March 30, 2018
Good Morning! In this morning’s eBlog, we consider the potential impact of urban school leadership; then we try to assess the equity of federal responses to hurricanes, before trying to understand and assess the status of the ongoing quasi chapter 9 municipal bankruptcy PROMESA deliberations in the U.S. territory of Puerto Rico.
Schooled in Municipal Finance? As we wrote, years ago, in our studies on Central Falls, Detroit, San Bernardino, and Chicago; schools matter: they determine whether families with kids will want to live in a central city—raising the issue, who ought to be setting the policies for such schools. In its report, five years ago, the Center for American Progress report cited several school districts like Chicago, Philadelphia, Baltimore—but not Detroit, were examples of municipalities where mayoral governance of public schools has had some measure of success in improving the achievement gap for students, or, as the Center noted: “Governance constitutes a structural barrier to academic and management improvement in too many large urban districts, where turf battles and political squabbles involving school leaders and an array of stakeholders have for too long taken energy and focus away from the core mission of education.” In the case of Detroit, of course, the issue was further addled by the largest municipal bankruptcy in the nation’s history and the state takeover of the Motor City’s schools.
Thus, interestingly, the report stated “mayoral accountability aims to address the governing challenges in urban districts by making a single office responsible for the performance of the city’s public schools. Citywide priorities such as reducing the achievement gap receive more focused attention.” In fact, many cities and counties have independent school boards—and there was certainly little shining evidence that the state takeover in Detroit was a paradigm; rather it appeared to lead to the creation of a quasi apartheid system under which charter schools competed with public schools to the detriment of the latter.
In its report, the Center finds: “[T]he only problem is this belief about mayoral control of schools has not worked well for Detroit. It has done just the opposite since the 1999 state takeover of the schools under former Gov. John Engler, which allowed for the mayor of Detroit to make some appointments to the school board. Since the state took over governance of the schools, when it was in a surplus, the district has been on a downward spiral with each year returning ballooning deficits under rotating state-appointed emergency managers. The district lost thousands of students to suburban schools as corruption and graft also became a hallmark of a system that took away resources that were meant to educate the city’s kids. Such history is what informs the resistance to outside involvement with the new Detroit Public Schools Community District that is now under an elected board with Superintendent Nikolai Vitti. His leadership is being received as a breath of fresh air as he implements needed reforms. That is what is now fueling skepticism and reservation about Mayor Mike Duggan’s bus loop initiative to help stem the tide of some 30,000 Detroit students he says attend schools in the suburbs.” Because of the critical importance to Detroit of income taxes, Mayor Duggan has always had a high priority of sending a message to families about the quality of the Motor City’s schools. Superintendent Vitti noted that previous policies had “favored charter schools over traditional public schools.” Superintendent Vitti said he believes this issue is less about mayoral control than the Mayor Duggan’s leadership efforts to entice families with children back to the city, adding that he is not really concerned about mayoral control of the schools, noting: “I have no evidence or belief that the mayor is interested in running schools…I honestly believe the Mayor’s intent is to recruit students back to the city.”
Double Standards? The Capitol Hill newspaper, Politico, this week published an in-depth analysis of the seeming discriminatory responses to the federal responses to the savage hurricanes which struck Houston and Puerto Rico., reporting that while no two hurricanes are exactly alike, here, nine days after the respective hurricanes struck, “FEMA had approved $141.8 million in individual assistance to Hurricane Harvey victims, versus just $6.2 million for Hurricane Maria victims,” adding that the difference in response personnel mirrored the discriminatory responses, reporting there were 30,000 responders in Houston versus 10,000 in Puerto Rico, adding: “No two hurricanes are alike, and Harvey and Maria were vastly different storms that struck areas with vastly different financial, geographic and political situations. But a comparison of government statistics relating to the two recovery efforts strongly supports the views of disaster-recovery experts that FEMA and the Trump administration exerted a faster, and initially greater, effort in Texas, even though the damage in Puerto Rico exceeded that in Houston: Within six days of Hurricane Harvey, U.S. Northern Command had deployed 73 helicopters over Houston, which are critical for saving victims and delivering emergency supplies. It took at least three weeks after Maria before it had more than 70 helicopters flying above Puerto Rico; nine days after the respective hurricanes, FEMA had approved $141.8 million in individual assistance to Harvey victims, versus just $6.2 million for Maria victims. The periodical reported that it took just 10 days for FEMA to approve permanent disaster work for Texas, but 43 days for the Commonwealth of Puerto Rico. Politico, in an ominous portion of its reporting, notes: “[P]residential leadership plays a larger role. But as the administration moves to rebuild Texas and Puerto Rico, the contrast in the Trump administration’s responses to Harvey and Maria is taking on new dimensions. The federal government has already begun funding projects to help make permanent repairs to Texas infrastructure. But, in Puerto Rico, that funding has yet to start, as local officials continue to negotiate the details of an experimental funding system that the island agreed to adopt after a long, contentious discussion with Trump’s Office of Management and Budget. The report also notes: “Seventy-eight days after the two hurricanes, FEMA had received 18 percent more applications from victims of Maria than from victims of Harvey, but had approved 13 percent more applicants from Harvey than from Maria. At the time, 39 percent of applicants from Harvey had been approved compared with just 28 percent of applicants from Maria.”
Finally, the report notes that, as of last week, six months after Hurricane Harvey, Texas was already receiving federal dollars from FEMA for more than a dozen permanent projects to repair schools, roads, and other public infrastructure which were damaged by the storm, while in Puerto Rico, FEMA has, so far, “not funded a single dollar for similar permanent work projects.”
Elected versus Unelected Governance. Puerto Rico Gov. Ricardo Rosselló yesterday reported he was rejecting the PROMESA Oversight Board’s “illegal” demands for labor law reforms and a 10% cut in pension outlays, stating: “The Board pretends to dictate the public policy of the government, and that, aside from being illegal, is unacceptable.” Gov. Rosselló was responding to demand letters from the Board for changes to the fiscal plans he had submitted, along with the Puerto Rico Electric Power Authority, and the Puerto Rico Aqueduct and Sewer Authority earlier this month. Gov. Rosselló noted that §205 of the PROMESA statute allows the Board to make public policy recommendations, but not to set policy, adding that the PROMESA Board’s proposed mandates would make it “practically impossible” to increase Puerto Rico’s minimum wage, as he contemplated the Board’s demand of a $1.58 billion cut in government expenditures, nearly 10% more than he had proposed, and adding he would be “tenaz” (tenacious) in opposing the proposed 10% cut in public pension outlays demanded by the PROMESA Board—with the political friction reflecting governing apprehension about the potential impact on employment at a time when Puerto Rico’s unemployment rate is more than 300% higher than on the mainland—and, because of perceptions that such decisions ought to be reflective of the will of the island’s voters and taxpayers, rather than an outside board.
Who’s on First? The governance challenge in Puerto Rico involves federalism: yesterday, House Natural Resources Committee Chair Rob Bishop (R-Utah), criticized the Puerto Rico Oversight Board and the Governor over their failure to engage with bondholders in restructuring the Commonwealth’s debt, writing to PROMESA Board Chairman José Carrión: “The Committee has been unsatisfied with the implementation of PROMESA and the lack of respect for Congressional requirements of the fiscal plan…And now, due to intentional misinterpretations of the statute, the promise we made to Puerto Rico may take decades to fulfill,” adding he had become “frustrated” with the Board’s unwillingness to engage in dialogue and reach consensual restructuring agreements with creditors: he noted that both the Rosselló administration and the PROMESA Board must show “much greater degrees of transparency, accountability, goodwill and cooperation,” amid seemingly growing apprehensions on his part that Puerto Rico government costs will increase, even as its population is projected to decline, and that he was becoming increasingly concerned with the “extreme amount” being spent on Title III bankruptcy litigation. He said that Board should make sure it is the sole legal representative of Puerto Rico in these cases—and asked that the PROMESA Board define what constitutes “essential public services” in Puerto Rico: “I ask that you adhere to the mandates of PROMESA and work closely with creditors and the Puerto Rican government as you finalize and certify the fiscal plans…“My committee will be monitoring your actions closely; and as we near the two-year anniversary of the passage of PROMESA, an oversight hearing on the status of achieving PROMESA’s goals will likely be merited.”
For its part, the PROMESA Oversight Board has rejected fiscal plans presented by Gov. Ricardo Rosselló and the island’s two public authorities and has demanded the territory reduce public pensions by 10% , writing, this week, three letters outlining its demands for changes in fiscal plans submitted this month by the central government, Puerto Rico Electric Power Authority, and Puerto Rico Aqueduct and Sewer Authority. Under the PROMESA statute, the federal court overseeing the quasi-chapter 9 municipal bankruptcy is mandated to accept the fiscal plans, including their allotments for debt—plans which the PROMESA Board has demanded, as revised, be submitted by 5 p.m. next Thursday. The Board is directed there should be no benefit reductions for those making less than $1,000 per month from a combination of their Social Security benefits and retirement plans and that employees should be shifted from a defined-benefit plan to a defined-contribution plan by July 1st of next year; it directed that police, teachers, and judges under age 40 should be enrolled in Social Security and their pension contributions be lowered by the amount of their Social Security contribution, directing this for the PREPA, PRASA, Teachers, Employees, and Judiciary retirement systems. In its letter concerning the central government, the PROMESA Board directed Gov. Rosselló to make many changes: some require more information; some are “structural” changes focused on reforming laws to make the economy more vibrant; at least one adds revenues without requiring a greater burden; and many of them require greater tax burdens, or assume lower tax revenues or higher expenditures—noting that any final plan, to be approved, should aim at achieving a total $5.66 billion in agency efficiency savings through FY2023, but that Puerto Rico’s oil taxes should be kept constant rather than adjusted each year.
The Board directed that a single Office of the CFO should be created to oversee the Department of the Treasury, Office of Management and Budget, Office of Administration and Transformation of Human Resources, General Services Administration, and Fiscal Agency and Financial Advisory Authority—adding that Puerto Rico will be mandated to convert to legally at-will employment by the end of this year, reduce mandatory vacation and sick leave to a total of 14 days immediately, and add a work requirement for the Nutritional Assistance Program by no later than Jan. 1st, 2021—and that any increase in the minimum wage to $8.25 must be linked to conditions—and, for Puerto Ricans 25 or younger, such an increase would only be permitted if and when Puerto Rico eliminated the current mandatory Christmas bonus for employers.