August 31, 2018
Good Morning! In this morning’s eBlog, we consider the end of the State of Michigan to usurp local authority via the appointment of an Emergency Manager, the safety of school drinking water has become an issue in Detroit—especially after Flint, and we consider the extraordinary revisions in the projected Hurricane Maria death toll in Puerto Rica—and the White House response.
Protecting a City’s Children. Detroit Public School Superintendent Nikolai P. Vitti has directed turning off drinking water across the district’s 106 schools in the wake of after discovering higher-than-acceptable levels of copper and lead in some facilities, with Superintendent Vitti noting his decision came out of caution “until a deeper and broader analysis can be conducted to determine the long-term solutions for all schools.” he said in a statement. Test results found elevated levels of lead or copper in 16 out of 24 schools which were recently tested. Supt. Vitti stated: “Although we have no evidence that there are elevated levels of copper or lead in our other schools where we are awaiting test results, out of an abundance of caution and concern for the safety of our students and employees.” His actions, no doubt affected by fiscal and water contamination in Flint, came even as Detroit officials and the Great Lakes Water Authority sought to assure residents that water provided by the authority is safe to drink: they pointed to the city’s aging infrastructure as the problem. Superintendent Vitti said he will be creating a task force to determine the cause of the elevated levels and solutions, noting he had initiated water testing of all 106 school buildings last spring to ensure the safety of students and employees. Water at 18 schools had been previously shut off. He added: “This was not required by federal, state, or city law or mandate: This testing, unlike previous testing, evaluated all water sources from sinks to drinking fountains.” The District does not plan to test students: a spokesperson for the school system noted: “Dr. Vitti said…he has no evidence at all that children have been impacted from a health standpoint.”
Fiscal & Physical Challenges: Earlier this summer, Supt. Vitti released details from a facilities review which had determined the school district would need to spend $500 million now to fix the deteriorating conditions of its schools—an effort for the system projected to cost as much as $1.4 billion if there is a failure to act swiftly, with the Administrator pointing to the failure by former state-appointed emergency managers to make the right investments in facilities while the system was preempted of authority and state-appointed emergency managers from 2009 to 2016 failed to make the right investments, sending what Dr. Vitti described as “the message to students, parents and employees that we really don’t care about public education in Detroit, that we allow for second-class citizenry in Detroit.” The remarks raised anew questions with regard to Michigan’s governance by means of gubernatorially chosen Emergency Managers.
Superindent Vitti said he had notified Mayor Mike Duggan of his decision to shut off the drinking water, and a spokesperson, John Roach, noted: Mayor is “fully supportive” of the approach Supt. Vitti has taken, adding: “We will be supporting Dr. Vitti in an advisory capacity through the health department and the DWSD (Detroit Water and Sewerage Department) has offered to partner with the district on any follow-up testing that needs to be done.” At the same time, the Great Lakes Water Authority issued a statement in an effort to assure “residents and customers of GLWA’s regional system that they are not affected by the lead and copper issues,” noting: “Aging school infrastructure (i.e. plumbing) is the reason for the precautionary measure of providing bottled water,” adding water treated by the authority meets and surpasses all federal and state regulations, albeit adding: “A task force will be formed consisting of engineering and water quality experts” to will help the district “understand the cause and identify solutions.” (Initial results this past week showed elevated levels of copper, lead or both at one or more water sources in 16 of 24 school buildings, according to the statement. Water bottles will be provided at the schools until water coolers arrive. The district also found water-quality issues in some schools in 2016.)
The incident in Detroit raises a host of fiscal and governance issues—especially in the wake of the tragedy in upstate Flint—with, in both cases, the state’s history of appointing Emergency Managers to preempt the authority of local elected leaders. In the case of DPS, Dr. Vitti has contacted the Mayor, the Governor, and a task force of engineers and water experts to understand the cause and possible solutions; Superintendent Nikolai P. Vitti opted to close the water taps out of caution “until a deeper and broader analysis can be conducted to determine the long-term solutions for all schools,” with the decision coming just days before the school district’s 106 schools are scheduled to open next Tuesday. (Water bottles will be provided at the schools until water coolers arrive.) Water officials have blamed aging infrastructure as the cause of the public safety threat. Now Dr. Vitti has asked Mike Duggan and Gov. Rick Snyder to convene a task force of engineers and water experts to determine the cause of the elevated lead and copper levels, and to propose solutions.
Importantly, it seems the public safety risk is limited to Detroit’s public schools: water officials released a statement Wednesday assuring residents and customers of the Great Lakes Water Authority and the Detroit Water and Sewerage Department that they are not affected by the lead and copper issues at the school district, noting: “Aging school infrastructure (i.e. plumbing) is the reason for the precautionary measure of providing bottled water…The water at GLWA’s treatment plants is tested hourly, and DWSD has no lead service lines connected to any DPSCD building. The drinking water is of unquestionable quality.”
Nevertheless, the threat to public safety—combined with the heartbreaking, long-term threats to Flint’s children from that city’s public water contamination—could add further challenges to Detroit’s recovery from the nation’s largest-ever chapter 9 municipal bankruptcy: a critical part of the city’s plan of debt adjustment was to address its vast amassment of abandoned houses by enticing young families with children to move from the suburbs back into the city—an effort which had to rely on a perception of the quality and safety of its public schools. Now, for a system itself recovering from bankruptcy, DPS faces a bill of at least $500 million to repair its buildings: approximately 25% of the system’s school buildings are in unsatisfactory condition and another 20%are in poor condition, according to the report. The district noted nearly $223 million of high-priority repairs involving elevators and lifts, energy supply, heating and cooling systems, sprinklers, standpipes, electrical service and distribution, lighting, wiring, communications, security system, local area networking, public address and intercoms, emergency lights and plumbing fixtures.
Mayor Duggan’s office and the Detroit Health Department Wednesday issued a joint statement supporting “the approach Dr. Vitti has taken to test all water sources within DPS schools and to provide bottled water until the district can implement a plan to ensure that all water is safe for use,” noting: “We will be supporting Dr. Vitti in an advisory capacity through the health department and the DWSD has offered to partner with the district on any follow-up testing that needs to be done. We also will be reaching out to our charter operators in the coming days to work with them on a possible similar testing strategy to the voluntary one Dr. Vitti has implemented.”
Restoring Municipal Authority. Mayhap it is ironic that Michigan’s relatively rare authority for the Governor to appoint an emergency manager to preempt local elected authority reflects the uneven results of the program—a program I well remember from meeting with Kevyn Orr, whom Gov. Rick Snyder had appointed as Emergency Manager (EM) to preempt all governing authority of Detroit’s Mayor and Council, at the Governor’s office in Detroit on the first day the city entered the largest municipal bankruptcy in U.S. history—and after the grievous failure of a previous gubernatorially-appointed Emergency Manager to help the Motor City. The very concept of state authority to appoint a quasi dictator and to preempt any authority of local leaders elected by the citizens, after all, feels un-American.
Yet, from that very first moment, Mr. Orr had acted to ensure there was no disruption in 9-1-1 responses—and that every traffic and street light worked. Unlike the experience under an Emergency Manager in Flint, Mr. Orr was intently focused on getting Detroit back on its fiscal and physical feet—and restoring elected leadership to today’s grieving city.
Now, as of this week, Michigan no longer has any local government under a state appointed emergency manager—and observers are under the impression the state program to preempt local authority may be quietly laid to rest. It has, after all, been a program of preemption of local democracy with untoward results: while it proved invaluable in Detroit, it has proven fiscally and physically grievous in Flint, where it has been blamed for contributing to Flint’s water contamination crisis. Indeed, two of Flint’s former EMs have been criminally charged in connection with the crisis. Their failures—at a cost of human lives, appears to have put the future of state pre-emption of local governing authority—may well make state officials leery of stepping in to usurp control a local government, even as some municipal market participants and others see state oversight programs as a positive credit feature. The last municipality in Michigan to be put under a state-imposed emergency manager was Lincoln Park—an imposition which ended three years ago. Michigan Treasury spokesperson Ron Leix noted: “Each situation that led to the financial emergency is unique, so I can’t give a broad-brush assessment about how the law will be used in the future…For the first time in 18 years, no Michigan municipality or school district is under state financial oversight through an emergency manager. This is really about the hard work our local units of government have achieved to identify problems and bring together the resources needed to problem-solve challenging financial conditions.”
In Michigan, the emergency manager program was authorized twenty-eight years ago, granting the governor authority to appoint a manager with extensive powers over a troubled municipality or school district. By 2012, Michigan voters repealed the emergency manager program in a referendum; notwithstanding, one month later Gov. Snyder and legislators re-adopted a similar intervention program—under which local governments could opt among three new options in addition to the appointment of an emergency manager who reports directly to the Governor: chapter 9 municipal bankruptcy, mediation, or a consent agreement between the state and the city to permit local elected officials to balance their budget on their own. (In Michigan, municipalities which exit emergency management remain under the oversight of a receivership transition advisory board while executive powers are slowly restored to elected mayors and city councils.)
The state intervention/takeover program had mixed success, according to Michigan State University economist Eric Scorsone, who noted: “In some cases it’s worked well, like Allen Park where the situation was pretty clear-cut and the solution was pretty clear as to what needed to be done.” (Allen Park regained full local control of its operations and finances in February of 2017 after nearly four years of state oversight. Last June, S&P Global Ratings upgraded the city to investment-grade BBB-plus from junk-level BB, crediting strong budgetary performance and financial flexibility more than 12 months after exiting state oversight. But the appointment, in Flint, of emergency managers demonstrated the obverse: the small city had four emergency managers: Ed Kurtz, Mike Brown, Darnell Earley, and Gerald Ambrose—where the latter two today are confronted by charges of criminal wrongdoing stemming from the lead contamination crisis and ensuing Legionnaire’s disease outbreak that claimed 12 lives. It was the gubernatorially appointed Mr. Earley who oversaw the decision to change Flint’s water source to the Flint River in April 2014 as the city awaited completion of a new pipeline—a decision with fatal human and fiscal consequences. Indeed, two years ago, Gov. Snyder named a task force to investigate the Flint crisis and review the Emergency Manager law—a review which recommended the Governor consider alternatives to the current approach that would engage local elected officials. (No action has been taken to change the law.)
Because only a minority of states have authorized chapter 9 municipal bankruptcy, there is no uniform state role with regard to city or county severe fiscal distress and bankruptcy. Jane Ridley, senior director in the U.S. public finance government group at S&P Global Ratings and sector lead for local governments, has noted that state oversight is considered as part of the rating agency’s local GO criteria: “We do think that having a state that has oversight, especially if it’s a proven mechanism, can be very helpful for struggling entities…If they ended oversight entirely it would likely have an impact on the institutional framework scores and their sub scores.” A Moody’s analyst, Andrew Van Dyck Dobos, noted: “While an EM is in most cases is a last option, the ability for it to implement some policies and procedures is going to be typically viewed, at least at the onset, as a credit positive.”
Ending Shelter from the Storm. U.S. District Judge Timothy Hillman yesterday ruled that temporary housing given to hundreds of Puerto Ricans displaced by Hurricane Maria will end next month, meaning Puerto Ricans will be forced to check out of temporary housing provided by Federal Emergency Management Agency (FEMA) as part of the agency’s Transitional Sheltering Assistance (TSA) program. Judge Hillman, in his decision, wrote: I strongly recommend the parties get together to find temporary housing, or other assistance to the Plaintiffs and other members of the class prior to that date,” with his decision coming the same week Puerto Rico updated its official death toll from Maria to 2,975, a vast increase from the original count of 64. Judge Hillman’s decision also comes about two months after a national civil-rights group filed a lawsuit which had sought a restraining order to block FEMA from ending the program. The group, LatinoJustice, argued in the suit that it would lead to families’ evictions. It also came as, two days ago, President Trump met with reporters to respond to questions with regard to the mounting death toll—a session in which the President told the reporters: “I think we did a fantastic job in Puerto Rico.” Some 1,744 Puerto Rican adults and children were in the FEMA program when the lawsuit was filed. U.S. District Judge Leo T. Sorokin temporarily extended the program to the end of last July, and subsequently extended it until today—and then, once more, to September 14th.
Now, the White House is responding to a new estimate which increases the number by about 33% more to 2,975 after an independent study. White House spokeswoman Sarah Huckabee Sanders claimed in a statement that the back-to-back hurricanes which hit last year prompted “the largest domestic disaster response mission in history.” She added that President Donald Trump “remains proud of all of the work the Federal family undertook to help our fellow citizens in Puerto Rico.” She also says the federal government “will continue to be supportive” of Gov. Ricardo Rossello’s accountability efforts and says “the American people, including those grieving the loss of a loved one, deserve no less.” The new estimate of 2,975 dead in the six months after Maria devastated the island in September 2017 was made by researchers with the Milken Institute School of Public Health at George Washington University. It was released Tuesday.