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.

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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.”

Fiscal & Physical Recoveries

eBlog

July 30, 2018

Good Morning! In this morning’s eBlog, we consider a Puerto Rican post-hurricane perspective on federalism amidst fiscal and physical challenges.

Unequal Americans? Puerto Rican statehood supporter María Meléndez, the Mayor of Ponce, told the Capitol Hill publication the Hill that officials are encountering more sympathy from Congress in the wake of the two hurricanes which devastated the U.S. territory last September. Through constant visits and lobbying efforts, Mayor Meléndez has worked to remind Congress that Puerto Rico is part of the U.S., but has not ever been given voting representation in Congress. She noted that in a visit with  House Appropriations Committee Chair Rodney Frelinghuysen (R-N.J.), the Chair told her that many members of Congress had been previously unaware that Puerto Rican nationals are natural-born U.S. citizens: “Chairman Frelinghuysen told me: “You are right, you are absolutely right. I am a Republican, but why can’t you vote? We don’t get it. But we didn’t know enough about Puerto Rico until after María.’” The Mayor, as well as an increasing number of Puerto Rican elected leaders, have made a habit of visiting Senators and Representatives with large Puerto Rican constituencies to lobby for support for the territory’s reconstruction after the devastation of the hurricanes last summer—lobbying especially vital, because Puerto Rico is only represented by a resident commissioner, a four-year elected official who has access to the floor of the House of Representatives—but who may not vote. Mayor Meléndez, a member of the New Progressive Party (PNP) in Puerto Rico, said Puerto Rico’s inequitable political treatment is a civil rights issue, a position she shares with Resident Commissioner González-Colón and Gov. Ricardo Rosselló. The Mayor notes that Puerto Rico’s current status has delivered scant results: “Look at the results of the Commonwealth up to now. We’ve worked for what? For whom?”

For a brief moment in time, the President, last October, had suggested eliminating Puerto Rico’s debt because of the severe impact on its municipal bond interest rates; however, White House Office of Management and Budget Director Mick Mulvaney nixed any such offer when he instead said Puerto Rico needed to “fix the errors that it’s made for the last generation on its own finances.” OMB Director Mulvaney, as the White House has accumulated the greatest national debt in the nation’s history and facing a shutdown threat at the end of September, failed to mention that the accumulation of debt and deficits under his watch make Puerto Rico’s pale in comparison.

Unsurprisingly, a key issue for Mayor Meléndez is that the PROMESA Act focused on the territory’s finances, but overlooked those of Puerto Rico’s 78 municipalities, or muncipios, noting: “This economic crisis has forced the central government to impose more responsibilities on the municipalities,” which, she notes, rely on three revenue sources: business licenses, building permits, and property taxes. In the wake of the hurricane, Mayor Meléndez had decided to grant exemptions on building permits, adversely affecting the municipality’s budget, but taking the step as a critical action to attract new businesses and the income from property taxes and business licenses. In addition, the municipality created alliances with five neighboring municipalities, irrespective of party affiliation, to pool costs and create better bids on construction contracts. As she notes, notwithstanding the fiscal strain, Puerto Rico’s municipalities will have an outsize role in rebuilding. And, she reminds us: “Reconstruction won’t take a year; it will take several years. It took New Orleans 13 years to recover from Hurricane Katrina.” But, New Orleans, after a delay, received far more federal assistance—fiscal and physical assistance which are limited, especially when it comes to attracting investments. The cost and access to power—and the dire state of public infrastructure add to the challenge—or, as the Mayor puts it: “At 23 cents per kilowatt, no company is going to set up shop.” Nearly a year after Hurricane Maria, many families still rely on generators or simply do not have electricity available at home.