Municipal Moral & Fiscal Obligations

07/27/17

Share on Twitter

eBlog

Good Morning! In today’s iBlog, we consider the state & local fiscal challenge fiscal in the event of a moral obligation pledge failure; the ongoing, long-term revival and recovery of Detroit from the largest municipal bankruptcy in American history, and the revitalization fiscal challenges in Atlantic City and Puerto Rico.

A Fiscal Bogie or a Moral Municipal Bond? Buena Vista, Virginia, a small, independent city located in the Blue Ridge Mountains of Virginia with a population of about 6,650, where the issue of its public golf course became an election issue—with the antis winning office and opting not to make the bond payments on the course they opposed—rejecting a moral obligation pledge on what has become a failed economic development project, as the city’s elected leaders chose instead to focus—in the wake of the Great Recession—on essential public services, putting the city in a sub par fiscal situation with Vista Links, which was securing the bonds, according to Virginia state records. The company, unsurprisingly,  has sued to get the monies it was promised—potentially putting at risk the city’s city hall and other municipal properties which had been put up as collateral. Buena Vista City Attorney Brian Kearney discerns this to be an issue of a moral obligation bond, rather than a general obligation municipal bond, so that “[W]e could not continue to do this and continue to do our core functions.” In the wake of the fiscal imbroglio, the Virginia Commission on Local Government (COLG)—which provides an annual fiscal stress study‒ended up playing a key role in the Petersburg effort in the General Assembly—finding that very poor management had led to an $18 million hole.

Here, the municipality’s default triggered negotiations with bond insurer, ACA Financial Guaranty Corp., which led to a forbearance agreement—one on which the city subsequently defaulted—triggering the Commonwealth of Virginia  to bar financing backup to the city from the state’s low-cost municipal borrowing pool, lest such borrowing would adversely impact the pool’s credit rating—and thereby drive up capital borrowing costs for cities and counties all across the state. In this instance, the Virginia Resources Authority refused to allow Buena Vista to participate in the Virginia Pooled Financing Program to refinance $9.25 million of water and sewer obligations to lower debt service costs—lest inclusion of such a borrower from the state’s municipal pool would negatively impact the pool’s offering documents—where some pooled infrastructure bonds, backed by the Commonwealth’s moral obligation pledge, are rated double-A by S&P Global Ratings and Moody’s Investors Service.

Seven years ago, the municipality entered into a five-year forbearance agreement with bond insurer ACA Financial Guaranty Corp.—an agreement which permitted Buena Vista to make 50% of its annual municipal bond payments for five years—an agreement on which Buena Vista defaulted when, two years ago, the City Council voted against inclusion of its FY 2015 budgeted commitment to resume full bond payments. That errant shot triggered UMB Bank NA to file a lawsuit in state court in 2016 in an effort to enforce Buena Vista’s fiscal obligation. In response, the municipality contended the golf course deal was void, because only four of the city’s seven council members had voted on the bond resolution and related agreements—which included selling the city’s interest in its “public places,” arguing that Virginia’s constitution mandates that all seven council members be present to vote on the golf course deal, because the agreement granted a deed of trust lien on city hall, police, and court facilities which were to serve as collateral for the bonds.

Subsequently, last March 22nd, the city filed a motion to dismiss the federal suit for failure to state a claim—a claim on which U.S. District Judge Norman K. Moon held a hearing last Friday—with the municipality arguing that the golf course’s lease-revenue debt is not a general obligation. Therefore, the city appears to be driving at a legal claim it has the right to stop payment on its obligation, asserting: “The city seeks to enforce the express terms of the bonds, under which the city’s obligation to pay rent is subject to annual appropriations by the City Council, and ceases upon a failure of appropriations.” Moreover, pulling another fiscal club from its bag, the city claimed the municipal bonds here are not a debt of the city; rather, the city has told the court that the deed of trust lien for the collateral backing the bonds is void. That is an assertion which ACA, in its motion to dismiss, deemed an improper attempt to litigate the merits of the suit at the pleading stage, noting: “Worse, the city wants this court to rule that the city only has a ‘moral obligation’ to pay its debts, and that [ACA’s] only remedy upon default is to foreclose on a fraction of the collateral pledged by the city and the Public Recreational Facilities Authority of the city of Buena Vista….If adopted, this court will be sending a message to the market that no lender should ever finance public projects in Virginia because municipalities: (a) have unbridled discretion to not repay loans; and (b) can limit the collateral that can be foreclosed upon.” In a statement subsequently, ACA added: “It’s unfortunate that Buena Vista’s elected officials have forced ACA into court after recklessly choosing to have the city default on $9.2 million in debt even though the city has ample funds to make the payments that are owed…This is particularly troubling, because ACA spent years negotiating in good faith after the city claimed financial hardship, and even provided a generous forbearance agreement that reduced payments by 50% starting in 2011…After the city defaulted on that deal in 2014, it offered ACA only pennies on the dollar, while seeking to be absolved of all future burdens of this financing. Left with no reasonable alternative, we must look to the court for an equitable and fair outcome.”

In the nonce, as its legal costs mount, Buena Vista’s access to the municipal credit markets has not only adversely affected its ability to borrow from state financing programs, but also there is growing apprehension there could be implications for other local governments and potentially the Commonwealth of Virginia. Virginia Finance Secretary Ric Brown, when this issue first cropped up, had written previous Buena Vista Mayor Mike Clements: “This ability cannot be jeopardized or put at risk by permitting a defaulting locality to participate in a state pool financing program such as the VPSA: The Commonwealth certainly expects localities to do what is necessary to meet their debt obligations and to protect Virginia localities’ reputation for fiscal discipline.” (Virginia’s Commission on Local Government has revealed that 53% of Virginia’s counties and cities are experiencing above average or high fiscal stress.).

Motor City Recovery. Louis Aguilar of the Detroit News this week reported that Detroit is expected to grow by some 60,000 residents by 2040—growth which would mark the first time Detroit’s population will have increased since the 1950s, according to a study by the Urban Institute, “Southeast Michigan Housing Futures,” which notes that Detroit will finally end its decades-long loss of residents. Xuan Liu, manager of research and data analysis for the Southeast Michigan Council of Governments, said the study builds on recent analyses done by SEMCOG, the Michigan Department of Transportation, and the University of Michigan: “It is a reflection of both the improvements we’ve seen in the city and the changing demographic trends.” The report indicates the region’s population base will include a larger percentage of residents over the age of 65 who are more inclined to remain where they are; the population increase in population will be influenced by the continued inflow of young adults and a small but steady rise of the Latino population. The study warns these changes will present major challenges, including the doubling of senior-headed households over the next three decades: by 2040, the study projects these households will make up 37% of the region’s households versus 22% in 2010; it adds that African-American households in the Detroit metro area disproportionately suffered from the effects of the housing crisis:  African-American homeownership rates dropped from a higher than the national average in 1990 and 2000 to be in line with the national average by 2014. Interestingly, it projects that the demand for rental housing is expected to grow throughout the region, with aging households likely comprising the bulk of this net growth as established renter households age—but warning that the region, and Michigan more broadly, lack affordable rental housing for low-income households. Overall, the Metro Detroit region is expected to gain approximately 380,000 households by 2040, according to the study.

For the Motor City, the report found that by 2016, Detroit’s population had slowed to its lowest pace in decades, according U.S. Census data: as of one year ago, Detroit’s population was 672,795, a loss of 3,541 residents—a decline comparable to the previous year: between 2000 to 2010, Detroit was losing more than 23,700 annually, on average, according to the Southeast Michigan Council of Governments; in the first decade of this century, the region lost 372,242 jobs, its population shrank by 137,375; and inflation-adjusted personal income retreated from 13.7% above the U.S. average to 4.8% below in 2010.

A Bridge to Tomorrow? The Detroit City Council this week okayed the $48 million agreement to open the way for the sale of city-owned property and streets in the path of the new Gordie Howe International Bridge to Canada—with the agreement also incorporating provisions to help residents living near the Delray neighborhood where the bridge will be located. Under the pact, the city will sell 36 city-owned parcels of land–land which Windsor-Detroit Bridge Authority Director of Communications Mark Butler siad was needed for the Gordie Howe bridge project. Courtesy of Windsor-Detroit Bridge Authority noted: “The funding relates to activities in advance of the P3 partner coming on board…As a normal course of business, WDBA, either directly or through the Michigan Department of Transportation, is providing funds to Detroit for property, assets, and services. The city in turn, is using those funds to purchase or swap homes outside of the project footprint, job training etc.” The bridge authority, a Canadian Crown corporation, will manage the Public-Private Partnership procurement process; the authority will also responsible for project oversight, including the actual construction and operation of the new crossing—whilst Canadian taxpayers will be fronting the funding to pay for the deal under an arrangement with the State of Michigan—under which there will be no cost or financial liability to Michigan or to Michigan taxpayers: Canada plans to recoup its money through tolls after the bridge is constructed. The Motor City will sell 36 city-owned parcels of land, underground assets, and approximately 5 miles of city owned streets needed for the bridge project. Under the agreement, the underlying property has been conveyed to the State of Michigan, but Canada is providing the funds. The bridge authority is expected to select a contractor for the project at the end of this year; construction will begin sometime next year.

Is There a Promise of Revitalization? The PROMESA Board this week appointed Noel Zamot to serve as Revitalization Coordinator for the U.S. territory—with Governor Ricardo Rosselló concurring the appointment would benefit Puerto Rico’s ability to compete—a key issue for any meaningful, long-term fiscal recovery. He added: “With over 25 years of experience in the aerospace and defense industry, we are convinced that Mr. Zamot will contribute to our economic development agenda and increase Puerto Rico’s competitiveness.” The federal statute’s Title V provided for such an appointment, a key part to any post chapter 9 plan of debt adjustment. Direct. PROMESA Board Chair José Carrión III noted: “Noel Zamot’s successful career and multifaceted experience interfacing between the government and the private sector in critical defense infrastructure areas will allow him to hit the ground running to foster strategic infrastructure investment expeditiously.” Mr. Zamot noted: “I am honored by this opportunity to serve and give back to Puerto Rico, my birthplace, and contribute to its success…Over more than two decades of professional experience, I have seen firsthand how investments in infrastructure can have a catalyzing effect on economic growth and prosperity.”

New Jersey & You. With major new developments under construction, renewed investor interest, and a slowly diversifying economy, it appears Atlantic City might be moving more swiftly from the red to the black—at a key point in political time, as voters in the city and New Jersey head to the polls next November for statewide and municipal elections—and, potentially, the end of state oversight of the city. Moreover, two new major projects are set to open next year, mayhap setting the stage for the city’s fiscal recovery—but also economic revitalization. Some of the stir relates to the purchase and $500 million renovation of the former Trump Taj Mahal Casino Resort—an opening projected to bring thousands of jobs and a strong brand to the city’s famed boardwalk. But mayhap the more promising development will be the completion of the $220 million Atlantic City Gateway project: a 67,500 square foot development which will serve as a new campus for Stockton University, including an academic building and housing for 500 students, and the new South Jersey Gas headquarters: the company believes its cutting-edge headquarters will trigger recruitment and growth, as it is projected to bring 15,000 square feet of new retail to the boardwalk.  

Interestingly, what has bedeviled the city, low land prices‒at their lowest in decades, is now attracting successful developers, who have been buying up buildings: commercial real estate brokers note an uptick in leasing activity since the Gateway project was announced: the promise of jobs, residents, and revenue no longer overwhelmed by the gaming industry appears to be remaking the city’s image and adding to its physical and fiscal turnaround. Bart Blatstein, CEO of Tower Investments, notes: “Of course I see upside. This is what I do for a living. And it’s incredible–the upside in Atlantic City is like nowhere else I’ve seen in my 40-year career. Atlantic City is a great story. It’s got a wonderful new chapter ahead of it.”

Advertisements

Getting into and out of Municipal Bankruptcy

07/10/17

Good Morning! In this a.m.’s eBlog, we consider the exceptional fiscal challenge to post-chapter 9 Detroit between building and razing the city; then we head East to Hartford, where the Governor and Legislature unhappily contemplate the Capital City’s fiscal future—and whether it will seek chapter 9 bankruptcy, before finally returning the key Civil War battlefield of Petersburg, Virginia—where a newly brought on Police Chief mayhap signals a turnaround in the city’s fiscal future.  

Raising or Razing a Municipality? Detroit, founded on July 24th in 1701 by Antoine de la Mothe Cadillac, the French explorer and adventurer, went on to become one of the country’s most vital music and industrial centers by the early 20th century; indeed, by the 1940’s, the Motor City had become the nation’s fourth-largest city. But that period might have been its apogee: the combination of riots and industrial restructuring led to the loss of jobs in the automobile industry, and signal white flight to the suburbs; since reaching a peak of 1.8 million in the 1950 census, Detroit’s population has declined precipitously: more than 60%.  Nevertheless, it is, today, the nation’s largest city on the U.S.—Canada border, and, with the imminent completion of the Gordie Howe Bridge to Canada, the city—already the anchor of the second-largest region in the Midwest, and the central city of a metro region of some 4.3 million Americans at the U.S. end of the busiest international crossing in North America; the question with regard to how to measure its fiscal comeback has been somewhat unique: it has been—at least up until currently, by the number of razed homes. Indeed, one of former Mayor Dave Bing’s key and touted programs was his pledge to raze 10,000 homes—a goal actually attained last year under Mayor Mike Duggan—under whose leadership some 11,500 homes have been razed. Mayor Duggan reports his current goal is to raze another 2,000 to 4,000 annually—so that, today, the city is host to the country’s largest blight-removal program—a critical component of Detroit’s future in a municipality which has experienced the loss of over one million residents over the last six decades—and where assessed property values of blighted and burned homes can be devastating to a municipality’s budget—and to its public schools. Worse, from a municipal governing perspective, is the challenge: how do the cities’ leaders balance helping its citizens to find affordable housing versus expenditures to raze housing—especially in a city where so many homeowners owed more than their homes were worth after the 2008 housing collapse?

Mayor Duggan’s response, moreover, has attracted the focus of multiple investigations, including federal subpoenas into bidding practices and the costs of demolitions—even as a separate grand jury has been reported to have subpoenaed as many as 30 contractors and Detroit municipal agencies, and Michigan officials have sought fines, because contractors mishandled asbestos from razed homes. Mayhap even more challenging: a recent blight survey by Loveland Technologies, a private company which maps the city, questions whether demolition is even keeping pace with blight in Detroit: the report indicates that vacancies in neighborhoods targeted for demolition have actually increased 64% over the last four years.

Hard Fiscal Challenges in Hartford: Is there a Role for the State? The Restructuring of Municipal Debt. Connecticut Gov. Daniel Malloy stated that the state would be willing to help the City of Hartford avoid chapter 9 municipal bankruptcy—but only if the city gets its own financial house in order, with his comments coming in the wake of the decision by Mayor Luke Bronin to hire an international law firm with expertise in municipal bankruptcies—with the Mayor making clear the city is also exploring other fiscal alternatives. Gov. Malloy has proposed offering millions more in state aid to the capital city in his budget proposal, to date, the state legislature, already enmired in its own, ongoing budget stalemate—has not reacted. Thus, the Governor noted: “I don’t know whether we can be all things to all people, but I think Hartford has to, first and foremost, help itself…But we should play a role. I think we need to do that not just in Hartford, but in Bridgeport and New Haven, and other urban environments and Waterbury. There’s a role for us to play.” The stakes are significant: Hartford is trying to close a $65 million fiscal gap—a gap which, should it not be able to bridge, would mean the city would have to seek express, prior written consent of the Governor to file a municipal bankruptcy petition (Conn. Gen. Stat.§7-566)—consent not yet sought by the city—or, as the Governor put it on Friday: “There’s no request for that…I don’t think they’re in a position to say definitively what they are going to do. I’m certainly not going to prejudge anything. That should be viewed as a last resort, not as a first.”

House Speaker Joe Aresimowicz (D-Berlin and Southington) and a former Member of the Berlin Council, reports the legislature could vote as early as a week from tomorrow on a two-year, $40 billion state budget, albeit some officials question whether a comprehensive agreement could be reached by that date, after the legislature has missed a series of deadlines, including the end of the legislative session on June 7th, not to mention the fiscal year of June 30th.  Meanwhile, the city awaits its fiscal fate: it has approved a budget of nearly $613 million, counting on nearly half the funds to come from the state; meanwhile, the city has hired the law firm of Greenberg Traurig to begin exploration of the option of filing for bankruptcy—or, as Mayor Bronin noted: “One important element of any municipal restructuring is the restructuring of debt…They will be beginning the process of reaching out to bond holders to initiate discussion about potential debt restructuring.”

Municipal Physical & Fiscal Safety. The fiscally challenged municipality of Petersburg, Virginia has brought on a new Chief of Police, “Kenny” Miller, a former Marine with 36 years of law enforcement experience.  Chief Miller views his new home as an “opportune place to give back” after a “blessed” career with one of Virginia’s largest police agencies—in the wake of serving 34 of his 36 years as an officer with the Virginia Beach Police Department. Chief Miller, who was sworn in last Friday afternoon, in the wake of a national search, noted: “You got to get out there and engage people…If people see that you care, they know you care. You can’t police inside of a building,” adding: “Engagement means working with the community…Solving problems together. People that live in the communities know the problems better than I do just passing through…We need to break down some barriers and get some trust going.” Chief Miller commences in his new role as the historic city seeks to turn around a fiscal and leadership crisis—one which left some parts of city government in dysfunction. The police department has had its own woes—including the Police Department, where, a year and a half ago, former Petersburg Chief John I. Dixon III acknowledged, after weeks of silence, that an audit of the department’s evidence and property room turned up $13,356 in missing cash related to three criminal cases—a finding which led former Petersburg Commonwealth’s Attorney Cassandra Conover to ask Virginia State Police to investigate “any issues involving” the police department that had come to her attention through “conversations and media reports” of alleged police misconduct or corruption—an investigation which remains ongoing. But the new Chief will face a different kind of fiscal challenge in the wake of the resignations of 28 sworn officers who have resigned in the last nine months after the city’s leaders imposed an across-the-board 10 percent pay cut for the city’s nearly 600 full-time workforce a year ago—and dropped 12 civilians from emergency communications positions. Nevertheless, Chief Miller said he was attracted to Petersburg because “the job was tailor-made for me. It’s a city on the rise, and I wanted to be part of something good…I don’t do it for the money. I’ve been blessed. I want to give back, (and) Petersburg is the opportune place to give back…The community members and the city leadership team are all working together to bring Petersburg to a beginning of a new horizon: “So why not be a part of that great opportunity?”

Chief Miller enters the job as Petersburg is straining to overcome a fiscal and leadership crisis that left some parts of city government in dysfunction; moreover, the police department has had its own woes. Seventeen months ago, former Petersburg police Chief John I. Dixon III acknowledged after weeks of silence that an audit of the department’s evidence and property room turned up $13,356 in missing cash related to three criminal cases. That led former Petersburg Commonwealth’s Attorney Cassandra Conover to ask the Virginia State Police to investigate “any issues involving” the police department which had come to her attention through “conversations and media reports” of alleged police misconduct or corruption. Nevertheless, Chief Miller reports he was “intrigued” by those officers who stayed with the force in spite of the pay cut “and showed virtue with respect to policing: Policing isn’t something that you do, it’s what you are: There are men and women there who really care about the city, and (those) people stayed.” He adds, he was attracted to Petersburg, because “the job was tailor-made for me. It’s a city on the rise, and I wanted to be part of something good…I’m now in my 36th year in law enforcement…And I don’t do it for the money. I’ve been blessed. I want to give back, (and) Petersburg is the opportune place to give back. The community members and the city leadership team are all working together to bring Petersburg to a beginning of a new horizon: So why not be a part of that great opportunity?” According to an announcement of his appointment as Petersburg’s Chief on Virginia Beach’s Facebook page: “[H]is connection with multiple civic leaders and groups throughout the city have forged and strengthened deep bonds between the Virginia Beach community and the police department.”

How Do State & Local Leaders Confront & Respond to Significant Population Declines?

eBlog, 04/21/17

Good Morning! In this a.m.’s eBlog, we consider the unique fiscal challenge confronting Detroit: how does it deal with the fiscal challenges—challenges also confronting cities such as Cleveland, Philadelphia, Toledo, Dayton, Baltimore, and Philadelphia—which are experiencing significant population declines? What to do with vacant lots which no longer bring in property tax revenues—but enhance criminal proclivities?  

Fiscal & Physical Municipal Balancing. While Detroit has emerged fiscally from the nation’s largest ever municipal bankruptcy, it continues to be fiscally and governmentally bedeviled by the governance challenge of such a significant population contraction—it is, after all, a city of about 132 square miles, dotting with neighborhoods which have become splotches of vacant lots and abandoned homes: post-bankrupt Detroit, with neighborhoods that have been gradually emptying out, in a physical sense, is a shadow of its former self, with a population nearly 60% smaller than it was in 1950, but with a stock of some 40,000 abandoned homes and vacant lots—space which brings in no property taxes, but can breed crime and safety costs for the city: between 1978 and 2007, Detroit lost 67% of its business establishments and 80% of its manufacturing base. This untoward, as it were, “ungrowth” has come even as the city has spent $100 million more, on average, than its revenues since 2008: Census figures inform us that more than one in three of the city’s citizens fall below the poverty level—ranking the Motor City, along with Cleveland, Dayton, Toledo, Philadelphia, and Baltimore, as cities realizing major depopulation. Thus, while downtown Detroit today is gleaming towers along a vibrant waterfront, one need not drive far from the internationally acclaimed Detroit Institute of Arts to witness neighborhoods which are nearly abandoned as residents continue to move to the suburbs. Thus, with some of the fiscal issues effectively addressed under the city’s approved plan of debt adjustment, Detroit is commencing a number of initiatives to try to address what might be deemed its physical devastation—a challenge, in some ways, more complex than its finances: How does an emptier city restore blighted neighborhoods and link the islands of neighborhoods which have been left? Or, mayhap better put: how does the city re-envision and rebuild?

Here it seems the city is focused on four key initiatives: draw new families into the city (look at Chicago and how Mayor Emanuel succeeded); convert vacant lots from crime havens to community gardens; convert vast empty spaces to urban farms; devise a strategy to fill empty store fronts; and, again as did Mayor Emanuel, create a strategy to bring back young families with children to live in the city.

Already, Detroit’s downtown core is a new world from my first visit when the National League of Cities convened its annual meeting there in the 1980’s—a time when at the front desk of the hotel I was staying, the attendant told me that even though I could see the convention site from the hotel, it would be a grave risk to life and limb to even think about taking the bus or walking—a situation unchanged on a similar day, Detroit’s very first day in chapter 9 bankruptcy, when I had proposed setting out to walk to the Governor Rick Snyder’s Detroit office to meet just-appointed Emergency Manager Kevyn Orr. Today, the revived downtown has attracted young people, often in redeveloped historic buildings; but that emerging vibrancy does not include housing options for people at different stages of life. Thus, the city is making an effort to offer more differentiated housing options, including townhouses, apartments, carriage homes and more—as well as housing for seniors. Or, as Melissa Dittmer, director of architecture and design for Bedrock LLC, the company leading the development, notes with regard to an initiative just outside of downtown: “For so long, Detroit had a low-self-confidence issue and was willing to take just about” any residential development: “Now the city of Detroit has crossed a threshold. We can do better.”

Outside of the downtown area, one sample neighborhood, Fitzgerald, today has 131 vacant houses and 242 vacant lots; but the city’s Director of Housing and Revitalization, Arthur Jemison, notes these lots need not be filled with houses; instead, the city is moving to invest more than $4 million into the neighborhood to renovate 115 homes, landscape 192 vacant lots, and create a park with a bicycle path, or, as Mr. Jemison notes: “We can’t possibly rebuild every vacant lot with new construction…What we can do is rehabilitate a whole lot of houses, and we can have an intentional landscape scene. The landscape is important, because frankly, if it’s done and managed well, it’s inexpensive and people like it.”

But the comprehensive effort also recognizes the city does not need additional housing stock: it needs less; so it has unearthed a program, RecoveryPark Farms, to construct greenhouses on a 60-acre plot, a plot which until recently represented two dozen blighted blocks on Detroit’s east side. This unique project has diverse goals: it eliminates breeding territory for crime, eliminates blight, and creates opportunities for the unemployed, especially ex-offenders and recovering addicts. The program’s CEO Gary Wozniak, who spent more than three years in federal prison, notes farming offers a career with a lower bar for hiring and gives immediate feedback because “plants grow relatively quickly, so people can start to feel really good about building skill sets. Plus, Detroit has a lot of land.” Already, its harvests are purchased by some of Detroit’s top restaurants on a year-round basis, or, as CEO Wozniak put it: “What we’re doing is commercial-scale agriculture in an urban environment.”

On Detroit’s first day of bankruptcy, the walk from my downtown hotel to the Governor’s uptown office almost seem to resemble post-war Berlin: empty, abandoned buildings and storefronts. Thus, another post-bankruptcy challenge has been how to fill the vacant storefronts along Detroit’s half-abandoned commercial corridors—and, here, a partnership between the City of Detroit and other economic-development organizations, Motor City Match, works to create links between selected landlords and new small businesses, with a goal of converting blighted commercial districts to make them both more livable and more effective at providing job opportunities for residents—or, as Michael Forsyth, Director of small-business services at the Detroit Economic Growth Corp., notes: Motor City Match “helps get businesses from ideas to open.” The program awards $500,000 in grants every quarter, assisting businesses in completing a business plan, finding a place to open, and renovating office space: its CEO, Patrick Beal, CEO of the Detroit Training Center, received $100,000 during the first round of the program and matched it with a $100,000 loan. Now, with the help of Motor City Match, the company has trained more than 5,000 Detroiters in construction, heavy-equipment operation and other skills.

Finally, again as with Mayor Emanuel, the City respects the importance of children—meaning it must focus on public safety, and schools—governance challenges of the first order, especially as we have been long-writing, the parallel financial insolvency of the Detroit public schools. Thus, Ethan Lowenstein, the Director of the Southeast Michigan Stewardship Coalition, is working with educators and local organizations in the region to help young people address environmental challenges in their communities, noting that families with children “leave because they don’t see the strength in their community and they don’t feel recognized as someone who has knowledge.” Mr. Lowenstein is seeking to reverse the city’s depopulation trend by working with the Detroit Public Schools. At two schools he works with in southwest Detroit, he says, students were on a walk around their community and noticed tires were being illegally dumped. The schools helped the students and worked with community members to identify areas with illegally dumped tires, and eventually the tires were recycled into doormats.  

In recovery from chapter 9 bankruptcy, sometimes the fiscal part can seem easy compared to the human dimension.

Governance & Fiscal Recovery

Share on Twitter

eBlog, 04/03/17

Good Morning! In this a.m.’s eBlog, we consider the ongoing recovery efforts in Ferguson, Missouri; then we return to the Motor City to assess what and how home ownership might have changed in the wake of the city’s recovery from the largest chapter 9 municipal bankruptcy in U.S. history, before returning to the azure waters of Puerto Rico to assess its most recent fiscal developments.

A Recovering City’s Future? Ferguson, Missouri voters tomorrow will pick between Mayor James Knowles III and Councilwoman Ella Jones in the Mayoral election–for a 3-year term: Mayor Knowles was first elected Mayor on April 5, 2011, after serving on the Ferguson City Council for six years: he became the youngest mayor in Ferguson’s history when he took office at the age of 31, while Councilwoman Jones became the first African-American woman to be elected to her position. But tomorrow could mark a check point in the wake of the dramatic leadership changes since the 2014 shooting of Michael Brown put the St. Louis suburb at the center of the debate over the treatment of blacks by the nation’s police forces–and on the brink of insolvency. Mayor Knowles, who is finishing his second term, noted: “These past three years have been very difficult, but I’ve been the one who has shown I can lead through tough times…That I can take the heat, but also make the changes, the reforms necessary to make the community move forward.” Nevertheless, in the wake of the killing of an unarmed black teenager, by a white police officer nearly three years ago, Mayor Knowles has borne the brunt of considerable anger, as Ferguson went from a mostly unheard-of St. Louis suburb to a flash-point of racial unrest. After months of protests following the shooting, people rioted that November when a grand jury declined to charge the officer, who resigned that month. There was further unrest the following March when the U.S. Department of Justice cleared the officer of wrongdoing—and issued a scathing report alleging racial bias and profiling by the small city’s police department and courts—a report which appeared to lead to the resignations of the city’s police chief, city manager, municipal judge, and city attorney. Indeed, of all the city’s top officials, only Mayor Knowles remains—and that notwithstanding threats in phone calls and emails, a stolen identity, and having his home’s windows broken.  In contrast, Councilwoman Jones has lived most of her life in Ferguson: she is serving her first term as a Councilwoman, and, in her campaign, assert she wants the Mayor’s office to be “inclusive for everyone, instead of exclusive,” noting: “We have to listen and stop turning our heads and turning a deaf ear to people, because they’re just like you and I. They want to be heard and they have a right to be heard.”

Whomever the voters elect will confront a daunting fiscal challenge: the city lost millions of dollars of revenue after municipal court reforms were implemented following Mr. Brown’s death: sales and use tax revenues dropped as businesses victimized by looters were burned and closed: many have not returned. Similarly, the city has more than a dozen police vacancies: the city lacks sufficient budget resources to compete with larger, better funded governments in St. Louis County—and still is handicapped by its unfunded costs of compliance with U.S. the Justice Department imposed consent decree to improve the police and municipal court systems and eliminate racial bias: an unfunded federal mandate projected to cost the impoverished city budget and taxpayers more than $2 million. The city of about 20,000, which actually experienced a population decline of nearly 6% since 2000, nevertheless has experienced a gradual increase in median income to $43,998 by 2015—approximately 86% of average statewide household income.

And, irrespective of whom the voters select, this is not a position of responsibility that pays much: the Mayor’s pay is $4,200 annually; rather, as the incumbent notes: it’s the love of their community and the opportunity to be its face to the outside world: “These past three years have been very difficult, but I’ve been the one who has shown I can lead through tough times…That I can take the heat but also make the changes, the reforms necessary to make the community move forward.” In contrast, Councilwoman Jones said she wants the Mayor’s office to be “inclusive for everyone, instead of exclusive…We have to listen and stop turning our heads and turning a deaf ear to people, because they’re just like you and I. They want to be heard and they have a right to be heard,” she said.

A Lost Fiscal Decade? Joel Kurth and Mike Wilkinson, writing in Bridge Magazine, note that still, today, home mortgages remain a rarity in Detroit: “Home sales with mortgages are rare in Detroit, occurring in just a few areas: Miles from downtown Detroit and its debates about gentrification, a more modest question surrounds the real estate in many city neighborhoods. Cash or charge?” The pair found that “sales with mortgages are rare in Detroit, occurring in just a few areas.”  Their piece outlines remarkable oscillations in assessed property values, noting that the average home sale price in the city went from $84,109 in 2001 down to $12, 517 in 2009, and then back up to $50,308 by last year—still far below the unadjusted 2001 level—albeit they found that the average price last year for homes purchased with a mortgage was $155,650. In comparing homeownership rates, they noted that last year’s rate of 47% remained under the year 2000 rate of 55%. Thus, they found that obtaining a mortgage continues to be challenging in outlying neighborhoods across Detroit, with the vast majority of homes sold for cash to landlords and investors, rather than homeowners, according to sales data and numerous interviews—posing hard questions about who will benefit in a revival rooted in downtown and Midtown in what remains the nation’s poorest city—a city where, according to the Census Bureau, 39.3% of people live below the poverty line (defined as $24,250 for a family of four), making it “the poorest in America with more than 300,000 people, followed by Cleveland (39.2%), Fresno, Calif., (30.5%), Memphis (29.8%), and Milwaukee (29%), albeit finding the Motor City’s rate has actually decreased from 2012, when it was 42.3%. The authors quoted a real estate agent: “Detroit is evolving into a new place, but outside of hot areas, neighborhoods just aren’t where they need to be to increase property values enough for banks to lend money.”

Nevertheless, a joint report by Bridge and Detroit public radio station WDET did find some grounds for optimism, determining that home sales and prices are increasing citywide after bottoming out after the mortgage meltdown, which left in excess of 65,000 foreclosures; the report noted that in some neighborhoods, prices are rising so swiftly that they are creating bidding wars, albeit the gains are uneven, and mortgage lending is mostly confined to more affluent neighborhoods, according to records from Realcomp Ltd. II: last year, only 19% of 3,800 Detroit homes sold by conventional means were financed with mortgages, demonstrating signal disparities: homes with mortgages sold for an average of $155,000; cash sales averaged $30,000—an imbalance Mayor Mike Duggan fears could “cripple” the Motor City’s recovery, according to Erica Ward Gerson, Chairwoman of the Detroit Land Bank Authority, which assembles and sells properties: she deemed the number of cash sales a “serious, serious problem,” because they can deter home ownership and depress property values, noting that cheap sales are usually rentals or vacant houses, while pricier sales are often out of reach for ordinary buyers. Most home sales in Detroit require cash; only 19 percent of the 3,800 sales in 2016 involved a mortgage, reflecting the difficulty to secure loans in a city where property values are less than half what they were a decade ago. 

In response, Mayor Duggan has sought to team with banks, foundations, and nonprofits to offer a number of programs to increase the availability of home loans; to date, as one non-profit in the city notes, the programs have demonstrated some success; however, most focus on stable neighborhoods, e.g., not where the most serious challenges remain: in more impoverished east side neighborhoods, homes last year sold for $4,000 to $40,000 in cash, according to Realcomp data—even as, a few miles away in downtown and Midtown, homes and lofts sell for $250,000 or more, according to records. Indeed, according to the Urban Institute, in 2014, 97% of Detroit homes sold for cash—nearly thrice the national average of 36%; cities with comparable populations, such as Memphis, Columbus, and El Paso, last year had at least five times as many mortgages as the approximately 710 mortgages sold in Detroit, according to data from RealtyTrac, a California-based company that tracks real estate. Indeed, according to the Urban Institute, Detroit once had one of the highest rates of home ownership among African-Americans nationwide; but, today, the city is majority renters: since 2000, the percentage of renters has increased to 53 percent from 45 percent, according to the U.S. Census.

Don’t Bank on the City’s Future. A key fiscal issue appears to be the reluctance of banks in Detroit to offer home mortgages for less than $50,000, a figure higher than many Detroit homes are worth—a seeming legacy of the sharp withering of assessed property values after the real-estate crash. Moreover, acquiring clear titles necessary for mortgages has become more difficult, because all too many Detroit homes have liens, and way too many are in such disrepair that making them livable can multiply purchase prices. Then, almost as if adding injury to insult, current federal regulations promulgated after the crash have increased the cost of issuing mortgages. Indeed, according to the Urban Institute: only one in five Detroit residents have credit scores high enough to obtain a mortgage. Erica Ward Gerson, Chair of the Detroit Land Bank, notes that Mayor Duggan, even before he took office three years ago, had recognized how critical mortgages would be to the city’s fiscal recovery: he went, in 2015, to Denver to the Clinton Global Initiative America to plead his case to the former President and leaders of foundations and banks: afraid that low appraisals and the refusal to loan small amounts would undercut any long-term recovery chances for the city. That leadership turned out to be key: In the wake of Mayor Duggan personally taking at least one bank leader on tours of stable neighborhoods in Detroit where lending was impossible, Ms. Gerson noted that in “lightning speed,” five banks, community foundations, and nonprofits teamed to form the Detroit Home Mortgage program, which removes barriers to lending and issues mortgages for up to $75,000 more than appraised value. Now, in this new initiative, announced in February, the Mayor hopes to secure financing for 1,000 mortgages over the next 3-5 years.

Governing from Afar. It is now expected to take the PROMESA Oversight Board several more months to set up the administrative structure to pass judgment over the budgetary impact of every law enacted by Puerto Rico; nevertheless, the announcement that this process will be set in motion marks the consolidation of Puerto Rico’s public finances, coming just as Puerto Rico bondholders and bond insurers have repeated a request to the Oversight Board to initiate immediate debt negotiations. The Ad Hoc Group of GO Bondholders, which had requested the negotiations get started last week, had joined with other creditors in asking the PROMESA Board to commence negotiations this morning in New York City, with the creditors having rejected the Board’s request for a mediator to oversee the negotiations. The creditors complained it would take too long to set up the mediation ground rules and that there are only a few weeks to complete the debt negotiations, writing they had “all agreed not to participate in a mediation that lacks basic process,” seeking to trigger the PROMESA provision on a consensual debt negotiation process, which can run until May 1, when a stay on litigation allowed by PROMESA and the board will end. PROMESA Board Chair José Carrión III, for his part, has claimed that his plan is not to create a “super government,” at least in terms of the amount of people in the organism, notwithstanding that the Board’s new executive director and former Ukraine Minister of Finance, Natalie Jaresko, has been tasked with creating an office which, among other things, should have the capacity to pass judgment over the fiscal impact of each law passed in the last few months and those which might be ratified from now onward—or, as the Chairman describes it: “She will start hiring (personnel), of whom the vast majority will be Puerto Rican. We are searching for people who don’t just see this as an employment opportunity, but as a patriotic duty.”

To date, the PROMESA Board’s primary task has been to certify a long-term fiscal plan, but now the hard part of agreeing on the details and putting the legislative process under the magnifying glass commence—much like the long and painful process of reaching resolution of a plan of debt adjustment under chapter 9. To date, via letters addressed to the Governor and the leaders of the legislative chambers, the PROMESA Board first established a work calendar to which the Puerto Rico Legislature is to comply with the budget the Governor must submit before the end of the month—then granting the legislature just two weeks in May to assess and amend said budget—upon which the PROMESA Board will have the final say. Indeed, if, by the end of June, the Governor and the Legislature have not complied with the Board’s mandates, the Board—which has powers greater than Puerto Rico’s elected officials—could impose its own budget for Puerto Rico’s FY2018 year that begins on July 1st.

The process, in contrast to chapter 9 in local governments, will not include all branches; rather, the PROMESA Board is expected to continue to makes its exchanges with the Governor—not the legislators, which make up a branch of government with two leaders and where, at least on paper, Senate President Thomas Rivera Schatz promises to ignore the members of the fiscal authority. Indeed, according to PROMESA, the exchange related to the revision of every law is made directly with the Governor, to whom the Board has granted seven days—after the statute is adopted—to present the fiscal impact estimate, if any, on the Governments revenues and expenditures. Or, as former Senator Fernando Martín, who is the executive president of the Puerto Rican Independence Party, put it: “As long as they take their draconian powers seriously, I believe they will do what they announced: examine passed legislation; repeal any legislation that proves contradictory with the fiscal plan; or, to soften the blow, try to make the Legislature modify it,” adding that the PROMESA Board’s defense against the Government of Puerto Rico’s bondholders is to be rigorous in controlling expenses: “Paraphrasing the current Governor’s father, the worst is yet to come: austerity, by itself, cannot be a recipe,” rather they will have to encourage solving “the structural problem in the relations between Puerto Rico and the U.S., since the solution means ending colonialism”.

Mr. Martin believes that the Governor—as the leader of the Executive branch—, the Senate President, and the House Speaker could have the judicial strength to sue: “If the Governor accepts my call to challenge the Board and the intervention in the Island’s governmental affairs, I am more than willing to help combat the Board. If I was Governor and they rejected a law I signed, I would challenge the Board’s actions in court.” However, because the PROMESA Board was imposed by Congress, in exchange for offering Puerto Rico the possibility of a quasi-chapter 9 territorial bankruptcy procedure, and because the federal law bases the Board’s control over the Island on the power Congress has to legislate through the territorial clause of the United States Constitution; it would seem his advice would be unlikely to pass judicial muster—even as Mr. Martin notes: “The Governor of Puerto Rico is Ricardo Rosselló, elected by the people’s votes. It is not Mr. Carrión. Even though Ricardo Rosselló does not belong to my party, I respect the position he holds and the power he has according to what is established by our Constitution.” Ferrer added.

Donde Estamos? Currently, while the PROMESA Board is still reviewing the workday reduction for public employees and the elimination of the Christmas bonus if its members believe that there will not be enough cash in the coffers by July 1st, the tax reduction for doctors would cost $185 million per year. Thus, the Representative from the New Progressive Party, José Enrique “Quiquito” Meléndez, opines that Governor Rosselló’s government has had “a particular worry,” which is if the Board’s power over Puerto Rico’s laws includes measures passed before the certification of the fiscal plan. Ergo. Rep. Meléndez considers that the one with the greatest cost will be the doctors’; however, among the laws which would be subject to the Board’s review would lie the financing for the plebiscite and the office of the Inspector General—or as he described it: “The plebiscite’s impact is not substantial, even without the $2.5 million that the federal government can grant.” The cost of the plebiscite—whose possible celebration is mentioned in PROMESA, has been estimated at $5 million at least—an amount that Mr. Martín does not foresee that the Board would want to say that holding a consultation on Puerto Rico’s political future, even under a Board that could only exist under the territorial status, to be “a superfluous cost.”

The Uneven Shape of Colonial Governance. Because of the PROMESA Board’s absolute power over Puerto Rico’s elected officials and even the finances of the Puerto Rico Judicial Branch, the governance situation appears to be without precedence since Congress granted Puerto Rico a structure to form a local government.

The Challenge of Recovering from or Averting Municipal Bankrupty

eBlog

Share on Twitter

eBlog, 03/28/17

Good Morning! In this a.m.’s eBlog, we consider the ongoing recovery in Detroit from the largest municipal bankruptcy in U.S. history, before spinning the tables in Atlantic City, where the state takeover of the city has been expensive—and where the state’s own credit rating has been found wanting.

Home Team? A Detroit developer, an organization, Dominic Rand, has initiated a project “Home Team,” seeking to purchase up to up 25 square miles of property on the Motor City’s northwest side with a goal of keeping neighborhoods occupied by avoiding foreclosures and offering renters a path to homeownership. Nearly four years after the city’s chapter 9 filing for what former Emergency Manager Kevyn Orr deemed “the Olympics of restructuring,” to ensure continuity of essential services while developing a plan of debt adjustment to restructure the city’s finances—and to try to address the nearly 40 percent population decline and related abandonment of an estimated 40,000 abandoned lots and structures, as well as the loss of 67 percent of its business establishments and 80 percent of its manufacturing base, Mr. Rand reports he is excited about this initiative by an organization for purchases of homes slated for this year’s annual county tax foreclosure auction. His effort is intended to rehabilitate the homes and help tenants become homeowners. The effort seeks to end the cycle of home foreclosures due to unpaid property taxes. 

This is not the first such effort, however, so whether it will succeed or not is open to question. Officials at the United Community Housing Coalition note that previous such initiatives have failed, remembering Paramount Mortgage’s comparable effort, when the company purchased 2,000 properties, in part financed through $10 million from the Detroit police and fire pension fund—an effort which failed and, in its wake, left 90 percent of those in demolition status. Fox 2 reported that the City “does not support this proposal,” questioning its “ability to deliver on such a massive scale with no particular track record to indicate they would be successful,” adding the organization, if it wants to “start out by becoming a community partner through Detroit Land Bank and show what they can do with up to nine properties, they are welcome to do so.”

At first, the Home Team Detroit development group considered purchasing every property in Detroit subject to this year’s annual county tax foreclosure auction; instead, however, the group focused on the northwest quadrant covering 25 square miles and 24 neighborhoods—an area larger than Manhattan—with founder David Prentice noting: our “game plan is pretty simple: You are going to have a quadrant of (Detroit) with properties that are primarily occupied.” Mr. Prentice believes this initiative would address what he believes is one of Detroit’s biggest problems: halting the hemorrhaging of home foreclosures due to unpaid property taxes—an initiative one Detroit City Council member told the Detroit News was “unique and comprehensive.” Thus, city officials are reviewing the entity’s proposal—even as it reminds us of the Motor City’s ongoing home ownership challenge—a city where, still, more than 11,000 homes a year have ended in foreclosure over each of the last four years. Under the city’s process, the city warns property owners in January if their properties are at risk of tax foreclosure: as of last January, the Home Team group reports its targeted area has 11,073 properties headed for foreclosure.

Home Team is seeking approval from Detroit to purchase the properties via a “right of first refusal,” under which Mayor Mike Duggan and the Detroit City Council would have to approve the sale—and Wayne County and the State of Michigan would at least have to agree to not buy them as well, since both also have the option to buy the properties prior to such public auctions. Home Team claims it has the resources and expertise to buy the properties, rehab the homes, find new residents, and allow it to work with people traditional lenders would not consider due to poor credit ratings or because of the locations of the properties. The group claims its land contract system, or contracts for deeds, under which tenants make payments directly to the property owner and often have no ownership stake until the entire debt is paid, would work as an alternative to traditional mortgages—even as housing advocate groups such as the United Community Housing Coalition warn that land contracts are financial traps, and the nonprofit Michigan Legal Services told the Detroit News that many land contract deals are “gaming the system,” referencing a recent Detroit News story about many residents with land contracts losing out on actually getting a home—and others warning that those families sign contracts may end up owing significantly more than they would by renting, yet, at the end of such transactions, “have nothing to show for it.” (In recent years, the News reports, land contracts have outnumbered traditional mortgages in Detroit.) Mr. Prentice, while agreeing that “most land contracts are designed for the tenants to fail,” suggested his company’s land contracts would come without the high penalties, high monthly payments—payments which increase in time, and rising interest rates which have trapped unwary families in the past—and, he has vowed the company would fix up every property before putting it back on the market.

Detroit City Councilman George Cushingberry, who represents a major portion of the targeted area, told the News: “I like that it’s comprehensive and takes into account that one of the issues that prevents home ownership is financial literacy.” Yet, the ambitious proposal has also encountered neighborhood opposition: the Northwest Detroit Neighborhood Coalition has launched a petition drive to block the plan—and drawn support from eight neighborhood groups, with the Coalition issuing a statement: “We the people of northwest Detroit hereby declare our strong opposition to high-volume purchases of tax-foreclosed properties (10+ parcels) and other high-volume transfers of properties to real estate investors…Proposals like the one currently being circulated by (Home Team Detroit) do not serve the needs or interests of Detroit neighborhood residents. These bulk purchases only accelerate vacancy, blight, and further erosion of our community.” However, Melvin “Butch” Hollowell, Detroit’s Corporation Counsel, said the city opposes the effort, which would require the city to authorize a purchase agreement for the properties, noting: “The city does not support this proposal: We have a number of serious concerns, especially Home Team Detroit’s ability to deliver on such a massive scale with no particular track record to suggest they would be successful. If they want to start out by becoming a community partner through the Detroit Land Bank (Authority) and show what they can do with up to nine properties, they are welcome to do so and go from there.”

Robbery or the Cost of Municipal Fiscal Distress? The law firm of Jeffrey Chiesa, whom New Jersey Governor Chris Christie named to oversee the state takeover of Atlantic City, has billed the State of New Jersey about $287,000 for its work so far, according to multiple reports, including some $80,000 alone for Mr. Chiesa. The fiscal information came in the wake of the release by the state of invoices that showed the law firm submitted more than $207,000 in bills for the first three months of work, November through January—with some twenty-two members of the firm billing the state. In addition, Mr. Chiesa, who bills the State $400-an-hour for his time, reports he himself has billed $80,000 over that same period, noting to the Press those invoices were not included in the state’s data released last Friday, because they have yet to be fully reviewed. He added that the state has imposed “no cap” on the fees his firm may charge—leading State Assemblyman Chris A. Brown (R-Atlantic), who has been critical of the takeover, to note: “The governor handing over the city to a political insider without a transparent plan is like leaving your home without locking the door, and it looks like we just got robbed.”  The release of the data could not have come with more awkward timing, with the figures aired approximately a week after Mr. Chiesa wrote to Atlantic City police officers announcing the state was seeking to cut salaries, change benefits, and introduce longer shifts to save the city money—and as the state is calling for similar cuts and 100 layoffs in the city’s fire department—efforts in response to which Atlantic City’s police and fire unions have filed suit to prevent, with a judge last week ruling the state cannot yet move forward with the fire layoffs until he determines whether the state proposal is constitutional—even as Mr. Chiesa has defended the cuts, calling negotiations with the unions “money grabs.” For his part, at the end of last week, Mr. Chiesa defended his bills, claiming his firm helped negotiate a $72 million settlement with the Borgata casino in a long-running tax dispute with the city, gaining more than a 50 percent savings to the city from the refund it owed in the wake of tax appeals, deeming that an “important success on behalf of the city.”

Nevertheless, as S&P Global Ratings noted last week in upgrading Atlantic City’s credit rating from “CC” to “CCC,” despite assistance from the state, there is still the distinct possibility the city could still default on its debt over the next year and that filing for chapter 9 municipal bankruptcy remains an option down the line.  Nevertheless, S&P analyst Timothy Little wrote that the upgrade reflected S&P’s opinion that “the near-term likelihood” of Atlantic City defaulting on its debt has “diminished” because of the state takeover and the state’s role in brokering the Borgata Casino agreement—an upgrade which a spokesperson for the Governor described as “early signs our efforts are working, that we will successfully revitalize the Atlantic City and restore the luster of this jewel in the crown.”  However, despite the upgrade, Atlantic City still remains junk-rate, and S&P reported the city’s recovery remains “tenuous:” It has a debt payment of $675,000 due on April Fool’s Day, $1.6 million on May Day, $1.5 million on June 1st, and another $3.5 million on August 1st—all payments which S&P believes will be made on time and in full, albeit warning that more substantial debts will come due later in the year, meaning, according to S&P, that the city’s recovery remains “tenuous,” and that Atlantic City is unlikely “to have the capacity to meet its financial commitment…and that there is at least a one-in-two likelihood” of a default in the next year.” Or, as Mr. Little wrote: “Despite the state’s increased intervention, [municipal] bankruptcy remains an option for the city and, in our opinion, a consideration if timely and adequate gains are not made to improve the city’s structural imbalance.”