, some are old. Some have outdated systems, some have outdated sinks and plumbing,” adding he had consulted with the Governor’s office, the Michigan Departments of Environmental Health, as well as Dr. Mona Hanna-Attisha, whose critical leadership exposed the Flint lead water crisis, noting: “They have provided lessons on Flint. They gave the recommendation for me to think about piping in general and a long-term solution.”

Despite the tragedy and ongoing Flint related litigation, Michigan has no rules mandating that public school districts test for lead in their water supply. That means, according to the Superintendent, that there are even newer schools built within the last decade which have water-quality issues, noting these problems could be blamed on inadequate piping or non-code compliant piping, adding he had i initiated water testing of DPS’ 106 school buildings last spring, with the testing evaluating all water sources, from sinks to drinking fountains—but learning that the actual source of the contamination remains uncertain—albeit the school system’s widespread infrastructure problems are likely causes: last June, a district report said it would cost $500 million to repair its buildings. The district has said it needs $29.86 million to repair or replace plumbing, according to the facilities report, not related to the current water problems.

Physical & Fiscal Recoveries. Maria was the worst storm to hit Puerto Rico in nearly a century: nearly 3,000 Americans lost their lives, according to a study commissioned by the Puerto Rican government. The storm devastated the economy: thousands of small businesses have been shuttered; some big businesses are leaving, and, in a demographic omen, the exodus of the young, productive population has accelerated. Over the last year, the island’s economy has contracted by 7.6%, according to the latest fiscal plan prepared for PROMESA Board. 

American Inequality. Puerto Rico Gov. Ricardo Rosselló this week asked President Trump to recognize that “Puerto Rico’s territorial status is discriminatory and allows for the unequal treatment of natural-born U.S. citizens.” In his letter to the President, coming one year in the wake of the devastating fiscal and physical impact of Hurricane Maria, the Governor wrote that Puerto Rico’s territorial status had negatively affected post-Maria recovery efforts, noting: “As we revisit all that we have been through in the last year, one thing has not changed and remains the biggest impediment for Puerto Rico’s full and prosperous recovery: the inequalities Puerto Rico faces as the oldest, most populous colony in the world.”

Gov. Rosselló, who campaigned on the promise of promoting statehood for Puerto Rico, added in his letter that FEMA’s bureaucratic processes—processes in which Puerto Rico has no say—had worked to delay disaster recovery, writing: “The ongoing and historic inequalities resulting from Puerto Rico’s territorial status have been exacerbated by a series of decisions by the federal government that have slowed our post-disaster recovery, compared to what has happened in other jurisdictions stateside.” He requested that the President reconsider a State Department request to dismiss a case in the Inter-American Commission on Human Rights with regard to the U.S.’ international responsibility regarding Puerto Rico’s status—a case in which the Commission is investigating complaints that the United States is violating the human rights of its citizens in Puerto Rico, because they lack the same political rights as other U.S. citizens, including the right to vote for President unless they relocate to one of the states or the District of Columbia, and, because they have no voting representation in the Congress. The Governor added he felt “compelled to respectfully address the most egregious errors in a [State Department] missive,” which sought to dismiss Puerto Rico’s concerns, noting, especially, the Department’s reference to Puerto Rico as a “self-governing territory,” rather than what the Governor believes is really a “territorial colony,” noting that defining Puerto Rico as self-governing “ignores that Congress often uses its plenary powers over the territory to impose a multitude of federal laws without the Commonwealth’s residents having any voting representation in the U.S. Senate and only a single Resident Commissioner in the U.S. House of Representatives, who cannot vote on the floor of that chamber.” He also disputed the State Department’s assertion that Puerto Ricans are not “banned” from voting for President, writing: “[T]he only way for U.S. citizens from Puerto Rico to vote in such an election and be counted is to leave Puerto Rico. If that is not a ban, then what is?” He further wrote that the current governance upholds an “inherently racist logic that deem the people of Puerto Rico as inferior and unable to fully participate in the institutions of democratic governance.”

The letter also touches on two referenda which statehood supporters have won in Puerto Rico, but that have not been deemed official results by the Department of Justice. The most recent, in 2017, was boycotted by local opposition parties, and the ballot never received final DOJ approval.  While that referendum only had a 23% participation rate, the pro statehood vote was an overwhelming 97%.

Gov. Rosselló added his apprehension in the wake of the U.S. Justice Department’s non-approval of Puerto Rico’s 2017 referendum, noting that “after the legislature even amended the format of the vote to meet the recommendations of the U.S. Justice Department,” the Trump administration had nevertheless “failed” to certify the ballot. Thus, he noted that asking an international body to dismiss its complaint was tantamount to asking it to “turn a blind eye to an inconvenient truth, that Puerto Rico remains the unfinished business of American democracy.” Finally, Gov. Rosselló ended his letter with an appeal to President Trump’s leadership, asking him to “work together to abolish this century old territorial-colonialism once and for all: Statehood for Puerto Rico is not only about realizing Puerto Rico’s full potential. It is about America living up to its most noble values by creating a more perfect Union.” (The Trump Administration has advised the Inter-American Commission on Human Rights (IACHR) that if Puerto Ricans want to vote for President, nothing prevents the government of Puerto Rico from calling for a referendum to determine the position of its residents regarding candidates for the U.S. Presidency—a referendum which, however, would be symbolic.)

The apparent position of the Trump Administration reflects its views that Puerto Ricans, in addition to being able to participate in Presidential primary elections, they may also, according to Kevin Sullivan, the U.S. Deputy Representative to the Organization of American States (OAS), organize and vote in presidential elections. Thus the U.S. representative asked the inter-American tribunal to dismiss the independent complaints filed by lawyer Gregorio Igartua and former governor Pedro Rossello alleging that the lack of participation of Puerto Rico’s residents in Presidential and Congressional elections represents a violation of their human and civil rights. Secretary Sullivan, who asserted that the government of Puerto Rico maintains a “broad” self-government, in a recently disclosed communication from the end of last June, maintained that within the colonial relationship with the U.S. territory, there are some electoral processes related to the federal government. Within this group of electoral processes, he thus sought to highlight as significant the ability for Puerto Ricans to vote in those for presidential primaries, as well as for its non-voting delegate in the U.S. House of Representatives.  Nevertheless, Secretary Sullivan recognized Puerto Ricans’ first vote in favor of statehood via the June 2017 plebiscite, describing that vote as having launched a process of requesting statehood before Congress, which outcome the “United States cannot predict.”

Puerto Rico Resident Commissioner Jenniffer Gonzalez, Puerto Rico’s non-voting Member of Congress, said she would have preferred the recognition of the undemocratic nature of the territorial status, and that statehood remains as “the only viable political status with a relationship with the United States, not territorial and not colonial.”

Puerto Rico Progressive Party representative Jose Aponte noted that it seemed unfortunate “at this point” that the federal government intends to develop some theory with regard to Puerto Rico’s self-government, especially in the wake of enacting the PROMESA law, thereby imposing the PROMESA Board, likening it to colonialism, and emphasizing what he views as Secretary Sullivan’s specious claim in which he advises Puerto Rican leaders that Puerto Ricans, “if they wish…are also free to move to any state,” noting: “It is hypocritical to hide the fact that they have a regime in which we cannot govern with the faculties and minimum rights that any human being deserves.”

Promising Good Gnus? Even if perceived by many Puerto Ricans as colonial overseers, the PROMESA Board, acting in a quasi-Emergency Manager role, such as Kevyn Orr did in putting together and managing the plan of debt adjustment for Detroit, is offering some hope for fiscal promise, as the Board is poised to lift its fiscal forecast and predicting a budget surplus in the wake of the recovery from the devastating Hurricane Maria, predicting a cumulative surplus, prior to debt payments, of in excess of $20 billion through 2058, or 500% greater than its quasi plan of debt adjustment certified by the PROMESA Board last June. PROMESA Board Executive Director has indicated that plan will be certified “in the coming weeks,” adding: “The changes in the fiscal plan will come from new data in actual FY18 revenue and expense figures, budget to actuals, and disaster spending.” Earlier last summer, the PROMESA Board, in certifying the most recent fiscal plan, had estimated that Puerto Rico would have a cumulative surplus of about $4 billion over the next four decades; the new projection, incorporating higher than expected disaster aid and tax receipts, would lift that projection to more than $20 billion.

Is There Second Class U.S. Citizenship?

eBlog

September 18, 2018

Good Morning! In this morning’s eBlog, we report on the dismissal by the Trump administration for self-government in Puerto Rico, and await today’s PROMESA Board oversight hearing. We also examine pro-active efforts by the government to reduce future hurricane vulnerability on the island.   

Is There A Second Class U.S. Citizenship? The Trump administration has dismissed complaints filed by pro-statehood supporters, emphasizing that nothing prevents anyone from Puerto Rico who wishes to participate in the electoral process from moving to the mainland—with Kevin Sullivan, the Deputy Chief of Mission for the U.S. to the Organization of American States coming in response to complaints filed 12 years ago by former Governor Pedro Rossello and attorney Gregorio Igartua.  The complains are to be considered October 5th at an Inter-American Commission on Human Rights public hearing, as part of the 169th session of the OAS autonomous body, at the University of Colorado. According to Deputy Chief Sullivan’s communication with IACHR Executive Director, Paulo Abrao,  nothing in the American Declaration (of Human Rights) suggests that OAS member states cannot maintain federal systems in which their citizens participation in local and federal elections is determined by their residence or the state of the federal entity where they reside. Mr. Sullivan asserted that Puerto Rico’s current political status is not inconsistent with the American Declaration of Human Rights, and he defended the quasi-colonial position by arguing that it allows a limited participation, because Puerto Ricans can participate in voting in Presidential primaries, and they have the right to elect a non-voting Member to Congress. Mr. Sullivan went on to note that although Puerto Rico does not have state sovereignty, he claimed it has a “distinctive, in fact exceptional, status” with a “broad base of self-government.” Just over a year ago, Puerto Ricans, by referendum, voted for statehood for the first time on June 11, 2017, effectively initiating what Mr. Sullivan deemed a “political process,” the outcome of which, he said, “cannot be predicted by the United States,” even as he admitted that other territories’ petitions have been accepted. He added that Puerto Rican residents, who are U.S. citizens, are also free to move to any state, if they wish.

Proactive Shelter from the Next Storm. Luis Burdiel Agudo, Puerto Rico’s President of the state-owned Economic Development Bank, has recommended making aid to homeowners rebuilding after Hurricane Maria contingent on their relocating out of flood-prone areas, with the President of the state-owned Economic Development Bank, warning: “We need to move families to a safe place.”  Most local governments give homeowners the choice between raising their house or taking a buyout to move somewhere safer; however, elevating one’s home costs around $44,000, according to government estimates—an especially high bar in Puerto Rico, where the median income is $20,078, and the poverty rate is 43.5%‒the median home value is about $100,000. Those who remain in flood-prone areas also require flood insurance, which is difficult to obtain given the low-income rate in the Commonwealth. Nevertheless, Puerto Rico is withholding aid entirely unless residents move. 

Federal Assistance & Hard Choices. The federal government is expected to provide $20 billion in federal funding to rebuild after Hurricanes Irma and Maria, and to better prepare for future storms—creating an almost Scylla versus Charybdis choice: thousands of the more than 100,000 homeowners on the island will have to choose between staying in their current property or rebuilding their homes. 

Could There Be Promise in PROMESA? The PROMESA Oversight Board is soliciting feedback on its report on the causes and development of Puerto Rico’s debt crisis, the Board’s Special Claims Committee set to “pursue claims from the results” of a debt investigation, and a hearing set for today in San Juan—a hearing which will be streamed live on the Board’s website—with audio available in both English and Spanish. Board members Andrew Biggs, Arthur González, Ana Matosantos, and David Skeel are on the Special Claims Committee. The debt report includes a section which lays out numerous ways Puerto Rico’s municipal bonds and the steps that led to their issuance may have run afoul of laws and regulations. One issue which might or might not be addressed will be with regard to federal allocations promised to Puerto Rico to mitigate the devastation caused by Hurricane Maria—some $41 billion, especially because authorities estimate that less than a quarter of those funds have, in fact, been disbursed. Moreover, the promised, but unreceived amount appears to be less than half the projected level of $100 billion needed to complete reconstruction. According to the data offered by the US government and Puerto Rico, Puerto Rico’s El Nuevo Día has only been able to detail disbursements of approximately $7.640 billion to government entities, businesses, and families in Puerto Rico. Omar Marrero, the Director of the Central Recovery and Reconstruction Office (CRRO), noted: “The reimbursement process has been really hard, particularly when FEMA has imposed some requirements on us as if we were a risk jurisdiction, when we were not declared so.” At the same time, the government of Puerto Rico has not managed yet to get funds flowing from the permanent project program under §428 of the Stafford Act, which will guide most repairs and new constructions. Director Marrero argues that the continued “discriminatory treatment” is an example of Puerto Rico’s lack of political power due to its territorial status. If anything, in the wake of the Whitefish scandal, attention on the management of emergency funds has increased, and, as recently as last weekend, President Trump fanned the idea that the government of Puerto Rico is one of the most corrupt in the country.

To date, the bulk of the federal assistance has come via Congressional resolutions, with the distribution mainly through HUD, FEMA, and the Department of Health and Human Services: half of the allocations were made through the CDBG Disaster Recovery program; however, not even the first $1.5 billion has been made available—funds which were to be allocated last month to assist with the reconstruction of houses destroyed or damaged by the hurricane. Director Marrero noted: “It is still necessary to sign the agreement between HUD and the Puerto Rico Department of Housing. Without that contract, the funds cannot be disbursed,” adding that second part of the CDBG-DR package, which would reach $ 8.2 billion, will not arrive until next year, which would delay its impact on the economy and the development of infrastructure projects. He added that the funds are more important, especially because FEMA did not approve granting federal assistance for permanent reconstruction work, “based on having a bad experience with that program.” The wait may be understood as especially stressful, because the potential aid package from Congress includes nearly $2 billion in CDBG funding which must be used to rebuild the power grid. With the hurricane season still vicious, there are obvious fears at the delay. Thus, Puerto Rico is pressing to reactivate exemptions in the payment of part of the cost for debris removal and taking emergency measures in the face of a natural disaster. The disaster has also re-demonstrated a double standard: in the Lone Star State, Texas, where Hurricane Harvey caused $125 billion in damage, according to the National Hurricane Center, FEMA claimed it provided $13.820 billion in “the pockets of survivors” via federal and state grants, and flood insurance programs ($ 8.8 billion). In Puerto Rico, however, the percentage of homes with FEMA insurance is minimal.

Stormy Fiscal Warnings. Moody’s has warned that a “large part of the money (FEMA assistance) will not remain on the island,” a fiscal storm warning which could undercut Puerto Rico’s expectations of 2019 6.5% economic growth. Some of that projection assumes the government will be able to efficiently take advantage of the $4.8 billion in extra Medicaid assistance it received—funds which can be used until next September without a local match. Nevertheless, Puerto Rico must plan on the resumption of its contribution to the Mi Salud plan—a plan which will be complicated by the apprehension that Medicaid emergency funds may run out during in FY2020—an exhaustion which could carry a price tag of as much as $1 billion.

Has There Been a Double Standard? In the wake of Hurricane Katrina, which sent a number of us from Arlington County, Virginia hurtling to Mississippi to try to assist in rebuilding, and which leveraged Congress to name a bipartisan committee, a mere seventeen days after the storm struck, to investigate the Bush Administration’s response to the storm, with, in the Senate, twenty-two FEMA oversight hearings in six months—and within eight months, the release of 500-plus-page investigations into the Bush administration’s handling of the crisis—investigations with dozens of recommendations for reform; there has been no comparable reaction from this Congress to a storm which caused a much greater loss of American lives—nearly 70% more. The U.S. Senate Homeland Security and Governmental Affairs Committee, which oversees FEMA, has held just two hearings; neither the House nor the Senate has issued any major reports. Hurricane Maria, according to George Washington University’s report, killed an estimated 2,975 Americans in Puerto Rico—an estimate which, last week, the President claimed was a fake number. Or, as Irwin Redlener, the Director of the National Center for Disaster Preparedness at Columbia University put it: “Puerto Rico is getting far less attention, in spite of it being one of the worst disasters in modern American history, than Katrina, and far less attention than we got for Superstorm Sandy…From the beginning, the handling of Maria’s consequences both from the White House and Congress has been abysmally inadequate.” Indeed, in the immediate aftermath of Katrina’s Gulf Coast devastation, House GOP leaders called for an investigation; they created a select committee to investigate the storm. That committee held nine public hearings; it reviewed more than 500,000 pages of documents, according to the 582-page report, titled “A Failure of Initiative,” which was released less than six months after Katrina struck. The Senate conducted its own investigation into the Bush administration’s response to Katrina, with the Senate Committee on Government Affairs holding nearly two dozen hearings with 85 witnesses; the Committee reviewed over 838,000 pages of documents; it heard testimony from 325 persons involved in the response. Many of the hearings focused on narrow issues, such as search-and-rescue efforts after the storm. In this Congress, in contrast, the House Oversight and Government Reform Committee has held two hearings related to the 2017 hurricane season, and it has reviewed more than 17,000 documents.  Last week, Ranking House Oversight Committee Member Elijah Cummings (D-Md.) released a report complaining about a lack of hearings and responsible oversight—a report which might have triggered Chairman Tray Gowdy (R-S.C), Chairman of the House Committee on Oversight and Government Reform, to FEMA to request all communications from 13 FEMA officials related to 10 different aspects of FEMA’s response to the storm, including the lack of qualified personnel, wiring issues with the electrical system and problems with existing disaster plans. It was just the second letter requesting information about FEMA sent by the committee and the first since Oct. 11, 2017.

Motor City Comeback

September 14, 2018

Good Morning! In this morning’s eBlog, we report Congressional agreement to avert a shutdown, and we report on the remarkable cash purchases of homes in the Motor City, marking mayhap the most dramatic mark yet of Detroit’s Phoenix-like recovery from the nation’s largest ever municipal bankruptcy.  

Keeping the Federal Government Open. The House and Senate yesterday reached agreement to avert a federal government shutdown by passing a large package of appropriations bills, as well as a continuing resolution which will, if signed by the President, fund the rest of the federal government through Pearl Harbor Day, December 7th. The package would keep the government funded past Oct. 1, the deadline for Congress to act. House Appropriations Committee Chair Rodney Frelinghuysen (R-N.J.) reported that the respective House and Senate bodies had completed work on the Defense and Labor, Health and Human Services and Education annual spending bills—bills which in this case represent the bulk of federal discretionary spending: combined, they total $786 billion, nearly two-thirds of all discretionary appropriations. The anticipation is that by including the continuing resolution (CR) in the package, it will make it less likely the President will make good on threats to shut down the federal government over border wall funding, albeit, last week, the President stated: “If it happens, it happens. If it’s about border security, I’m willing to do anything.”  

Motor City Comeback. There is stunning fiscal reversal of fortune in Detroit, where, after, decades ago, families fled the city, and suburban families wanted no part of moving in from the suburbs—contributing to what triggered the largest chapter 9 municipal bankruptcy in U.S. history, suddenly buyers appear to be home shopping—and shopping to purchase homes in Detroit with cash. It seems that affordable housing process, higher income buyers, and growing investor interest—with the investors smelling signal profits from flipping—have made cash deals more common. For the city, a relatively unique one in that it relies on income taxes more than most cities, the impact on assessed property taxes will be icing on the fiscal cake. In the first half of this calendar year, nearly 90% of all single-family and condo purchases were made with cash—more than triple the national average. One cause is that the median price in the first part of this year was only $32,428—which, albeit 20% higher than in the first half of this year: and it seems to be a heck of a bargain: ATTOM Data reports the national median price is $234,000.

So many purchasers are buying for investment purposes: renovating and flipping distressed homes, some as—some as large as 4,200 square feet and with architectural significance—in Detroit’s downtown area and historic neighborhoods. But in older neighborhoods near the regional Federal Reserve offices and the Detroit Institute of Art, home buyers looking to buy those renovated homes—often affluent young professionals or empty-nesters—may also face challenges in getting a mortgage, because those properties are difficult to appraise. Lenders have a challenge in determining the value of a newly renovated home in a neighborhood otherwise filled with distressed properties, because there are few comparable sales to benchmark against. That also makes payments in cash a likely option.

In effect, for the Motor City, this could be a phoenix moment of its fiscal and physical recovery: Quicken Loans is working with Home Depot and the Detroit Land Bank Authority to return Detroit’s vast stock of vacant, abandoned, and foreclosed property to productive use. Under the city’s “Rehabbed and Ready” program, the Authority selects properties in its inventory for Home Depot to rehab; Quicken preapproves interested buyers for mortgage financing; and the homes are purchased—all part of an effort to stabilize the market and create comparable sales to help future buyers.

Quicken Loans Community Fund Vice President of strategic investments, Laura Grannemann, noted: “Tax foreclosure is a force that has generated blight, increased speculation, and driven property values down…But by creating strategically placed sales, it has a ripple effect across the community and allows other individuals to refinance their home and get some equity out or to sell that home and buy a new one.”

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.”

Puerto Rico’s Fiscal & Governing Twilight Zone

August 28, 2018

Good Morning! In this morning’s eBlog, we consider the shaky promise of PROMESA for the U.S. territory of Puerto Rico, an entity somewhat in Rod Serling’s Twilight Zone between a state and a municipality.

A Fiscally Appealing Chapter 9 case? U.S. Representatives Raul Grijalva (D-Az.) and Nydia Velasquez (D-N.Y.) yesterday warned the U.S. First Circuit Court of Appeals that House Natural Resources Committee Chairman Rob Bishop’s (R-Utah) interpretation of the PROMESA statute to be legislation intended to offer special protections to creditors or limit the restructuring of the debt through the judicial route was erroneous, arguing, in an amicus brief in the case brought by AMBAC against Puerto Rico and the PROMESA Oversight Board that “the purpose of PROMESA was not to grant to the creditors of Puerto Rico, including the bondholders, special protections that other municipal creditors do not have, nor to avoid losses to those creditors.” In addition, they argued for rejection of the interpretation that the Congressional statute for the restructuring of the public debt of Puerto Rico by judicial means had been established as the last resort of the Promesa law. Ranking Member Rep. Raul Grijalva (D.-Az.) indicated that the statute simply requires Puerto Rico to make “good faith efforts to achieve a consensus restructuring with creditors” prior to filing a petition through the courts. The two Members noted: “Neither the legislative record, nor the legal text supports an interpretation of PROMESA that gives creditors greater rights than those of a traditional reorganization at the expense of debtors’ rights.”