September 22, 2017
Good Morning! In today’s Blog, we consider the physical and fiscal storm threats to Puerto Rico, before finally looking back at post-riot Ferguson, Missouri and its ensuing fiscal state.
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Fiscal & Fiscal Storm. Hurricane Maria, the most powerful storm to make a direct hit on the U.S. Territory of Puerto Rico in almost a century, has devastated—physically and fiscally the island: it knocked out all electricity, deluged muncipios with flash floods and mudslides—with the storm following in the wake of Hurricane Irma. Thousands of residents fled the winds and rain, as Gov. Ricardo Rosselló warned he could not be certain of the storm-worthiness of structures intended to offer shelter. In the capital of San Juan, tree trunks and electricity poles had snapped like twigs, obstructing major highways—that is obstructing those not already flooded. There was widespread devastation in muncipios. Gov. Rosselló estimated there were at least $1 billion in damages to the island—and that was in the wake of the earlier hurricane which Moody’s Investors Service Vice President Richard Donner had stated would damage many of the Puerto Rico Electric Power Authority’s transmission lines, meaning that not only would the public authority be forced to use its little remaining cash on repairs, it would also suffer reduced income from the electrical outages. Bondholders will be ever farther back in the line.
Mayor Félix Delgado of Cataño, on the northern coast, told a San Juan radio station that the storm had destroyed 80 percent of the homes in the Juana Matos neighborhood—fortunately all had been evacuated. FEMA Director Brock Long said that the U.S. Virgin Islands and Puerto Rico had very fragile power systems, thus electricity was expected to remain out for a very long time. Indeed, the storm laid bare Puerto Rico’s fragile infrastructure, exacerbating fiscal and physical challenges—especially for the fiscally insolvent state-owned Puerto Rico Electric Power Authority (PREPA), knocking out all the work PREPA had completed in the wake of the earlier Hurricane Irma—and exacerbating the question with regard to how Puerto Rico, already in quasi chapter 9 bankruptcy, could conceivably finance the requisite comprehensive repairs. Before that, PREPA and the Governor confront the urgent challenge of restoring potable water and electricity: President Elí Díaz Atienza of the Aqueduct and Sewer Authority said that the agency’s communications systems had gone down and that he was unable to check on plants and offices. Puerto Rico’s Emergency Manager Director Abner Gomez’s stated that this would be an unprecedented challenge; President Trump declared Puerto Rico a disaster zone and ordered federal assistance.
For the U.S. territory already in quasi-bankruptcy, the devastation raised hard questions with regard to how PREPA, especially, will be able to generate revenues to meet its already overwhelmed debts. Even though, as Gov. Rosselló said, Puerto Rico had updated its building codes about six years ago; nevertheless, many traditional dwellings, the Governor said, “had no chance.” Nevertheless, he noted: “There is no hurricane stronger than the people of Puerto Rico.”
Still, even assessing the extent of the damage has been fraught with uncertainty: dozens of the island’s muncipios remained isolated and without communication in the wake of the Category 4 storm with 155 mph winds, forcing the imposition of a 6 p.m. to 6 a.m. curfew imposed by the Governor. Fabulous Matt Fabian of Municipal Market Analytics noted that the damage wrought by Maria could factor into future decisions by the PROMESA control board with regard to what payments might eventually go to Puerto Rico’s municipal bondholders, asking rhetorically: “Why would a court decide ‘yes, investors, you should take more money off the island?” (The PROMESA Board is currently trying to assess what portion of the Puerto Rico’s current obligations to investors or holders in its municipal bonds must be paid.)
How Hard the Road to Recovery Is. Not far from the Missouri courthouse where a white former police officer had been acquitted in the shooting death of a black man, a federal judge said in a hearing that officials in the suburb of Ferguson had made “good progress” since 2014, even as barricades and yellow police tape surrounded the court house, evidence of the protests that have been going on since Jason Stockley was found not guilty in the 2011 shooting death of Anthony Lamar Smith. Actually, per capita income has declined almost 6 percent; yet the mood was more hopeful inside the courtroom of U.S. District Judge Catherine Perry, who is overseeing the federal consent decree struck last year between the City of Ferguson and the U.S. Justice Department related to unconstitutional policing practices which came to light three years ago in the wake of a white police officer shooting and killing an 18-year-old black man, Michael Brown. In the hearing, Jude Volek of the Justice Department’s Civil Rights Division, testified the Justice Department was committed to seeing reforms through in Ferguson, adding that Ferguson had made “good faith” efforts to meet the demands of the consent decree, which, as we had noted at the time, came in the wake of the Justice Department report finding that the city had treated residents as sources of revenue rather than as citizens to be protected.
The court heard further testimony that Ferguson had rescinded ordinances, made “really incredible progress” on its use-of-force policies thanks to Ferguson Police Commander Frank McCall, boosted assistance and support for officers in dealing with the stress of their jobs, taken “really proactive steps” on officer pay, and put in place a new judge who brought a “fresh approach” to the city’s municipal court—a court which, nevertheless, is confronted by a backlog of “thousands of cases,” cases predating Mr. Brown’s 2014 death. The city’s attorney, Apollo Carey, admitted in his testimony that Ferguson had a large backlog of cases, testifying the city needed to prioritize its work on the backlogged boxes of files to determine whether there is “good cause” to continue prosecuting the cases when outstanding arrest warrants could carry significant repercussions for citizens accused of minor violations. Mr. Carey noted Ferguson has 42 police officers and wants to round that number up to 50.
In the hearing, Natashia Tidwell, the court-appointed monitor overseeing the implementation of the consent decree, agreed that the city had made progress on municipal court reform, calling the new municipal judge a “breath of fresh air” who obviously had “empathy” for the individuals appearing before him; however, she testified that thousands of citizens still had warrants out and “could be living in constant fear” that they would be arrested. Judge Perry, at the end of the hearing, said she believed progress is being made. But whether fiscal progress is being made seems to be a different question—one not before the Judge. The city,which, twenty-seven years ago was a middle class suburban enclave north of St. Louis with a population about three-quarters white, by 2000, was roughly split between black and white with an unemployment rate of 5%. That has continued to shift, so that by 2010, the population was two-thirds black, unemployment had exceeded 13%, and the number of residents living in poverty had doubled in a decade. The city’s population has declined by just under 6 percent since 2000; and estimated median income has dropped by nearly 2o%.