What Municipal Fiscal Items Might Be Found in Stockings?

December 11, 2017

Good Morning! In this a.m.’s Blog, we consider the ongoing and renewed fiscal challenges confronting Connecticut–albeit with some hints that Santa might have paid an early visit and filled some stockings in Hartford; then we observe the still unmet, post-hurricane fiscal and physical storms which have slammed the U.S. territory of Puerto Rico–but where the federal response has been less than anemic.

Visit the project blog: The Municipal Sustainability Project 

Coal in the Fiscal Stocking? Barely weeks after Connecticut Gov. Dannel Malloy signed the state’s FY2018 budget, Connecticut has a new round of fiscal crises—meaning the Governor will have to go back to the fiscal drawing board to come up with a new fiscal plan to address a state deficit of at least $207 million, even as he is confronted by a hurtling insolvency for the state’s special transportation fund: Connecticut statutes mandate the Governor to submit a mitigation plan within 30 days when a shortfall exceeds 1% of the general fund. Ergo, Gov. Malloy alerted bond rating municipal bond rating agencies that the fund, key to back stopping critical transportation projects, could be in the red by the beginning of next summer, noting to reporters: “It’s the same things I’ve been telling you guys for years, that we’ve got do something about the transportation fund: “Revenue is coming in, and was predicted to come in slower in large part because people are buying less gas and gas is cheaper.” His remarks follow by just under three years is then announcement of a 30-year, $100 billion transportation infrastructure program—a program which, however, has scarcely commenced. Now, as the Governor anticipates the state’s budget deficit to rise, given delays in implementing reductions in medical benefits which had been projected to play a key fiscal role in the state’s $41 billion biennial spending plan, the Gov. added: “Unless they’re selling new hats that deliver rabbits, a mitigation plan means there only two things you can do—cut spending, raise revenue, or do a combination of both,” with his comments coming a day after huddling with legislative leaders about the hemorrhaging deficit—just two months after the Governor had signed—four months’ late—and now as Congress is on the precipice of sending the White House a tax cut bill that will signally increase the federal debt and deficit—and impose Medicaid cuts and discombobulate Connecticut’s budget—even if the federal government does not shut down. With the Constitution State on the market to sell $400 million of taxable general obligation bonds and $350 million of GO bond anticipation notes, S&P has been less than optimistic, with analyst David Hitchcock indicating a 33% chance the agency could lower Connecticut’s rating within two years, writing: “The outlook reflects what we believe to be increasing constraints on achieving long-term structural balance, highlighted by Connecticut’s delay in enacting a fiscal 2018-2019 biennial budget.” The rating agency is apprehensive about the state’s above-average debt, high unfunded public pension liabilities, as well as OPEB unfunded post-employment benefit liabilities—all coming at a time of population declines, economic stagnation, and weak reserves. Likewise, Fitch warned Connecticut was a state to flag in the new year: “The state has struggled in recent years with revenues failing far short of projections,” while Municipal Market Analytics indicated it anticipates the new state deficit to trigger aid cuts, cuts which will adversely impact the state’s municipalities, writing: “There is a significant medium-term downside scenario developing for the paper of middle-class and poorer Connecticut towns.” Thus, Gov. Malloy said he expects the General Assembly to reconvene for a special session prior to Christmas, especially due to the potential fiscal impact of the announced CVS takeover of Aetna—the state’s largest employer, based in Hartford, and Stanley Black & Decker’s announcement that it will open a 23,000-square-foot advanced manufacturing center in downtown Hartford—kind of a pre-Christmas good gnus/bad gnus combination. , giving the global tools maker its first presence in the Capital City. Almost as if Santa had left an early fiscal stocking present, the twin developments indicate that Hartford, notwithstanding its fiscal and financial struggles and economic decline, is resilient: a city now at a crossroads, with the addition of more than 1,000 new housing units, the opening of the University of Connecticut’s new campus at the old Hartford Times building.

Build Back Mejor! Puerto Rico Gov. Ricardo Rosselló flew to New York yesterday for fiscal and physical reconstruction meetings, after meetings with Puerto Rico Senate President Thomas Rivera Schatz and House Leader Carlos Méndez, as he sought to reach consensus on a unified strategy and position with Congress and the Trump administration—hoping that President Trump will agree to some special dispensations for the U.S. territory—especially with regard to manufacturing. His voyage comes as the Justice Department has filed a constitutional defense of the Puerto Rico Oversight, Management, and Economic Stability Act, arguing the law gives the federal government flexibility in making appointments to address Puerto Rico’s debt crisis—with the trip coming as the federal government, last week, responded to an August 7th filing by hedge fund Aurelius Capital in the Title III bankruptcy case: PROMESA Oversight Board Executive Director Natalie Jaresko said the board supported the U.S. filing in defense of PROMESA’s constitutionality, noting: “We welcome the United States Solicitor General’s legal arguments in support of PROMESA and the board’s constitutionality…The devastation of Hurricanes Irma and Maria make it even more important to have in place an orderly process for restoring the island’s finances, providing oversight and increasing confidence among residents and businesses while upholding equitable treatment for creditors.” Potentially at stake are the fates of $74 billion in outstanding public sector debt, $49 billion in pensions, and the control not only of Puerto Rico’s government, but also its public corporations: in the complaint, Aurelius said the Title III bankruptcy petition should be dismissed, because its filing was not validly authorized by the validly constituted oversight board: in particular, Aurelius charged that the appointments clause of the U.S. Constitution was breached in appointing the PROMESA board’s members, arguing that, according to the Constitution, all “principal officers” of the United States must be appointed by the President of the United States, and approved by the U.S. Senate. In its August complaint, Aurelius had argued that the board members are “principal officers” of the U.S. In a responding federal brief, the federal government wrote that the PROMESA appointments scheme “is not subject to the Appointments Clause, because the Oversight Board is a component of the territorial government,” noting that Congress enacted PROMESA under the Territory Clause of Article IV of the Constitution, which gives Congress “‘broad latitude to develop innovative approaches to territorial governance,’ Puerto Rico v. Sanchez Valle (2016),” with the U.S. attorneys writing: “The Appointments Clause does not govern the appointment of territorial officers, including members of the Oversight Board, because Congress may legislate for the territories ‘in a manner…that would exceed its powers or at least would be very unusual, in the context of national legislation enacted under other powers delegated to it.’ Palmore v. United States (1973).” The attorneys added that historical practice shows that the “Appointments Clause is inapplicable to the appointment of territorial officers.” (In 1900, Congress passed the Foraker Act, which said that a locally-elected house of representatives should work alongside a governor and 11-member elected council nominated by the President and confirmed by the U.S. Senate. In 1947, the U.S. government gave Puerto Rico the power to also elect a governor.) Ergo, the federal lawyers argued that these local elections are not in conformity with the Appointments Clause, but rather have historically been practiced without challenge. Not dissimilarly, Aurelius Capital had also argued that PROMESA’s appointment mechanism for the Oversight Board also encroached on the U.S. President’s executive authority in violation of the Constitution’s separation of powers: while the statute encouraged the President to pick six of the seven board members from those nominated by Congress, according to the act: “he could have requested the recommendatory lists to be supplemented with additional candidates or nominated his own candidates for Senate confirmation under PROMESA’s appointments structure.”

Will There Ever Be Shelter from the Storm? More than two months after Hurricane Maria devastated Puerto Rico, the U.S. territory, unlike Houston or Florida, has yet to receive any of the $4.9 billion of short-term loans promised in the storm aid package Congress passed at the end of October. Gov. Christian Sobrino, Gov. Rosselló representative on the PROMESA oversight board, confirmed last Friday that no Puerto Rican entity has received any portion of the funds, which were requested for basic functions—with the inexplicable delay raising fear after the Puerto Rican government told the oversight board that the island utility, PREPA, and water utility, PRASA, would run out of money this month—as discussions with the U.S. Treasury and Department of Homeland Security remain unsettled. Puerto Rico has requested $94 billion in federal aid, only a portion of which has been granted, as Members of Congress have raised concerns over how the island’s government will steward billions in federal money—an ironic concern given the current Congressional tax cut proposals projected to add $1.4 trillion to the federal debt, raising questions with regard to not just discrimination, but also a double standard. Puerto Rico Rep. Rafael “Tatito” Hernandez, of Puerto Rico’s House of Representatives, last Wednesday wrote to U.S. Treasury Secretary Steven Mnuchin with regard to the status of the loan package—an epistle to which, at least as of last Friday, he has received no response. Rep. Hernandez noted that Members of Congress still need reassurance that the funds will be well spent, adding that: “A lot of them have some issues.” Whether their issues in any way are comparable to the scale of as much as $100 billion of damage to Puerto Rico, however, or to the challenge to the PROMESA Board as it seeks to unwind the equivalent of the largest chapter 9 municipal bankruptcy in U.S. history is another question. Now Puerto Rico warns it will have to redraw plans for economic reforms. As fabulous Matt Fabian of Municipal Market Analytics noted: “There is a risk that Puerto Rico will use the operating loans and rebuilding dollars as short-term financing to avoid making hard choices in terms of making economic reforms.” As of last Friday, Puerto Rico’s utility, PREPA, was generating only 68% of the power needed and 7% of customers still lacked access to clean water. 

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Governance Amidst Fiscal and Stormy Challenges & Uneven Federalism

December 1, 2017

Good Morning! In today’s Blog, we consider the fiscal and governing challenges in one of the nation’s oldest municipalities, and its remarkable turnaround from verging on becoming the first municipality in Virginia to file for chapter 9 municipal bankruptcy, before veering south to assess what President Trump has described as the U.S. territory of Puerto Rico suffering from “from broken infrastructure and massive debt.” 

Visit the project blog: The Municipal Sustainability Project 

Revolutionary Municipality. Petersburg, Virginia’s City Council, one of the oldest of the nation’s cities, as part of its fiscal recovery, last week had voted 5-2 to request the Virginia Legislature to change the city’s charter in order to transfer the most critical duties of the Treasurer’s Office to a newly-created role of city collector—a position under the Council’s control, as part of its wish list for the newly elected state legislature. Petersburg, an independent city of just over 32,000, is significant for its role in African-American history: it is the site of one of the oldest free black settlements in the state–and the nation.  The unprecedented City Council effort seeks to strip power from an elected office—an office some believe curried some fault for contributing to Petersburg’s near chapter 9 municipal bankruptcy. Ironically, the effort came the same month that voters elected a former Member of the City Council to the office of Treasurer. Councilman Treska Wilson-Smith, who opposed the move, stated: “The citizens just voted in a Treasurer. For us to get rid of that position is a slap in the face to the citizens who put them in there.” Unsurprisingly, State Senator Rosalyn Dance, who for a dozen years has represented the city as part of her district in the Virginia House of Delegates, and who will consider the city’s legislative agenda, said she was concerned. Noting that the newly-elected treasurer has yet to serve a day in office, she added that much of the turmoil had to do with the current Treasurer, so, she said: “I hope [the] Council will take a second look at what they want to do.” Former Councilman and Treasurer-elect Kenneth Pritchett, who declined to comment, ran on a platform of improving the office’s operations by standardizing internal controls and implementing new policies: he urged Petersburg residents to contact lawmakers in a Facebook message posted after the Council took action, calling the decision “a prime example of total disrespect for the citizens’ vote.”

Nevertheless, Council Members who supported the legislative agenda language said it was time for a change, or, as Councilman Darrin Hill noted: “I respect the opinion of the citizens, but still, we believe if we keep on doing the same thing that we have done, then we will keep on getting the same results.” Other Councilmembers felt even better about their votes after the Council received good financial news earlier this week when newly audited reports showed a boost in Petersburg’s reserve funds, increased revenue, and a drop in expenditures—a marked fiscal reversal. In addition, the city’s external auditor provided a clean opinion—a step up from last year’s “modified” opinion—an opinion which had hinted the city had failed to comply with proper accounting principles—and a municipal fiscal year which commenced $19 million in the hole—and $12 million over budget—in response to which the Council raised taxes, cut more than $3 million in funding from the city’s chronically underperforming schools, eliminated a popular youth summer program, and closed cultural sites. Former Richmond City Manager Robert Bobb’s organization—which had been hired to help the city recoup from the verge of chapter 9 municipal bankruptcy, had supported transferring some of the duties of the Treasurer to a city collector position as a means to enhance the city’s ability to improve its tax collections.

Subsequently, late last September, another shoe fell with a 115-page report which examined eight specific aspects of city governance—and found allegations of theft involving current Treasurer Kevin Brown—claims Mr. Brown repeatedly denied, but appeared to contribute to his decision not to run for reelection—an elected which Mr. Pritchett won by a wide margin, winning just over 70 percent.  Nevertheless, Mayor Samuel Parham told his colleagues: “We are treading too thin now to risk someone who is just getting to know the job. We can’t operate as a city of hoping…Now that we are paying our bills and showing growth, there is no need to go back in time and have a situation that we had.” However, some Councilmembers believe they should await more facts with regard to Mr. Brown’s actions, especially with regard to uncollected municipal tax revenues, or, as Councilmember Wilson-Smith put it: “There are some questions which we still have unanswered when it comes to why the taxes were not collected: It appears to me that a lot of the taxes are not being collected, because they are un-collectable,” or, as she noted: Many listed for unpaid taxes were deceased.

David Foley with Robinson, Farmer, Cox Associates, Petersburg’s external auditor, had presented figures before Petersburg residents and the City Council, noting the clean opinion is a substantial improvement from last year, when auditors issued a modified opinion which suggested Petersburg had failed to maintain accounting principles—testifying that the improvement mainly came from the city being able to provide evidence of the status of some of its major financial accounts, such as public utilities. He did recommend that Petersburg strengthen some of its internal controls over the next fiscal year—noting, especially, the reconciliation of the city’s public utility system, which some officials have suggested should be sold to private companies. Indeed, City Manager Aretha Ferrell-Benavides told City Council members that a plan to correct some of the deficiencies will start in January, with monthly updates on corrective actions that she would like to continue to take. The see-saw, key fiscal change of nearly $2 million more than had been projected arose from a combination of increased real estate tax collections, and a $2.5 million reduction in expenditures, mainly came from health and welfare, and non-departmental categories: in total, there was a $7.5 million increase in the city’s chief operating fund. Unsurprisingly, Mr. Foley, in response to Councilmember Charlie Cuthbert, noted: “It was a significant year. There is still a long way to go,” indirectly referencing the city’s commencement of FY2017 $19 million in the hole and $12 million over budget—and with dire threats of legal action over unpaid bills—triggering a tidal wave of legal bills of nearly $1 million—of which about $830,000 went to Mr. Bobb’s group—while the city spent nearly $200,000 on a forensic audit.  Council members received the presentation on the annual financial report with a scant two days prior to the state imposed deadline to submit the report—after, last year, the city was about seven months late in submitting its annual financial report.

Insufficient Shelter from the Fiscal Storm. In the brutal wake of Hurricane Maria, which destroyed about 57,000 homes in Puerto Rico last September and left another 254,000 severely impacted, 50 percent of the U.S. territory’s remaining 3.5 million inhabitants are still without electricity—a lack that has adversely impacted the ability to reconstruct the toll wrought by Maria, not to mention the economy, or loss of those, more than 150,000, who could afford to leave for New York and Florida. Puerto Rico still confronts a lack of drinking water. Governor Ricardo Rosselló had assured that 95% of the island would have electricity by today, but, like too many other promises, that is not to be. An irony is that the recent visit of former President Bill Clinton, who did not come down to toss paper towels, but rather to bring fiscal and physical assistance, may be, at long last, an omen of recovery. It was just 19 days ago that Gov. Roselló appeared before Congress to request some $94 billion to rebuild the U.S. territory—a request unmet, and a request raising questions about the Puerto Rican government’s ability to manage such a vast project, especially in the wake of the $300 million no-bid contract awarded to a small Montana utility company, Whitefish, to restore the territory’s power—an effort House Natural Resources Committee Chair Rob Bishop (R-Utah) described as raising a “credibility gap.” Indeed, in the wake of that decision, Chairman Bishop and others in the Congress have called for the unelected PROMESA Financial Oversight and Management Board, known on the island as “la junta,” to extend its powers to overseeing the rebuilding effort as well—a call which, unsurprisingly, many Puerto Ricans, including pro-statehood Governor Rosselló, see as a further threat to their democratic rights. 

Nevertheless, despite the quasi-takeover threat from Congress, U.S. District Court Judge Laura Taylor Swain has denied the PROMESA Oversight Board’s request to appoint an emergency manager, similar to those appointed by Gov. Rick Snyder in Detroit, or by the former Governor of Rhode Island for Central Falls under their respective authority under state authorizations of chapter 9 municipal bankruptcy. Puerto Rico, because it is not a state, does not have such authority; consequently, Judge Swain has determined the Board does not have the authority to appoint public officials—a holding which Gov. Rosselló responded to by noting that the decision upheld his office’s position about the board’s power, writing: “It is clear that the [board] does not have the power to take full control of the Government or its instrumentalities…[T]he administration and public management of Puerto Rico remains with the democratically elected government.

Is There Shelter from the Storm?

November 20, 2017

Good Morning! In today’s Blog, we consider the deepening Medicaid crisis and Hurricane Maria recovery in the U.S. territory of Puerto Rico.

Visit the project blog: The Municipal Sustainability Project 

Well I’m living in a foreign country, but I’d bound to cross the line
Beauty walks a razor’s edge, someday I’ll make it mine
If I could only turn back the clock to when God and her were born
“Come in” she said
“I’ll give you shelter from the storm”.

Bob Dylan

Shelter from the Storm & Governing Competency? With this session of Congress entering its final two weeks of the calendar year, Puerto Rico’s Medicaid funding crisis is deepening: Hurricane Maria wrought serious physical and fiscal damage to Puerto Rico’s health-care system; yet, not a dime of the federal disaster relief money has, to date, been earmarked for the island’s Medicaid program. The White House, Friday, belatedly submitted a $44 billion supplemental payment request, noting that the administration was “aware” that Puerto Rico needed Medicaid assistance; however, the Trump Administration put the onus on Congress to act—leaving the annual catchall omnibus appropriations bill as the likely last chance: this Congress is scheduled to adjourn on December 14th.  But with a growing list of “must do” legislation, including the pending tax bill and expiring S-CHIP authorizations, time is short—and the administration’s request is short: In a joint statement, House Energy and Commerce Committee ranking members Frank Pallone Jr. (D-N.J) and Senate Finance Committee ranking member Ron Wyden (D-Or.) called on the Trump Administration to “immediately provide additional funding and extend a one-hundred percent funding match for Medicaid in Puerto Rico and the U.S. Virgin Islands, just as we did in the aftermath of Hurricane Katrina,” with the request coming amid apprehensions that unless Congress acts, federal funds will be exhausted in a matter of months—potentially threating Puerto Rico’s ability to meet its Medicaid obligations: the Puerto Rican government has requested $1.6 billion from Congress and the Trump administration in the wake of the devastating physical and fiscal storm, with Gov. Ricardo Rosselló having, last month, requested $1.6 billion a year over the next five years, writing to Congressional leaders that the “total devastation brought on by these natural disasters has vastly exacerbated the situation and effectively brought the island’s healthcare system to the brink of collapse.” Puerto Rico in 2016 devoted almost $2.5 billion to meet its Medicaid demands—so even the proposed reimbursement would only cover about 60 percent of the projected cost. The urgency comes as the House, earlier this month, passed legislation reauthorizing the CHIP program, including $1 billion annually for Puerto Rico for the next two years, specifically aimed at shoring up the island’s Medicaid program. Nevertheless, despite the progress in the House on CHIP funding, the Senate has yet to moved forward with its version of the legislation—and the version reported by the Senate Finance Committee does not include any funds for Puerto Rico. Should Congress not act, up to 900,000 Puerto Ricans would likely be cut from Medicaid—more than half of total enrollment, according to federal estimates.

Rep. Bruce Westerman, Chair of the House Subcommittee on Oversight & Investigations of the House Natural Resources Committee, last month, had noted, it was “obvious PREPA did not know how to draft a FEMA-compliant contract, nor did PREPA officials adhere to the advice of their own counsel on how to comply: I believe this is precisely why the Oversight Board should be granted more authority. While we understand the sense of urgency for the people of Puerto Rico, oversight and transparency are vital to this recovery process.” House Committee on Natural Resources Chairman Rob Bishop added: “A legacy of dysfunction (at PREPA) has created a competence deficit that threatens the island’s ability to improve conditions for its citizens. Confidence in the utility’s ability to manage contracts and time-sensitive disaster related infrastructure work is long gone.” The Oversight Board announced its plan to appoint Noel Zamot to replace current PREPA leader Ricardo Ramos just a day or two after board members met with Chairman Bishop, according to a Bishop spokesperson. At a Committee on Natural Resources hearing last Wednesday, Chairman Bishop continued to call for more outside control over Gov. Ricardo Rosselló’s government, stating: “The lack of institutional controls…raises grave concerns about the government of Puerto Rico’s ability to competently negotiate, manage, and implement infrastructure projects without significant independent oversight: One of the things that I think we’re walking into here is a tremendous credibility gap, based on Whitefish and other subsequent decisions that are going on here.” (The “Whitefish” to which Chair Bishop was referring was Whitefish Energy, which had been retained by PREPA to help fix Puerto Rico’s electrical grid: observers have questioned the adequacy of the company’s experience, the fact that it is based in the same Montana town as the U.S. Secretary of the Interior, and the rates it is charging to Puerto Rico.)

Prior to the hearing, Gov. Rosselló had released a request to the federal government for $94 billion in medium- and long-term aid for recovery from hurricanes Irma and Maria—a request unlikely to be met—or, as Chairman Rob Bishop “You’re asking for an unprecedented $94 billion: “That’s a lot of money. That’s not going to happen unless people are going to see some changes in the way cooperation is made, and the way that money’s going to be spent.” The Governor’s responses came as—on the other side of the Hill, PREPA Executive Director Ricardo Ramos explained to the U.S. Senate Energy and Natural Resources Committee the process PREPA used to hire Whitefish Energy to repair Puerto Rico’s energy grid. He testified that in the wake of Hurricane Irma (which struck Puerto Rico on September 6th), six private companies submitted offers to PREPA to aid with restoring the grid. All six companies offered similar hourly rates. While only 25% of the island had electrical service immediately after Irma, this service had since improved to 96%.  Immediately after Hurricane Maria hit, Director Ramos testified he had limited communications ability and did not become fully aware of the extent of Maria’s damage to the electrical system for a week. Use of state mutual aid for restoring the grid, he testified, would have required PREPA to provide accommodations, food, communications, and other logistics to the incoming crews, because this was part of the mutual aid policies. Thus, Mr. Ramos noted that in the immediate aftermath of the hurricane, the utility was unable to make such provisions—meaning, ultimately, that he had to choose between using another company that was asking for $25 million up front versus Whitefish, which was willing to be paid when the work was completed. Ergo, Mr. Ramos authorized the use of Whitefish and chose to continue to look for other options. At the start of Wednesday’s Senate Energy and Natural Resources Committee meeting on the hurricanes’ impact on Puerto Rico and the U.S. Virgin Islands, Chairwoman Lisa Murkowski (R.-Alaska), said she thought it made little sense to spend hundreds of millions of dollars of Stafford Act funds to rebuild the electric grid as it had been in Puerto Rico and the Virgin Islands prior to the hurricanes. She said this would only re-erect it only to be later blown down again.

Governance in Puerto Rico. As U.S. Judge Laura Taylor Swain presides over Puerto Rico’s quasi-chapter 9 municipal bankruptcy trial in Puerto Rico, House Natural Resources Committee Chair Rob Bishop (R-Utah) and Rep. Bruce Westerman (R-Ark.) last week issued a statement that the Puerto Rico PROMESA Oversight Board ought to be granted additional legal authority over the Puerto Rico Power Authority (PREPA), with their statement coming just hours after Judge Swain had ruled that the PROMESA Board lacked authority to replace PREPA’s current director. The power authority issue came as Gov. Ricardo Rosselló sought some $17 billion in recovery assistance from the U.S. Senate for Puerto Rico’s beleaguered electric utility system—with his request coming engineer Ricardo Ramos resigned yesterday as PREPA’s Executive Director resigned—a resignation which PREPA’s governing board promptly accepted, voting unanimously to ratify the appointment of engineer Justo González as interim executive director. Mr. González, who has 28 years of service at PREPA and was the director of Generation, was recommended by Governor Rosselló, who noted: “The truth is that there was a series of distractions and there was a decision to go in another direction. This is going to happen and happens in every government,” referencing, in the wake of the devastating Hurricane María, that such challenges include technical failures, selective blackouts, lack of equipment, and hiring of companies with few employees and experience to carry out support tasks. He noted that Mr. Ramos “is a professional who has worked hard, but understands that this is a context that has greatly distracted from what recovery is.”

Failures and Blackouts. Until early yesterday, PREPA had reached 44.7 % of its pre-Maria generation—a level leaving Governor Rossello still frustrated, but stressing that failures also occur because: “it is an old system, which suffered previous damage….I know that it has been questioned why these failures happened, and if there was intervention…When you are lifting a collapsed power system, there will be ups and downs. There is progress; progress is inevitable; and it is being seen very clearly.”

The Electric Challenge Ahead. In the wake of the appointment of Mr. Gonzalez as interim executive director of PREPA, the Governor has commenced a search for a new head, noting: “With this appointment begins a process of evaluating the best available talent, inside and outside  of Puerto Rico, to proceed with an appointment in property of the position of executive director of PREPA: I hope that this process will be completed as quickly as possible, so that the work leading to the rehabilitation of the electrical system throughout the island is not affected, according to the guidelines we have given.” PREPA governing board President Ernesto Sgroi advised the Talent Search Committee of the governing body will be in charge of identifying the new executive director of the public corporation.

Seeking Equitable Federal Assistance

November 15, 2017

Good Morning! In today’s Blog, we consider, again, some of the governance and federalism challenges in the wake of the devastating Hurricane Maria impact on the U.S. territory of Puerto Rico.

Visit the project blog: The Municipal Sustainability Project 

Governor Ricardo Rosselló will ask Congress today to reject the requests of the PROMESA Oversight Board to be granted greater authority over the government of Puerto Rico in the wake of the slow process of recovery and reconstruction after Hurricane Maria. In his written statement to the House Natural Resources Committee, Governor Rosselló specifically requested that the efforts by the Board to control emergency assistance funds, public corporations, and be granted the authority to veto government legislation be dismissed, noting: “The Government and the Fiscal Oversight Board must be able to resolve any differences,” and that “collaboration, not control, is the key to a successful future for Puerto Rico.” The Governor’s views came as U.S. Judge Laura Taylor Swain dismissed the motion of the PROMESA Board to appoint engineer Noel Zamot as trustee of the AEE, under the title of principal Transformation official.

Puerto Rico is seeking $94 billion from Congress to help in the recovery efforts that devastated the U.S. territory in September, leaving much of the island still without power and worsening a fiscal crisis. The bulk of the funds the Gov. has requested, some $31 billion, would be focused on rebuilding homes, with another $18 billion requested for PREPA: in his epistle to President Trump, Gov. Rossello wrote: “The scale and scope of the catastrophe in Puerto Rico in the aftermath of Hurricane Maria knows no historic precedent…We are calling upon your administration to request an emergency supplemental appropriation bill that addresses our unique unmet needs with strength and expediency.” Natalie Jaresko, the PROMESA Board’s Executive Director, said that $13 billion to $21 billion was needed over the next two years just for Puerto Rico to keep the government running, given the toll the storm has taken on the economy and anticipated tax collections. (Two months after the storm, much of Puerto Rico still remains without power, further eroding the government’s already precarious finances. Prior to the hurricane, the government had put together a fiscal plan to cut back spending severely and finance only a fraction of the debt payments due over the next decade—but, like the island’s physical situation, the storm also devastated its fiscal plight. Puerto Rico’s long-term economic recovery will depend not just on an equitable response by Congress and the White House, comparable to the aid provided to Houston and Florida, but also whether its citizens who fled to the mainland will return—or make their moves permanent. According to the PROMESA Board, about 100,000 residents have fled since the storm. The Board did not break down the data of those who had left; however, it seems likely that those who left were both younger—and better able to afford to depart. The Governor also warned that calls for him to raise taxes could further undermine the precarious state of the territory’s economy: “If Congress does not consider Puerto Rico in tax reform, it would lead to the exodus of companies that currently generate 42 percent of Puerto Rico’s gross domestic product, the loss of jobs on the island and exacerbate the outward migration of island residents moving to the mainland.” statement from the governor’s office accompanying the letter said.

Stormy Governance & Federalism Challenges in the Wake of a Storm

eBlog

November 14, 2017

Good Morning! In today’s eBlog, we consider the governance and federalism challenges in the wake of the devastating Hurricane Maria impact on the U.S. territory of Puerto Rico, where questions in a federal courtroom about the balance between Puerto Rico’s government and the federally appointed oversight board for Puerto Rico consider not just the Puerto Rican government’s authority—but also that of the Congress.  

Visit the project blog: The Municipal Sustainability Project 

U.S. District Judge Laura Taylor Swain has denied the PROMESA Oversight Board’s request to deny the request to appoint Noel Zamot as the Transformation Officer (CTO), noting that the powers granted to the special panel by Congress are insufficiently broad to limit the actions of the government of Puerto Rico, holding that the Puerto Rico Oversight Board lacked authority to replace the leader of the Puerto Rico Electric Power Authority (PREPA). The Board had requested the Judge to confirm its appointment of Noel Zamot as PREPA’s Chief Transformation Office—a position comparable to CEO. Instead, Judge Swain called on the Board and Gov. Ricardo Rosselló to work collaboratively to address the U.S. territory’s problems—a call, in response to which, Gov. Rosselló responded by noting: “We are very pleased with the decision issued today by Judge Laura Taylor Swain, since it reiterates our position regarding the limit of power of the Financial Oversight and Management Board.…It is clear that the Financial Oversight and Management Board does not have the power to take full control of the government or its instrumentalities…We recognize that the reconstruction and recovery of the island requires a union of wills; therefore, we welcome any collaboration or technical support that the Board wishes to offer to the government elected by Puerto Ricans to ensure the best interests of the people of Puerto Rico.” Judge Swain noted that Congress could have eased the governance role of the oversight board if it had given the Board direct authority over Puerto Rico’s government and public entities; however, as she noted: it had not—instead it deliberately split power between the federally appointed oversight board and the government, adding: “I urge you to work together,” in regard to the PROMESA Board and the Rosselló administration, noting that every moment spent on complicated and expensive litigation was time lost for the Puerto Rico people. Judge Swain noted that the Board has multiple mechanisms to discharge its functions without requiring its direct intervention after the Congressionally created public corporation, its governing board and its executive director, Ricardo Ramos, were unable to articulate and effectively implement a plan to restore the electricity grid after its collapse in the wake of Hurricane Maria. Nevertheless, Judge Swain also called on the government of Puerto Rico to address the situation of the island, noting that millions of American citizens remain in the dark and in a dangerous situation, while every controversy aired in court is “a minute lost” for the future of Puerto Rico.

Unsurprisingly, Governor Ricardo Rosselló Nevares responded he was pleased with Judge Swain’s decision, noting in written statements that the decision issued today by Judge Swain “reiterates our position on the power limit of the JSF: We have been clear from day one about the powers the [PROMESA] Board has, and those it does not have. It is clear that the (Board) does not have the power to take control of the government as a whole or its instrumentalities,” adding: “Our position is validated and it is recognized that the administration and public management of Puerto Rico remains with the democratically elected government…As Governor of Puerto Rico, I will defend the democratic rights of my people over any challenge and in any forum. We recognize that the reconstruction and recovery of the Island requires a union of wills, therefore, we welcome any collaboration or technical support that the Board wishes to offer to the Government elected by the Puerto Ricans to ensure the best interests of the People of Puerto Rico.”

The U.S. government yesterday filed notice it would defend the court supervised restructuring of Puerto Rico’s debt against a constitutional challenge by an investor—with the filing coming in response to the Title III bankruptcy case related to Puerto Rico’s government debt to an adversary proceeding filed last August by the Aurelius Capital hedge fund. (Aurelius owned $473 million of Puerto Rico municipal bonds as of July.) The government argued that the Title III bankruptcy petition should be dismissed, because its filing had not been authorized by a validly constituted oversight board, whilst the fund asserted that the appointments clause of the U.S. Constitution, Article II, Section 2, Clause 2 of the United States Constitution, which empowers the President to appoint certain public officials with the “advice and consent” of the U.S. Senate was breached in appointing the board’s members: the Board was appointed under the Puerto Rico Oversight Management and Economic Stability Act to oversee fiscal and economic management in the territory and the restructuring of more than $70 billion of debt that the Puerto Rico government said could not be repaid under current economic conditions.

Aurelius claimed that the PROMESA Board is “unconstitutional,” and, because it is, its actions are “are void,” pressing Judge Swain to dismiss the case. In response, the Justice Department notified the court it would file a memorandum supporting PROMESA’s constitutionality on or before December 6th. Part of the dispute will relate to the process itself: the Board, as we noted initially, was named by the U.S. House and Senate Majority and Minority leaders, the Speaker and House Minority Leader, and former President Obama: neither U.S. Senate committees nor the Senate as a whole voted on the confirmations. Last Friday, the government of Puerto Rico, the COFINA Seniors Bondholders Coalition, the Unsecured Creditors Committee, and the Official Committee of Retired Employees of the Commonwealth of Puerto Rico submitted memoranda against the Aurelius position, with the U.S. territory of Puerto Rico pressing the federal court to lift the stay on litigation outside of the bankruptcy process, arguing that Aurelius is seeking actions against the debtor and the Oversight Board outside the Title III process—something it asserts is barred by the PROMESA statute. In contrast, the COFINA Seniors argue that the Oversight Board’s membership is constitutional, because Congress’s power over the territories is plenary and not subject to the structural limitations of the United States Constitution, while the Unsecured Creditors argued that the “U.S. Constitution gives Congress virtually unlimited authority to govern unincorporated territories directly, or to delegate that power to such agencies as it” deems fit. This group said that there is precedent for the Board members’ appointment procedures, asserting the Board members are territorial officials and not U.S. government officials, as Aurelius claims.

Power to Puerto Rico. On a separate front, the Commonwealth of Puerto Rico notched a significant win in court yesterday when Judge Swain rejected the appointment of a former military officer to oversee the Puerto Rico Electric Power Authority (PREPA), after the PROMESA Board had sought to appoint retired Air Force Col. Noel Zamot to supervise the reconstruction and operations of PREPA in the wake of Hurricane Maria’s devastation of the U.S. territory’s utility and the subsequent territory-wide blackout on September 20th—an inability to restore service since has led to accusations of mismanagement, especially as, PREPA, two months after the hurricane, is generating only 48 percent of its normal output. Thus it was that Judge Swain ruled that the PROMESA Board may not unilaterally seize control of the U.S. territory’s government agencies—a signal legal victory for the administration of Gov. Ricardo Rosselló and others who have argued that no independent official should oversee a local government agency—or, as the Governor noted: “Our position has been validated and it has been recognized that the administration and public management of Puerto Rico remains with the democratically elected government.” PREPA is $9 billion in debt and continues to face scrutiny after signing a $300 million contract with Montana-based Whitefish Energy Holdings—a contract cancelled at the end of last month at the Governor’s request, but which is now undergoing federal and local audits. Both Gov. Rosselló and PREPA Director Ricardo Ramos are scheduled to testify this morning in Washington, D.C. before the Senate Energy and Natural Resources Committee.

Catalysts to Fiscal Recoveries

November 10, 2017

Good Morning! In today’s Blog, we consider the ongoing challenges to Detroit’s recovery from the nation’s largest ever chapter 9 municipal bankruptcy; the State of Michigan’s winnowing down of municipalities under state oversight; and the ongoing physical and fiscal challenges to Puerto Rico.

Visit the project blog: The Municipal Sustainability Project 

Reframing the Motor City’s Post Chapter 9 Future. Nolan Finley, a wonderful contributor to the editorial page of the Detroit News, this week noted “elections are a wonderful catalyst for refocusing priorities, as evidenced by the just-completed Detroit mayoral campaign, which moved the city’s comeback conversation away from the downtown development boom and centered it on the uneven progress of the neighborhoods. Never before has such an intense spotlight shown on the places where most Detroit voters actually live.” He attributed some of the credit to the loser in this week’s mayoral election, challenger Coleman Young II, who forced Mayor Mike Duggan to defend his record on improving quality of life in the neighborhoods. He perceptively wrote that while candidate Young’s ugly “Take back the Motherland” rallying cry was dispiriting, it spoke to the governing challenge the newly, re-elected Mayor confronts, writing: “Detroit is not a city united. It must become one. There were too many skirmishes along the racial divide in this mayoral contest. The old city versus suburb story line was replaced by a neighborhood versus downtown narrative, but both are code for black versus white. Four years ago, Duggan’s election as Detroit’s first white mayor in 40 years suggested much of the city was ready to stop looking back at its dark and divisive past and begin focusing on a brighter future.” Now, he wrote, after Mayor Duggan focused his first term on meeting the city’s plan of debt adjustment, and trying to improve the quality of life for residents—and as developers are beginning to add community projects to their downtown portfolios, “too many in the neighborhoods feel as if their lives are not getting better, or at least not fast enough.” Thus, he noted, Mayor Duggan needs to redouble his efforts to restore the city’s residential communities, and push ahead the timetable: “Four years from now, Detroit cannot still be wearing the mantle of America’s most violent city.” He added that while Mayor Duggan has little—too little—authority to address education in Detroit; nevertheless—just as his colleague Rahm Emanuel, the Mayor of Chicago recognized, needs to strongly back Detroit Public School Superintendent Nikolai Vitti’s efforts to rapidly boost the performance of the Detroit Public Schools Community District: it is a key to bringing young families back into the city. And, Mr. Finley wrote, the mayor “must also find a way to connect the neighborhoods to downtown, to instill in all residents a sense of ownership and pride in the rejuvenation of the core city. That means getting way better at inclusion. Downtown’s comeback must be more diverse, and include many more of the people who have grown up and stayed in the city. Encouraging and supporting more African-American entrepreneurs is a great place to begin breaking down the perception that downtown is just for white people: Detroit needs more diversity everywhere in the city, both racial and economic,” referring especially to young millennials who are steeped in social justice and imbued with the obsession to give back that marks their generation. “They are committed Detroiters. And they deserve to be appreciated for their contributions, not made to feel guilty or viewed as a threat to hard-won gains.”

Free, Free at Last. Michigan State officials have released Royal Oak Township, a municipality of about 2,500 just north of Detroit, from its consent agreement: Michigan Treasurer Nick Khouri said the Oakland County municipality has resolved its financial emergency and is ready to emerge from the state oversight imposed since 2014, stating: “I am pleased to see the significant progress Royal Oak Charter Township has made under the consent agreement…Township officials went beyond the agreement and enacted policies that provide the community an opportunity to flourish. I am pleased to say the township is released from its agreement and look forward to working with them as a local partner in the future.” The township’s financial emergency resulted in an assets FY2012 deficit of nearly $541,000. Township Supervisor Donna Squalls noted: “Royal Oak Charter Township is in better shape than ever…The collaboration between state and township has provided an opportunity to enact reforms to ensure our long-term fiscal sustainability.” Treasurer Khouri also said the township was the last Michigan remaining municipality following a consent agreement: Over the last two years, Wayne County, Inkster, and River Rouge were released from consent agreements because of fiscal and financial improvements and operational reforms. The Treasurer noted that today only three communities, Ecorse, Flint, and Hamtramck, remain under state oversight through a Receivership Transition Advisory Board.

Preempting Authority. House Natural Resources Committee Chair Rob Bishop (R—Utah) this week said the PROMESA Oversight Board should be granted even more power to preempt the authority of the government of Puerto Rico, stating: “Today’s testimony will inform the work of Congress to ensure the Oversight Board and federal partners have the tools to coordinate an effective and sustained recovery,” in a written statement after a hearing of the House Committee on Natural Resources: “It is clear that a stronger mechanism will be necessary to align immediate recovery with long-term revitalization and rebuilding.” Chairman Bishop added: “This committee will work to ensure [the Puerto Rico Oversight Board] has the tools to effectively execute that mission and build a path forward for this island and its residents.” The Board was created last year to oversee fiscal management by the island government, which had said more than $70 billion of debt was unpayable under current economic conditions. Since the hurricane, the Board has clashed with the territorial government over leadership at the power utility. During the hearing the board’s Executive Director, Natalie Jaresko, said the ability of Puerto Rico’s government to repay its debt was “gravely worse” than it was before Hurricane Maria, which arrived Sept. 20. By the end of December, the Board plans to complete a 30 year debt sustainability analysis with Puerto Rico’s government, she said: “After the hurricane, it is even more critical that the Board be able to operate quickly and decisively…to avoid uncertainty and lengthy delays in litigation, Congressional reaffirmation of our exercise of our authority is welcome.” On Oct. 27, the board had filed a motion in the Title III bankruptcy case for the Puerto Rico Electric Power Authority (PREPA) seeking the court’s permission to appoint Noel Zamot as the authority’s new leader. The government of Gov. Ricardo Rosselló has made it clear that it intends to challenge this motion. The court is scheduled to hold a hearing on the matter on Monday, November 13th.

In calling for more board power, Chairs Bishop and Jaresko probably were at least partly referring to the struggle over PREPA’s leadership. They may also want the Board’s power augmented in other ways: the Board has already announced that it will be creating five-year fiscal plan for Puerto Rico’s government and for its public authorities this winter. Puerto Rico’s government will have substantial needs for federal aid in the coming years, Ms. Jaresko said. Congress plans to tie this aid to the government following the Board’s fiscal plan and this would be appropriate, she said. “Before the hurricanes, the board was determined that Puerto Rico and its instrumentalities could achieve balanced budgets, work its way through its debt problems, and develop a sustainable economy without federal aid,” Ms. Jaresko said in her written testimony. “That is simply no longer possible. Without unprecedented levels of help from the United States government, the recovery we were planning for will fail.” She also said that over the next 1.75 years Puerto Rico’s government will need federal help closing a gap of between $13 billion and $21 billion for basic services. She added the federal government should change tax laws to benefit the island: “The representatives of the Financial Oversight and Management Board (FOMB) who appeared before the House Committee on Natural Resources insist on jeopardizing the necessary resources for the payment of pensions and job stability,” Gov. Rosselló testified in his written statement, adding to that the testimony of Ms. Jaresko and Mr. Zamot “evidenced ignorance about the recovery process in Puerto Rico, presenting incorrect figures relating to the existing conditions on the island,” adding: “I again invite the FOMB to collaborate so that the government of Puerto Rico, together with the support of the federal government, facilitates the fastest possible recovery of our island.” He noted that such assistance should not depend on the Board “assuming the administrative role” which belongs to the elected government of Puerto Rico.

Sanctioned Discrimination. The endorsement that the House Ways and Means Committee effectively incorporated in its “tax reform” legislation reported out of Committee this week appears to discriminate against Puerto Rico, imposing a tariff on the products which Puerto Rico exports to the mainland—threatening to deal a devastating blow to Puerto Rico’s industrial base at the very moment in time the territory is striving to recover from the already disparate hurricane recovery blows. According to economists Joaquín Villamil: “None of these measures, nor the repatriation of profits, the corporate rate and the 20% tax on imports is positive for the island…The companies are not going to pay a 4% royalty to Puerto Rico and a 20% tax to bring their product to the United States. They will leave the island, especially if the tax rate is lowered there.” Mr. Villamil added: “If that happens, 21% of the income received by the Puerto Rican Treasury is eliminated,” he added, referencing P.L. 154, the statute which established a 4% tax on sales of an operation in Puerto Rico to its parent company in the mainland. In its markup, yesterday, the House Ways and Means Committee left almost intact §4303 which establishes a 20% tariff on all imported goods for resale by companies and businesses in the United States. Moreover, the disposition forces multinationals with operations in places such as the U.S. territory of Puerto Rico to repatriate their income to the U.S. What that means is that the production of drugs, medical devices, and many other goods in Puerto Rico is done on U.S. soil; however, for federal tax purposes, Puerto Rico is deemed an international jurisdiction—or, as economist Luis Benítez notes: “This (House Ways and Means bill) generates greater uncertainty about what the economic future of the island should be: with this, the figure of the controlled foreign corporation (CFC) loses the competitive advantage it had (under §936).” He noted that by reducing the corporate rate to multinationals operating in Puerto Rico, the benefit of giving them tax exemptions at the local level is also reduced, as is the case of Law 73 on Industrial Incentives: via the elimination of §936, Puerto Rico, as a place to do business, went from competing with the continental U.S. to competing with countries such as Singapore and Ireland, adding that now a reduction in the corporate rate would cause Puerto Rico not only to compete with the rest of the world, but with jurisdictions on the mainland: “I think that if I were the Secretary of the Treasury, I would tremble with this situation.”

In Puerto Rico, he estimates manufacturing employs approximately 75,000 people directly—a number which rises to 250,000 when indirect and induced jobs are calculated, adding that even though the manufacturing sector has shrunk in the past years, the productive and contributory base rests on that activity, adding that: “As much as it is said that they do not pay taxes, this sector contributes 33% of the revenues…As long as jobs are lost there, the treasury will erode,” noting that the industrial sector plays such a large role in Puerto Rico’s economy that no other sector of the service economy can counterbalance it. He worries that if Congress fails to address the apparent discrimination, the chances that the PROMESA Board and the government of Puerto Rico can put together an economic recovery plan is minimal: “These are implications for all of Puerto Rico: It is difficult to think about options, because if this is approved, it would be disastrous, because of everything that has happened after Hurricane Maria.”

Last night, the former president of the Association of Certified Public Accountants, Kenneth Rivera Robles, who has been part of several lobbying delegations to Washington, remained relatively optimistic that the project language will be amended.

President Woodrow Wilson signed the Jones-Shafroth Act into law on March 2, 1917, with the law providing U.S. citizenship to Puerto Rico’s citizens, granting civil rights to its people, and separating the Executive, Judicial, and Legislative branches of its government. The statute created a locally elected bicameral legislature with a House and Senate—but retained authority for the Governor and the President of the United States to have the authority to veto any law passed by the legislature. In addition, the statute granted Congress the authority to override any action taken by the Puerto Rico legislature, as well as maintain control over fiscal and economic matters, including mail services, immigration, defense, and other basic governmental matters. 

Three Different Roads to Fiscal Recovery

November 6, 2017

Good Morning! In today’s Blog, we consider the next critical step in Detroit’s emergence from the largest chapter 9 municipal bankruptcy in U.S. history; then we consider the ongoing legal and fiscal recovery of Ferguson, Missouri, before, finally, trying to go to school in Puerto Rico.

Visit the project blog: The Municipal Sustainability Project 

The Road Out of State Oversight. The city of Detroit expects to get the keys back to its financial house this spring for the first time since it exited bankruptcy in 2014. The question is whether it can keep the house in order once state oversight ends — and local elected officials regain control over budgets and contracts. With two balanced budgets and an audit of a third expected in May, city officials anticipate they will be released early next year from the strict financial controls required under Chapter 9 restructuring. The shift is especially important as voters cast ballots Tuesday for the Detroit leaders who will chart the city’s direction. Both Mayor Mike Duggan and challenger Coleman Young II have offered plans on how they would guide the city financially. Gov. Rick Snyder said he is optimistic about the city’s ability to manage finances on its own. “They’ve been hitting those milestones, and I hope they continue to hit them — that’s a good thing for all of us,” Snyder told The Detroit News.

There is evidence that the oversight is no longer warranted: Detroit’s credit has been upgraded among rating agencies, its employment rate is up and property values are climbing. The city, in a financial update last month, noted economic development in some neighborhoods and Detroit’s downtown, job creation efforts and growth in multifamily home construction. Experts say bankruptcy allowed Detroit to drop billions in debt, setting it on a solid financial path. But the city faces massive future payments for past borrowing and pension obligations that are difficult to plan for. “It really takes the economic environment to cooperate, as well as some very good and focused financial management. Right now, that seems to be all there,” said Lisa Washburn, managing director of the Concord, Massachusetts-based firm Municipal Market Analytics. “Eventually, I suspect there will be another economic downturn and how that affects that region, that’s something outside of their control. But it can’t be outside of their field of vision.”

Post-oversight protections. The landmark municipal bankruptcy set forth strict conditions to help Detroit avoid falling back into debt. A nine-member commission, which under the law includes Duggan and City Council President Brenda Jones, currently signs off on the city’s four-year budget plan, certain contracts and transactions. It has also empowered to review, modify and approve operational budgets. The commission was established as a condition of a financial aid package approved by the state Legislature to defray cuts to Detroit retiree pensions and shield the Detroit Institute of Arts collection from bankruptcy creditors. There are still protections even if the city is released from oversight, Detroit officials note. The state-mandated commission would continue to meet monthly and could step back in if necessary, the city’s Chief Financial Officer John Hill said. The city would continue to hold revenue estimation conferences in February and September to set budgeting limits for each fiscal year, as well as develop a four-year financial plan. Detroit’s numbers are headed in the right direction when it comes to property values, income tax collection, median income and employment. Among the positives:

■The city’s taxable value is projected to climb by about $100 million, from $6.4 billion based on the taxable values from the end of the 2016 calendar year to $6.5 billion at the end of this year, according to data from the CFO’s office.

■The city projects an increase of about $30 million in its residential real estate — the first boost in the property class in almost two decades. Detroit’s level of owner-occupied homes went from a low of 59 percent in 2010 to a projected 74 percent in 2018, based on findings from the reappraisal, officials say.

■City figures show income tax collection has gone from $263.2 million in the 2016 fiscal year to a forecast of $285 million for 2017, based on unaudited figures.

■The city’s employment has gone up from 206,568 in January 2014 to 233,068 this July, according to labor statistics.

■Detroiters’ median household income was $28,099 in 2016, a 7.5 percent hike from the previous year, according to U.S. Census estimates released in September.

Not as encouraging are poverty and crime rates. The poverty rate has dipped 4 percentage points to 35.7 percent, Detroit’s lowest since 2008. But the rate is still the highest among large U.S. cities, as is the city’s violent crime rate. “You can’t ignore what’s happening in the downtown and Midtown, but Detroit is obviously so much bigger than that,” said Matt Butler, a vice president at Moody’s Investors Service and lead analyst for Detroit. “The real story here going forward is how is Detroit able to re-create that development in other areas of the city.”

The city filed for bankruptcy in the summer of 2013 and officially exited on Dec. 10, 2014, with a plan to shed $7 billion in debt and pump $1.7 billion into restructuring and city service improvements over a decade. Last month, Moody’s Investors Service upgraded Detroit’s credit outlook and praised the city for its gains. Detroit’s economy “remains vulnerable,” the report noted, but adds it “is showing real progress.” Detroit recorded a general fund surplus of just over $63 million in fiscal year 2016 and expects an additional surplus for 2017 of about $38.5 million. For 2015, the surplus was about $71 million. But Moody’s warns of economic unknowns that could pose future problems, namely the massive contributions that loom for its two pension funds.

A funding plan forged through Detroit’s bankruptcy coined the “grand bargain” relieved the city of much of those payments through 2023. But in 2024, the city will have to start funding a substantial portion of the pension obligations from its general fund for the General Retirement System and Police and Fire Retirement System. The initial payment was first contemplated at $113.9 million, but city officials later said estimates had been off, in part because of outdated mortality tables. If earnings meet the plan of debt adjustment’s assumed return rate of 6.75 percent, the city’s contribution in 2024 would be $167 million. If there are no earnings, it could soar to $344 million or more. Contributions to the pensions would be annual and could continue for 20-30 years. Investment returns have varied greatly. To minimize a shortfall, the city’s administration established a dedicated Retiree Protection Fund that’s expected to pull together $335 million in the coming years to help meet the required contributions. The City Council would contribute a dedicated amount from its general fund each year. So far, $105 million has been set aside. Moody’s has called the fund a “credit positive action,” noting, however, that once it’s depleted in 2033 the city will be required to fund annual pension payments directly from its budget.

Retooling debt structure. CFO Hill notes that today his greatest concern is restructuring the city’s debt, so, last month, the city solicited requests for proposals from investment banks which could help address debt tied to past capital borrowing and millages—or, as Mr. Hill put it: “We think revenues should increase, but if we can also deal with the structure of the debt and lower those payments then the city will be much better off,” said Hill, adding a plan, he said, would “set the city on the course to have dealt with two of its major challenges.” Indeed, the issue of the city’s debt and finance has been, unsurprisingly, an issue in the mayoral campaign, where Mayor Duggan, during a debate, said Detroit’s City Council has been rigorous in making sure that we “watch every dollar that we have,” and he expects the city will be released from state fiscal oversight this spring—adding that, under his administration, “We won’t ever lose self-determination again.” In response, his opponent, Coleman Young, counters that Detroit will not fully regain budget and contract authority back from the state; moreover, he vowed he would, if elected, find efficiencies and reduce costs—and cut what he deemed the “top heavy” staff to manager ratio, adding: “These are some of the things I am willing to do to make sure we have a balanced budget and our finances get back in order.”  “In theory, it would be great to have as much money plowed into redevelopment as possible, but that comes at a cost,” she said. “With less than seven years away from having to start making pension payments again, you don’t want to find yourself in a budgetary hole at a time when you can see it coming.”

Ferguson’s Steep Road to Recovery. Ferguson, Missouri, a small city of about 21,000, which in 2010 was 67.4% black, and 29.3% white, with 8,192 households of which 39.1% had children under the age of 18 living with them, and 31.5% had a female householder with no husband present—and where 32.9% were non-families, is a relatively young municipality: the median age in the city was 33.1 years, while 10.3% were 65 years of age or older. The gender makeup of the city was 44.8% male and 55.2% female. It is a city where the Mayor is directly elected (Mayor James Knowles ran unopposed in 2014 in an election where voter turnout was approximately 12%.) Ferguson is one of 89 municipalities in St. Louis County, where the county police have jurisdiction throughout. It is a city where the fatal police shooting of Michael Brown still weighs.

Last Friday, in Ferguson, as part of a street theater protest, activists set fire to a model depicting the Ferguson Commission report in front of City Hall: it was a demonstration intended to mock political leaders and the city police department’s response to crime and protests in the city. The demonstration came just two weeks after St. Louis police, using a technique called “kettling,” in which exits are blocked in and people are arrested en masse, arrested dozens of protesters, residents, journalists, and legal observers as people protested, for a third day, after former police officer Jason Stockley was found not guilty in the 2011 fatal shooting of Mr. Lamar–and after Mayor Lyda Krewson challenged the city to recommit itself to reforms laid out in the Ferguson Commission report—the nearly 200-page report which had proposed 189 “calls to action,” and marked the culmination of nearly 10 months of work for a commission established by former Gov. Jay Nixon in 2015, in response to the shooting death of Michael Brown, a black teenager, by a white Ferguson police officer—a report in which Commissioners grouped their post-Ferguson calls for action into three categories: Justice for All, involving urgent police and court reforms; Youth at the Center, exploring policies to promote better lives for children; and Opportunity to Thrive, laying out changes to address economic inequalities.

Regional leaders have largely focused on the “Justice for All” component of the report, overhauling municipal court practices such as jailing defendants who could not pay their fines, even as discussion has commenced on strengthening the Civilian Oversight Board, equipping police with body cameras, and developing police policies for using force and for handling public demonstrations. The report also called for improving the public’s relationship with law enforcement through community policing, by encouraging police departments to facilitate better interactions between officers and those they serve, and allowing the public to weigh in on programs and policies through forums. Starsky Wilson, the former co-chair of the Ferguson Commission, in a recent interview with the St. Louis Post-Dispatch, noted that while police accountability and reform has clearly been the starting point for those revisiting the Commission’s findings, he hoped elected leaders would not forget the aspects of the report devoted to building a better St. Louis for the city’s children: “It can’t just be about police. That’s just one piece of the puzzle.”

Nevertheless, the Ferguson protests appear to have produced changes, particularly in Ferguson itself, where new city and police leaders came into power. The state Legislature also passed a municipal reform statute, the most significant element of which lowered the cap on revenue from traffic tickets: It can now only make up 12.5 percent of a city’s general operating revenue in St. Louis County, and 20 percent elsewhere, down from 30 percent. Moreover, municipalities which fail to submit a timely and accurate report on their finances to the state auditor will immediately lose jurisdiction over their courts. (The previous law did little to punish the many courts that ignored the limits.) The impact was swift: Ferguson’s Municipal Court revenue plummeted from $2.7 million in 2014 to roughly $500,000 in 2016.

In St. Louis, Mr. Wilson cites several achievements, including the creation of a Civilian Oversight Board and the decision to raise the city’s minimum wage, both in 2015, though state lawmakers negated the wage effort this year. Meanwhile, other bills have been introduced to address some of the Ferguson Commission’s findings, including a measure being considered by the St. Louis Board of Aldermen limiting when St. Louis police could use pepper spray and tear gas. Sponsoring Alderman Megan Green, 15th Ward, reports she hopes it will serve as a starting point for officials to discuss revising the city’s vague ordinance against unlawful assembly. Asked what changes were made in the city police department in response to the Ferguson report, spokeswoman Schron Jackson said the St. Louis Police Department has begun training officers in de-escalation tactics and how implicit bias may affect their work, as well as how to work with victims of violence who are gay, transgender, and bisexual. These kinds of higher training standards were among recommendations laid out by the Ferguson Commission. Additionally, Ms. Jackson said, the department has launched its Community Engagement and Organizational Development Division, which carries out community outreach programs.

But Mr. Wilson questions these early efforts: “When we see police arrest more than 300 people over 18 days, then we have to ask how seriously the increased training requirements were implemented…and how much culture change is actually happening, around use of force: What were the lessons that were learned surrounding de-escalation?” Allegations that police have improperly used force in recent weeks have already prompted the ACLU to challenge St. Louis police tactics in federal court. They have also sparked conversations at the St. Louis Board of Aldermen about when force should be used—and who should investigate afterward. The aldermanic public safety committee has already interviewed Maj. Mary Warnecke, deputy Commander of the department’s Bureau of Professional Standards, and Circuit Attorney Kim Gardner. Attorney Gardner has pitched the formation of a new unit in her office to investigate use-of-force incidents and officer-involved shootings, arguing that it is no longer acceptable for police to be investigating themselves.

In the long-term, the Ferguson Commission recommended shifting deadly force investigations to the Missouri Highway Patrol and the state attorney general—a recommendation in response to which Gov. Eric Greitens said he was open to considering. City lawmakers, too, are exploring Attorney Gardner’s idea, crafting legislation expanding the circuit attorney’s prosecutorial powers and giving the office the ability to open investigations into police officers’ use of force, according to Board of Aldermen President Lewis Reed, who notes that events such as the Stockley verdict can be catalysts for change, if legislators work quickly enough: noting that the creation of a Civilian Oversight Board is proof of that. The Aldermen had attempted to institute an oversight board in 2006, but the bill, which included subpoena power, was vetoed by former Mayor Francis Slay. Ferguson finally opened the door for its creation, President Reed said, but subpoena power did not have the requisite support to make it into the final product. With the continued unrest, a new mayor and a more open-minded board, Mr. Reed sees a window of opportunity to revisit subpoena power: “I see a readiness for people now to step outside of what I would call their normal comfort zone and support efforts that probably in a normal state they would be a little more hesitant to support.” Mayor Krewson supports providing subpoena power to the city’s Civilian Oversight Board, which investigates complaints against police, and has said she agrees with community leaders who have demanded local police change how they handle use-of-force investigations and prosecutions. She also has committed to establishing a Racial Equity Fund, a proposed 25-year city fund dedicated to promoting racial equity in the region. “I know I don’t have the decision-making power across all of these things, but I am committed to adding my political will to the push to find the right way to get those things done,” Mayor Krewson said after the first week of protests over Stockley. One thing the Mayor says she has the power to do immediately is oust interim Police Chief Lawrence O’Toole, who declared police “owned the night” after law enforcement used a technique called “kettling” to surround and arrest more than 100 people on a single evening. She has shown no indication that she will act before the chief hiring process plays out.  “We have all the answers we need in the report. The road map exists. The longer (Krewson) chooses not to act, the longer our city hurts,” said Charli Cooksey, a catalyst with the Forward Through Ferguson advocacy group. ‘Not a short-term endeavor.’ There may be a long road ahead in making changes laid out in the report a reality, but leaders have pointed to some encouraging signs. Wilson says he has noticed a more diverse group of people engaging in disruption this time, suggesting that people understand the problems don’t amount to “black people’s issues” alone. “These are justice issues. Racial inequity harms the entire region and all people,” he said.

Forward Through Ferguson, the advocacy group that grew out of the Ferguson Commission, plans to knock on as many as 4,000 doors to get feedback before kicking off a series of policy campaigns next spring. “It’s not a short-term endeavor,” Ms. Cooksey said: “Diverse stakeholders in the region have to be committed to this for years to come.” But those inspired to run for office after the events of Ferguson, such as Rasheen Aldridge, a former Ferguson commissioner and now 5th Ward Democratic Committeeman, contend that new leaders have emerged at the state and local levels who have a better understanding of why young people have been protesting in recent weeks. “We have new people at the table, folks who are for the people, who haven’t been bought out and who haven’t been around for a while,” Aldridge said: “They’re willing to do the work.”

Learning about Fiscal & Physical Recovery. The Department of Education of Puerto Rico expects to open 80 percent of the 1,113 public schools on the island next Monday after having relaxed the criteria to enable the schools by the pressure of parents, mothers and students who demand a return to normalcy. Through twitter, the Department of Education published the list of schools that will open. The slowness in the process of resumption of classes on the island has been criticized by parents, educators, and even legislators who complain that six weeks after the passage of hurricane Maria on the island, only 152 schools have been opened (13 percent of the total) in the educational regions of San Juan, Ponce, Mayagüez and Bayamón. Groups of parents and teachers have held protests; the Federation of Teachers of Puerto Rico (FMPR) has called for a massive demonstration for November 9th to press for the opening of closed schools.  Members of the school community claim that many of the schools are able to operate, with water, no debris, or damage that poses a danger to students, but have not been opened. Even a mother of a special education student started a hunger strike against the DE in Hato Rey to demand that classes be resumed at the Urban Elementary School in Guaynabo, because the prolonged closure is having adverse effects on her child’s health: “Children of special education, when you take away their world, when you take away their school, you take away their therapies, you are leaving them unarmed. It is another hurricane that is reaching them: “I am seeing my daughter break down day by day, I am seeing my daughter who has started to attack herself, something that five years ago she did not do.”

The criticism focuses on the slowness of the work of the US Army Corps of Engineers and a company that contracted to inspect the schools and certify that they do not represent a danger to students and that they have water service, they are free of debris and fumigated. Most the the re-opened schools are without electricity: even the education unions FMPR and National Union of Educators and Education Workers (Unete) maintain that the limited opening of schools could be part of a supposed plan to close schools and eliminate teacher positions, something which had been happening before the impacts of hurricanes Irma and Maria, when Puerto Rico’s public education system had, after severe budget cuts, closed 167 schools—and suffered a decline of some 44,000 students. To date, some 800 schools which have been inspected, but there are still another 300—leaving Education Secretary Keleher to describe her frustration with the “slowness of the inspection process,” and that the Department will not use the Corps of Engineers or the CSA private firm for these works. The Secretary added that there are about 44 schools which will not open because of structural damage; she noted that for schools that will not open, “We are going to relocate that population or to bring them a temporary school, which is like a wagon.”