The Phyical, Fiscal, & Governing Challenges of Rcovery

eBlog

May 3, 2019

Good Morning! In this morning’s eBlog, we consider the obstacles to facilitating hurricane recovery assistance to Puerto Rico, before assessing the fiscal and physical status of Flint, Michigan.

Getting Aid to Puerto Rico. Senate Appropriations Chair Richard Shelby (R-Ala.) has offered the Democrats on the Committee proposed language which would accelerate the disbursement of funds to Puerto Rico, albeit with greater supervision and restrictions—but, critically, which would unblock the impasse so far barring Congress from passing legislation to address recent natural disasters. While the Chair has not made public his proposed language, he has shared it with Ranking Member Patrick Leahy (D-Vt.). Chair Shelby’s proposed language would not include new allocations for the U.S. territory in addition to the $600 million in food assistance funds which have not been opposed by the President—and $5 million focused on studying the impact of that nutritional aid. Here, Chairman Shelby’s offer came hours after on the pending disaster allocation project was reportedly briefly discussed at Tuesday’s Oval Office meeting with Senate Minority Leader Chuck Schumer (D-NY) and House Speaker Nancy Pelosi (D.-Ca.)—a meeting called by the President to discuss his newly proposed $2 billion infrastructure plan—a plan for which the proposed $2 billion remains unexplained and unfunded.

The Congressional Democratic Leaders left the session hopeful that there is interest to agree soon with consensus on a path to unblock critical natural disaster relief across the nation—relief to date blocked by the White House due to apparent opposition to any relief to Puerto Rico. There appeared to be some sense that the efforts have achieved progress—or, as one participant noted, in quoting the President: “I’m going to keep out” of this discussion—seemingly meaning he would not object. However, another source from the White House indicated that he understood that President Trump did not say that he would stay out of the discussions, but rather that an agreement must be reached; while Senator Marco Rubio (R-Fla) tweeted that some progress was occurring in bipartisan talks. The House version approved at the beginning of the year includes $600 million in food assistance for Puerto Rico, $25 million to restore the Martín Peña Canal, $5 million to finance a study on the elimination of emergency nutritional assistance in the wake of Hurricane Maria—and restoration of the matching of funds that the government of Puerto Rico has to make in order to obtain the reimbursements of FEMA for the emergency measures. (In the wake of the President’s refusal to grant more funds to Puerto Rico, President Trump accepted that the Senate bill included the allocations related to nutritional assistance, but no other initiative for the island.

The negotiations come as the House is scheduled to pass legislation next week that adds another $3 billion in appropriations to address the March floods in the Midwest—legislation which retains the funds originally ratified for Puerto Rico last January. Indeed, at the White House meeting, the House and Senate Democratic leaders, and the President, agreed to work towards a legislative plan that allocates $ 2 billion to finance improvements to the transportation infrastructure of the United States—albeit without any agreement from whence such funds would come.

Wherefore Restoration of Self-Governance Authority? Meanwhile it appears President Trump plans to nominate the current PROMESA Oversight Board members to serve their terms through the end of August—plans which have gained praise from Democrats in Congress, as it may avert an interruption of the Board’s efforts to bolster the U.S. territory’s economy and fiscal management. The announcement came as the PROMESA Board prepared to launch law suits seeking to claw back payments made on and fees paid for more than $6 billion of Puerto Rico bonds. That is, the ongoing governance quandary with regard to whether a federal circuit court, the unelected oversight board, or the U.S. citizens of Puerto Rico will actually be permitted to decide on the island’s future—a future further confused when, last February, the U.S. 1st Circuit Court of Appeals held in favor of municipal bondholders that the method of appointment of the board, as found in the Puerto Rico Oversight, Management, and Economic Stability Act, was unconstitutional: ergo, for the PROMESA Board to continue to operate beyond May 16th, the court ruled the President must nominate and the Senate confirm the Board members. The President, in a posting to the White House website, noted he intends to nominate the current seven members to serve out their terms. (According to the PROMESA each term is three years, so if the Senate confirms the members, their terms would end on Aug. 31st.)

It is unclear how the U.S. Senate will react—especially in the wake of a White House statement: “Mismanagement, corruption, and neglect continues to hurt the people of Puerto Rico who deserve better from their government…The most important component for future health and growth of Puerto Rico is financial constraint, reduced debt, and structural reforms…The work of the Financial Oversight and Management Board for Puerto Rico is providing the stability and oversight needed to address these chronic issues that will bring hope of a brighter future for Puerto Rico.” Given the exploding debt and deficits under the Trump administration, the statement appears most ironic.

Nevertheless, House Natural Resources Committee Chair Raúl Grijalva (D-Az.) hailed the move: “The President’s decision to nominate the members of the Financial Oversight and Management Board for Puerto Rico for Senate confirmation is welcome. Democrats supported PROMESA largely to enable Puerto Rico to restructure and reduce its debts. If the 1st Circuit’s ruling invalidating the original appointments had not been addressed, the Board would have collapsed and three years of work on debt restructuring would have been wasted….We are close to a final restructuring agreement on the largest remaining block of Puerto Rican debt, and it’s in the interests of the Puerto Rican people to finalize that agreement without interruption,” Chairman Grijalva noted, for his Committee, which oversees Puerto Rico. Similarly, Rep. Nydia Velázquez (D-N.Y) noted: “To essentially start over with new appointments to the Oversight Board would have injected serious uncertainty and chaos into the debt restructuring process…While I support the reappointment of these members to the Board, I will continue holding them to account to ensure they are always acting in the best interest of the people of Puerto Rico…Austerity measures are not the answer for Puerto Rico, and I’ll continue pushing the Board to put ordinary Puerto Ricans before Wall Street creditors and hedge funds.”

The PROMESA Board also released a statement welcoming the President’s announcement, with its statement coming in the wake of its request to the U.S. 1st Circuit Court of Appeals to extend the May 16 deadline for acting as the Board; the PROMESA Board has also filed a petition for certiorari with the U.S. Supreme Court to review the appeals court’s February decision.

Not in Like Flint. Five years on, the Flint water crisis is nowhere near over: the state-caused fiscal and physical emergency devastating lives, assessed property values, and public trust continues. The Flint River courses some 142 miles through mid-Michigan, before a noticeable change occurs as it flows southwest into the city of Flint, where, abruptly, it is marked by concrete slopes, capped with wire fences, flank the water—adjacent to decaying bridge piers protruding from the center of the river. It is almost as if it were a cemetery to mark the five years since the city’s water source switch which, in a decision by a state appointed Emergency Manager—it is, rather, as studies have demonstrated, a municipality with drinking water lead levels nearly twice the amount that is supposed to trigger action under U.S. Environmental Protection Agency standards: That is, it is a municipality where the state action threatens adverse neurological effects in children, including reduced IQ and aggressive behavior; in a 6-month-old weighing 18 pounds, it takes just 12 millionths of an ounce of lead in the child’s bloodstream, about the same as one grain of salt, to exceed the level that the Centers for Disease Control considers a risk for children. That is, for a mother and father—leaving seems a vital goal—but for the municipality, such departures can have devastating implications for assessed property values and income taxes. Perhaps fortunately for the city, its budget only assumes some $4.6 million in property taxes—less than a third of what it anticipates in income taxes; however, therein lies a fiscal risk: while the city’s water system operators report they have significantly reduced lead since 1991, when the U.S. Environmental Protection Agency first adopted a rule that mandates monitoring and treatment to reduce contamination caused by corrosion and other factors related to lead pipes, EPA notified the Governor there remained “serious and ongoing concerns with the safety of Flint’s drinking water system,” including “continuing delays and lack of transparency” in the state’s response. Flint switched back to the Detroit water system three and a half years ago, but public health effects from lead exposure prompted emergency declarations from the state and federal governments in early 2016. The city then launched an aggressive rehabilitation campaign, and, in the past three years, crews have explored 21,298 homes and replaced lead service lines at 8,260. The work should finish in July, according to Jameca Patrick-Singleton, Flint’s Chief Recovery Officer.

The most recent testing of Flint’s drinking water, sourced again from Detroit, marked lead at four parts per billion, well clear of the 15 that requires action. Those results account for a 90th-percentile rating: in other words, 90 percent of the homes comply with the federal standard. Nevertheless, Mayor Karen Weaver notes that tests will continue, and according to Patrick-Singleton, Mayor Weaver will not lift the city’s emergency declaration until the scientific and medical communities clear the drinking water.

Governance: Creating & Responding (or failing to respond) to a Human, Physical, & Fiscal Crisis.  Michigan Attorney General Dana Nessel’s office has fired special prosecutor Todd Flood from the Flint water criminal prosecution team because of documents discovered in a government building, which Michigan Solicitor Fadwa Hammoud confirmed Monday. Here, the special prosecutor’s contract expired on April 16, and he had been advised last week that the state would not be renewing his contract. The Solicitor Mr. Flood’s termination to the recent realization that legal “discovery was not fully and properly pursued from the onset of this investigation.” Last Friday, prosecutors asked a Genesee County judge for a six-month delay in the involuntary manslaughter case against former Michigan Health and Human Services director Nick Lyon after finding a “trove of documents” related to the Flint water crisis in the basement of a state building. (Mr. Flood had been named a special assistant attorney general in the Flint criminal cases after serving as a special prosecutor, serving more than three years: an appointee of former Attorney General Bill Schuette, Mr. Flood’s authority was curbed significantly when Mr. Hammoud was put in charge of the Flint prosecution, and then brought in Wayne County Prosecutor Kym Worthy to help the prosecution team.) Mr. Hammoud noted that Mr. Flood’s departure reflected the department’s commitment “to execute the highest standards” in the Flint prosecutions.

For his part, Mr. Flood noted: “In the time we have spent in Flint, we interviewed over 400 people, reviewed millions of
pages of discovery, and took pleas to advance the investigation: We conducted multiple court hearings and preliminary exams, placed hundreds of exhibits into evidence and successfully bound defendants over for trial. This complex case of official wrong-doing and betrayal of public trust has been prosecuted with the utmost attention to the professional standards that justice demands. I walk away knowing that I gave everything I had to give to this case. The people of Flint deserved nothing less.”

Mr. Flood originally charged 15 people in the Flint prosecutions; he struck plea deals with seven defendants who have pleaded no contest to misdemeanors; he successfully convinced 67th District Court judges to bind over for trial Mr. Lyon and former Chief Medical Executive Eden Wells on criminal charges related to the 2014-15 Legionnaires’ disease outbreak which led to the death of 12 individuals and sickened at least 79 others.

Preliminary exams against former gubernatorially-appointed Flint Emergency Manager Darnell Earley, and Howard Croft, Flint’s former Public Works Director, were recently suspended as the Attorney General’s office continues its review of all of the criminal cases; it remains unclear what connection the recently rediscovered boxes have to Mr. Lyon, who has been charged with involuntary manslaughter in the Legionnaires’ disease outbreak: he is accused of failing to warn the public in a timely manner about the respiratory disease before former Gov. Rick Snyder informed the public about it in mid-January 2016.

Will Justice Be Done? Mayor Weaver, in a statement Monday, noted: “I respect the decision that the Solicitor General has made regarding the changes to the prosecution team. I will continue to voice my desires to have truth, transparency, and justice for Flint residents…I ask that we not get caught up on the changes, but that we continue to keep the focus where it should be, and that is on making the residents whole after such a traumatic experience.”

The Governance Responsibility to Protect a City’s Children

October 10, 2018

Good Morning! In this morning’s eBlog, we report on the physical and fiscal challenges of the Detroit Public Schools, before zooming south to assess whether the complex municipal financing in Puerto Rico’s recovery has perhaps exacerbated the U.S. territory’s debt challenges.

Protecting a City’s Children. A key challenge in Detroit’s plan of debt adjustment from the nation’s largest chapter 9 municipal bankruptcy was restoring trust in its public schools—a critical step if families with kids were going to move from the suburbs into the emptied city. That, of course, required making the schools not just trustworthy places for learning, but also safe—and not just safe from a gang perspective, but especially here from water contamination—Flint, not so far away, after all, is on many parents’ minds. Thus, the school district is developing plans to make drinking water safe inside its buildings, especially after a review of testing data shows one school had more than 54 times the allowable amount of lead under federal law, while another exceeded the regulated copper level by nearly 30 times. The Detroit News reviewed hundreds of pages of water reports for 57 buildings which tested for elevated levels of lead and/or copper in the water to provide a detailed look how excessive the metal levels were in the most elevated sources.

The News effort comes as Detroit Public School Superintendent Nikolai Vitti noted: “‎We discontinued the use of drinking water when concerns were identified without any legal requirement to do so, and hydration stations will ensure there is no lead or copper in all water consumed by students and staff, with the Superintendent yesterday reported the system expects to spend nearly $3.8 million enacting a long-term solution to widespread lead and copper contamination in students’ drinking water, with the cost including $741,939 to install 818 hydration stations and filters, $750,000 for water coolers until completed installation of the stations in the summer of 2019, $539,880 for environmental remediation costs, $1.2 million for maintenance services, and $282,000 for facilities maintenance—a tab unanimously approved yesterday by the Detroit Community Schools Board, with long-term plan to get drinking water flowing again inside the 106 Detroit schools after faucets were turned off ahead of the school year. The announcement followed Monday’s by Supt. Vitti, when he reported that he and the school board will reveal corporate funders for some $2 million in hydration stations he wants to install across the district.

The need, as the survey revealed, is urgent: among the elevated levels reported by the Detroit Public School District includes a kitchen faucet inside Mason Elementary-Middle School which had more than 54 times the amount of lead permitted the Safe Drinking Water Act; a drinking fountain inside Mark Twain School for Scholars was tested at more than 53 times the federal threshold; a drinking fountain on the first floor near the kitchen of Bethune Elementary-Middle School that had copper levels at nearly 30 times the permissible level—even as DPS officials still await the test results of 17 more buildings. Nevertheless, from the results so far, there is a failing grade: more than half of the 106 schools inside Michigan’s largest school district have contaminated water. Indeed, with EPA recommending lead limits of 15 micrograms per liter or 15 part per billion, water samples at Mason found extreme elevations of lead at Mason, Twain, Davis Aerospace Technical, and Bagley, and extreme levels of copper at Bethune Academy of the Americas elementary-middle school and Western International. Unsurprisingly, public health and water safety experts report that schools should use a tougher standard for lead levels, and nationally recognized Virginia Tech water expert Marc Edwards said: “Those are not good. There is no doubt there are worrisome lead levels: Whenever you take hundreds of thousands of samples in a school, you are going to get some results that are shockingly high.” At a Board of Education meeting last month, Superintendent Vitti said the most practical, long-term, and safest solution for water quality problems inside the schools would be to provide water hydration stations in every building—systems currently used in public school districts, including in Flint, Royal Oak, and Birmingham, as well as Baltimore: these stations, in addition to cooling water, more importantly remove copper, lead, and other contaminants.

Drinking water screening reports demonstrate that water was collected at some schools in April and others in August, with school district officials reporting sampling began in the district in the spring and continued through last August. In September, Superintendent Vitti said that DPS, through its environmental consulting firm, ATC Group, is following EPA protocol for collecting water samples, adding: “If testing occurred at a school after the regular school year, then it was done during summer school, where nearly 80 of our schools were offering classes,” adding that many of the schools with high levels had already identified for concern two years ago—and that those were the first group of schools to move to water coolers. Supt. Vitti initiated water testing of the 106 school buildings in May and August after initial tests results found that 16 schools showed high levels of copper and/or lead. Another eight tested for elevated levels in the spring after they were identified with concerns in 2016. Last month, the DPS District received more test results, which found an 33 additional schools with elevated contaminant levels, bringing the total number of schools with tainted water to 57 in a District already overwhelmed by some $500 million in building repair needs; moreover, the bad gnus could worsen: the total number of schools with high levels could increase as school officials await more test results on another 17 schools.

Dr. Mona Hanna-Attisha, noted for her expertise in Flint, who is a pediatrician and public health expert, concurred that Detroit’s policymakers need to set a much more aggressive limit on allowable amounts of lead in schools. In addition, Michigan Department of Environmental Quality’s school sampling guidance recommends that schools address fixtures which measure above 5 micrograms per liter, the same EPA standard as bottled water, according to Dr. Hanna-Attisha; the American Academy of Pediatrics recommends an action level of just 1 microgram per liter for drinking water in child care facilities and schools. Thus, as Dr. Hanna-Attisha warns: “This should be the District’s action level,” in a letter she co-authored with Elin Betanzo, founder of Safe Water Engineering, a consulting firm—a letter with which Superintendent Vitti said he agrees.

Dr. Hanna-Attisha, who witnessed lead levels in some Flint homes reach 22,000 micrograms per liter, said U.S. EPA school sampling guidance encourages schools to sample every drinking water tap a single time unless lead is detected at greater than 20 micrograms per liter, noting: “One low single tap sample is not sufficient to clear a tap as a potential source of lead, because lead release is sporadic.” Her words come with the benefit of her experience and practice as an associate Professor of Pediatrics at the Michigan State University College of Human Medicine, as well as Director of the MSU-Hurley Children’s Hospital Pediatric Public Health Initiative. She adds: “It is not appropriate to use a single low sample that was taken as a follow-up to a high sample to conclude that a drinking tap is ‘safe to drink,’ although this is how many schools have interpreted sampling data.” Dr. Joneigh Khaldun, the Director and Health Officer for the Detroit Health Department, said she recommends parents of children 6 and younger be tested for blood lead levels, because of the Motor City’s history of elevated levels for children, which has been primarily due to lead paint in homes, adding that the elevated rates in the tests were concerning: “I think, broadly speaking, I support Dr. Vitti in testing every water source in every school…For any school that comes back with elevated lead levels, the actual reasons for that school is not clear. It can be the infrastructure or the drinking fountain. Providing bottled water and other sources is the right thing to do.”

According to Michigan health officials, children are at higher risk of harm from lead, because their developing brains and nervous systems are more sensitive. Lead can cause health problems for children, including learning problems, behavior problems including hyperactivity, a lower IQ, slowed growth and development and hearing and speech problems. That risk is not just physical, but also fiscal: A key part of Detroit’s chapter 9 plan of debt adjustment approved by the U.S. Judge Steven Rhodes was its focus on the importance of provisions to give incentives for families to move back to the Motor City‒a difficult parental choice in the wake of, four years ago, the Detroit News investigation which reported that nearly 500 Detroit children had died in homicides since 2000.

Notwithstanding the terrible health tragedy in Flint, Michigan has no rules mandating the state’s school districts to test for lead in their water supply, according to the Michigan Department of Environmental Quality. According to the GAO, at least eight states require schools to test for lead, and many others assist with voluntary testing. Dr. Khaldun said she supports creating a state law to mandate testing of water sources inside schools—a proposal which would entail substantial costs, creating the query: who will pay—and how?

According to Tiffany Brown, a spokesperson for the Michigan Department of Environmental Quality, the Department supports any schools which wish to test, and the Department can offer technical assistance and general information on sampling, result interpretation, and recommended remedial actions in the event of elevated lead and/or copper results, adding that there are fiscal resources “available through the Michigan Department of Education,” and that the Michigan Department of Environmental Quality is providing information and guidance on best management practices for drinking water in schools to protect the health of students and staff.” In the meantime, the Detroit Public School District is spending $200,000 on bottled water and water coolers for the next several months, with the cost to have stations in every school, one for every 100 students, projected to be $2 million, with Dr. Vitti noting the goal is to deliver clean water, not replace the pipes, or as he put it: “We are not looking to replace the plumbing. The stations address the issue of older plumbing along with weekly flushing.”  

Unequal Treatment? The Financial Oversight and Management Board in Puerto Rico reports that over reliance on outside consultants with conflicts of interest and the failure to invest in a competent workforce have imposed huge costs on and severely weakened the Puerto Rico Electric Power Authority (PREPA) and other Puerto Rico government agencies, with the report including an entire chapter just on interest rate swap agreements, a complicated and high risk investment which, it estimates, has cost Puerto Rican government entities nearly $1.1 billion when they repeatedly bet the wrong way on interest rate movements—meaning that, instead of these investments reducing Puerto Rico’s debt, government entities, including PREPA, had to take on more debt to pay for the losses. It appears that the swaps, a novel means of transactions to Puerto Rico’s Government Development Bank (GDB), where officials made these interest rate bets, or, as the report found, many of the GDB Board members who were required to approve the swap transactions, “were not familiar with the mechanics and risks associated with swaps. Many told us outright they could not describe how a swap worked. Instead, the GDB Board members told us they relied on the advice presented to them by the swap advisor.” That appears to denote that the GDB board members effectively ceded control over their investments in these very risky financial instruments to a third-party swap advisor—an advisor  that earned, and will garner fees for as long as the government of Puerto Rico continued to invest in the swaps, regardless of the outcome—an outcome in this case which entailed enormous losses. Moreover, the report demonstrated that, more generally, as the financial condition of Puerto Rico deteriorated, the deals became more complex and less transparent. An example of the utility PREPA’s overreliance on an outside restructuring advisor, AlixPartners, to lead PREPA’s debt restructuring negotiations with its municipal bondholders, as well as developing PREPA’s business plan and savings initiatives, revealed that PREPA paid Alix Partners $45 million in fees for a debt restructuring deal which was ultimately rejected by the PROMESA Oversight Board, which found the proposed financial agreement called for PREPA to pay more debt than the economy of Puerto Rico could support, and as the Puerto Rico Energy Commission found that the review lacked appropriate due diligence over the ongoing fees for legal counsel, financial advisors, and underwriters that would have accrued had the PREPA restructuring deal moved forward: the Commission specifically noted that the restructuring team charged with ensuring the reasonableness of advisor fees “includes the very advisors whose fees are in question…that is not the arm’s-length relationship necessary to protect consumers from excess fees.”

Investment in Good Governance. For elected state and local leaders, over reliance on consultants can go hand-in-hand with a failure to invest in the technical capacity and expertise of government staff. As noted by a Kobre & Kim report prepared on the evolving fiscal situation in Puerto Rico, PREPA has suffered over the years from a high degree of political interference, including the appointment of hundreds of political appointees to managerial and technical positions without regard for qualifications—appointments which appear to have not only cost considerably from a fiscal perspective, but also weakened the managerial competence of the agency. However, instead of recognizing this reality and implementing labor reforms designed to sharply curtail the influence of political appointees within the agency, the PROMESA Board has instead sought an across-the-board salary freeze and benefit cuts, even as the Board recognizes that PREPA has lost 30% of its workforce since 2012 and has severe shortages of skilled workers in key areas—and that it has developed no plan for workforce training and development, effectively seeming to force PREPA to continue to depend on consultants, rather than build its own expertise.

A Physical & Fiscal Bridge to the Motor City’s Fiscal & Physical Future

eBlog

October 1, 2018

Good Morning! In this morning’s eBlog, we report on the commencement this week of a new international bridge connecting Detroit to Canada–a bridge no longer too far.

Not a Bridge Too Far. Construction of the Gordie Howe International Bridge connecting Detroit to Canada is scheduled to begin Friday, with a projected completion in six years at a cost of $4.4 billion. The bridge will be jointly owned by the State of Michigan and Canada, with Canada fronting the funding, and Michigan paying its share via tolls collected on the U.S. terminus over the next few decades. CEO Windsor-Detroit Authority CEO Bryce Phillips described the new bridge as one which will be a “stunning addition to the Windsor and Detroit shared skyline.” The 1.5-mile span will be the longest cable-stayed bridge in North America—likely adding to what is already the busiest U.S.-Canada commercial crossing. The opening will mark the final public victory over the Moroun family, which owns the Ambassador Bridge—and which has long fought—and even requested support from President Trump—to bar the publicly funded project, not set to become one of the most vital pieces of infrastructure between the United States and Canada.

Canada is the largest market for U.S. exports, taking in 15 percent of American goods and services worth $337 billion annually, according to the U.S State Department. Together the quasi twin cities of Detroit and Windsor constitute the busiest trade crossing along the U.S.-Canada border, with more than one-fourth of all goods exchanged between the countries crossing the Detroit River to get to its final destination. On average, 7,000 trucks daily cross the Detroit River. It is the busiest link in the North American auto industry whose supply chains span both countries.

Notwithstanding this week’s commencement of construction, the Moroun family will continue to fight the project, adding to the twenty-five legal challenges they have already made—all rejected, as was a 2012 Michigan ballot measure, to which the Morouns devoted an estimated $50 million—a portion of which was to purchase a commercial on Fox News, urging President Trump to revoke the permit to build the publicly owned bridge based on The President’s “America First” policies.

The new bridge, expected to open by 2020, is expected to make the Motor City an international freight hub—or, as some note, it will define a new reawakening of a city which has emerged from the largest chapter 9 municipal bankruptcy in American history. The six-lane bridge will add to the nearby Ambassador Bridge’s four lanes, allowing trucks access to a streamlined route at the Canadian side and creating more logistics opportunities in both nations due to more direct access to rail, highway, and air transportation. As part of the project, there will also be two state-of-the-art customs centers, with the opportunity to attract more private investment on both sides of the border.

To date, land acquisition in Canada is nearly complete: about 130 acres in Windsor, southwest of the Ambassador Bridge, will be used for the largest Canadian Port of Entry along the U.S. border. Meanwhile, on the U.S. side, acquisition is underway for the 300 houses and 45 businesses located within the 145 acres in southwest Detroit, which will be used for inspection facilities for both inbound and outbound vehicles at the U.S. Port of Entry. Also included in the Detroit portion of the project is a new I-75 interchange which will include four new crossing road bridges, five new pedestrian bridges, four long bridges crossing the railway and connecting I-75 to the US Port of Entry, and service roads and local road improvements.

Among the issues and details to be included in the RFP are the community benefits expected for the Delray neighborhood in Detroit as the host community for the project—benefits which will matter, because, according to Assistant Professor of Urban and Regional Planning Zeenat Kotval-Karamchandani at Michigan State University, while pockets of Detroit are experiencing economic growth, Delray is not among them; rather, he notes, the neighborhood, near downtown, and south of Mexicantown, is “completely surrounded by industry.” Nevertheless, the Professor notes, about 2,500 people make it home—and, of those, about one-third of the households are in poverty.

Thus, this could be a unique moment of not just physical connections and public infrastructure, but also neighborhood recovery—after all, the value of freight traveling between the U.S. and Canada fell to $575.2 billion in 2015, a 12.6% drop, according to the U.S. Department of Transportation; yet about $69.1 billion came through Michigan, the most of any state. Data also shows that trucks carried the most freight to and from Canada, at 58.3%, while rail accounted for 15.7%. Unsurprisingly, the most common freight is auto-related: vehicles and vehicle parts.

Take Me Home for a Motor City Spin

September 28, 2018

Good Morning! In this morning’s eBlog, we report on the fate of whistle-blower claims against beleaguered Flint Mayor Karen Weaver; then we revert south to the Motor City, where Cadillac is coming back home.

Municipal Liability. The U.S. 6th Circuit Court of Appeals has ruled that a former Flint municipal employee’s whistle-blower claims in a lawsuit filed against Flint Mayor Karen Weaver may proceed after getting dismissed by a lower court judge.  While the court concurred with the lower court that former Flint Administrator Natasha Henderson could not sue the City of Flint on free speech grounds, it found that U.S. District Court Judge Cox should let Administrator Henderson’s suit charging violation of the Whistleblower Protection Act go forward. Ms. Henderson, who was fired in May of 2016, had filed suit against both Mayor Weaver and the city of Flint, arguing she had been wrongly fired two days after sending then-City Attorney Anthony Chubb an email requesting that he look into an “allegation of unethical conduct” by Mayor Weaver.

Judge Cox dismissed the complaint, holding that Administrator Henderson did not prove Mayor Weaver knew of the complaint before firing her; however, here the Appeals Court partially reversed the lower court in its 2-1 decision with a partial dissent from Judge Joan Larsen, a former Michigan Supreme Court justice and appointee of President Donald Trump. Writing for the majority, Judge Jane Branstetter Stranch noted: “(Ms.) Henderson has mustered sufficient circumstantial evidence of a retaliatory motive to prevent summary judgment.” However, the 6th Circuit Court of Appeals found that Ms. Henderson’s job description “contains some responsibilities that arguably include reporting unlawful or unethical behavior. For example, Henderson was responsible for ‘following financial best practices’ and ‘overseeing the day-to-day operations of the City.’” Judge Larsen said she agreed with the District Court’s decision that the lawsuit should be dismissed in a summary judgment for the City of Flint and Mayor Weaver.

Driving Back Home. The General Motors Cadillac division is returning home next April Fool’s Day to the Motor City, relocating from its headquarters to the former Campbell Ewald building near the Warren Technical Center—with the move coming four years after Cadillac had left Detroit for a trendy space in New York City’s SoHo district. The return will be to the former Lowe Campbell Ewald headquarters, which GM had purchased near Detroit’s Tech Center four years ago—a place where the company kept some Tech Center workers; now it will become the company’s headquarters. In the wake of a “leadership decision” to chauffeur the Cadillac team closer to GM’s design and engineering center—a shift the company is deeming a strategic action as Cadillac gears up to begin a two-year product offensive that will see new product launches every six months through 2020; or, as the company noted: “The move will place the Cadillac brand team closer to those responsible for the new Cadillacs, including design, engineering, purchasing and manufacturing, ensuring full integration of Cadillac’s global growth strategy.” New Cadillac President Steve Carlisle told The Wall Street Journal he wants Cadillac leaders closer to GM’s vehicle design and engineering hub at the Warren Technical Center as the brand gears up for a product offensive over the next two years. Since General Motors, four years ago, announced its proposed headquarters shift to New York, its U.S. sales have declined by some 12%; its share of the luxury market dropped to by nearly 20%‒from 9.3% to 7.7%. The empty downtown Detroit I visited on its very first day in chapter 9 municipal bankruptcy is thus, today, a city where Cadillac is recognizing it has its best opportunity for building a brand which relies on getting the product right and, preferably, first.

Post Municipal Bankruptcy Futures

September 21, 2018

Good Morning! In this morning’s eBlog, we report on the unsafe conditions of Detroit’s public schools, and dismissal by the Trump administration for self-government in Puerto Rico, and, a year after Hurricane Maria’s devastating strike on Puerto Rico and underwhelming federal response, the U.S. territory’s continued inequitable status.  Unlike in corporate bankruptcies, in municipal bankruptcies, the challenge is not how to walk away from accumulated debts, but rather how to fiscally resolve them.  

Detroit’s Future? In Detroit, where, last week, organizations gathered at the Marygrove College campus to announce a new cradle-to-career educational partnership, including a state-of-the-art early childhood education center, a new K-12 school, and the introduction of an innovative teacher education training modeled after hospital residency programs; Superintendent Nikolai Vitti has announced the closure of thirty-three more schools because of high levels of copper and/or lead, bringing the total number of schools with tainted water to 57 buildings. The Superintendent’s warning noted: “Of the results just received, 33 of 52 schools have one or more water sources with elevated levels of copper and/or lead…This means that 57 of 86 schools where test results have been provided have one or more water sources with elevated levels of copper and/or lead (this does not include the previous 10 Di-Hydro schools where copper and/or lead was detected).” He added the results were incomplete: the district is still awaiting results for 17 schools. He noted: “As you know, drinking water in these schools was discontinued as we await water test results for all schools. Although the kitchen water has only been turned off in schools where levels were determined high, we have been using bottled water to clean food in all schools: As a reminder, we have not used water to cook food in our kitchens for some time and instead have delivered pre-cooked meals to students. We plan to install filters for kitchen sinks to remedy challenges in kitchens.” Last week, the Superintendent, in a state hyper aware of the physical and fiscal threats of contaminated or unsafe water, that a $2 million water station system would address water quality issues, and School Board Member Deborah Hunter-Harvill confirmed, in the wake of the tests: “We completed our community meeting, and we’ve taken down recommendations and suggestions to make certain our kids are safe.” But who will finance the corrections is unclear: School Board member LaMar Lemmons said he supports spending $2 million to fix the water problems, and he continues to blame the state for neglecting school buildings during a decade of state control, which ended in 2017: “Under the $2 billion (spent) for new school construction and renovation, they did a terrible job. There is no excuse for these schools to not have been maintained.” Supt. Vitti said the most practical, long-term, safest solution for water quality problems inside the schools would be water hydration stations in every building, system currently in use in Flint, Royal Oak, Birmingham and in Baltimore, he noted, adding, in an email earlier this week: “Moving forward, we will continue to use water coolers district-wide and are actively working through the bid processes to make a recommendation to the board for the use of hydration stations. This will occur within the next couple of weeks. The hydration stations would be installed in all schools by next school year and replace the need for water coolers.”

The health apprehension came in the wake of, just days before the first day of class at the beginning of this month, the Superintendents’ decision to shut off drinking water inside all 106 school buildings after finding, in an initial check at 6 schools, high levels of copper and/or lead. The checks themselves are costly: they require stations in every school, one per every 100 students, with a resulting tab of $2 million, after taking into account stations in faculty rooms and gymnasiums, according to Supt. Vitti, who stated he intends to provide information to the Detroit School Board to consider next month, noting that, if the funds are approved, the system could be installed in the next school year. The delay comes at a physical and fiscal cost: the school district is spending $200,000 on bottled water and water coolers for the next several months, with Supt. Vitti reporting the cause of the water contamination is likely the result of the aging of the system’s public infrastructure, as well as older plumbing systems, warning that lower usage of water due to smaller enrollment sizes can lead to copper and lead buildup. Because DPS’ schools were built for use by thousands of students, the sharp decline in attendance has adverse effects, and, as the Superintendent noted: “The reality is our schools are vastly different: some are new, some are old. Some have outdated systems, some have outdated sinks and plumbing,” adding he had consulted with the Governor’s office, the Michigan Departments of Environmental Health, as well as Dr. Mona Hanna-Attisha, whose critical leadership exposed the Flint lead water crisis, noting: “They have provided lessons on Flint. They gave the recommendation for me to think about piping in general and a long-term solution.”

Despite the tragedy and ongoing Flint related litigation, Michigan has no rules mandating that public school districts test for lead in their water supply. That means, according to the Superintendent, that there are even newer schools built within the last decade which have water-quality issues, noting these problems could be blamed on inadequate piping or non-code compliant piping, adding he had i initiated water testing of DPS’ 106 school buildings last spring, with the testing evaluating all water sources, from sinks to drinking fountains—but learning that the actual source of the contamination remains uncertain—albeit the school system’s widespread infrastructure problems are likely causes: last June, a district report said it would cost $500 million to repair its buildings. The district has said it needs $29.86 million to repair or replace plumbing, according to the facilities report, not related to the current water problems.

Physical & Fiscal Recoveries. Maria was the worst storm to hit Puerto Rico in nearly a century: nearly 3,000 Americans lost their lives, according to a study commissioned by the Puerto Rican government. The storm devastated the economy: thousands of small businesses have been shuttered; some big businesses are leaving, and, in a demographic omen, the exodus of the young, productive population has accelerated. Over the last year, the island’s economy has contracted by 7.6%, according to the latest fiscal plan prepared for PROMESA Board. 

American Inequality. Puerto Rico Gov. Ricardo Rosselló this week asked President Trump to recognize that “Puerto Rico’s territorial status is discriminatory and allows for the unequal treatment of natural-born U.S. citizens.” In his letter to the President, coming one year in the wake of the devastating fiscal and physical impact of Hurricane Maria, the Governor wrote that Puerto Rico’s territorial status had negatively affected post-Maria recovery efforts, noting: “As we revisit all that we have been through in the last year, one thing has not changed and remains the biggest impediment for Puerto Rico’s full and prosperous recovery: the inequalities Puerto Rico faces as the oldest, most populous colony in the world.”

Gov. Rosselló, who campaigned on the promise of promoting statehood for Puerto Rico, added in his letter that FEMA’s bureaucratic processes—processes in which Puerto Rico has no say—had worked to delay disaster recovery, writing: “The ongoing and historic inequalities resulting from Puerto Rico’s territorial status have been exacerbated by a series of decisions by the federal government that have slowed our post-disaster recovery, compared to what has happened in other jurisdictions stateside.” He requested that the President reconsider a State Department request to dismiss a case in the Inter-American Commission on Human Rights with regard to the U.S.’ international responsibility regarding Puerto Rico’s status—a case in which the Commission is investigating complaints that the United States is violating the human rights of its citizens in Puerto Rico, because they lack the same political rights as other U.S. citizens, including the right to vote for President unless they relocate to one of the states or the District of Columbia, and, because they have no voting representation in the Congress. The Governor added he felt “compelled to respectfully address the most egregious errors in a [State Department] missive,” which sought to dismiss Puerto Rico’s concerns, noting, especially, the Department’s reference to Puerto Rico as a “self-governing territory,” rather than what the Governor believes is really a “territorial colony,” noting that defining Puerto Rico as self-governing “ignores that Congress often uses its plenary powers over the territory to impose a multitude of federal laws without the Commonwealth’s residents having any voting representation in the U.S. Senate and only a single Resident Commissioner in the U.S. House of Representatives, who cannot vote on the floor of that chamber.” He also disputed the State Department’s assertion that Puerto Ricans are not “banned” from voting for President, writing: “[T]he only way for U.S. citizens from Puerto Rico to vote in such an election and be counted is to leave Puerto Rico. If that is not a ban, then what is?” He further wrote that the current governance upholds an “inherently racist logic that deem the people of Puerto Rico as inferior and unable to fully participate in the institutions of democratic governance.”

The letter also touches on two referenda which statehood supporters have won in Puerto Rico, but that have not been deemed official results by the Department of Justice. The most recent, in 2017, was boycotted by local opposition parties, and the ballot never received final DOJ approval.  While that referendum only had a 23% participation rate, the pro statehood vote was an overwhelming 97%.

Gov. Rosselló added his apprehension in the wake of the U.S. Justice Department’s non-approval of Puerto Rico’s 2017 referendum, noting that “after the legislature even amended the format of the vote to meet the recommendations of the U.S. Justice Department,” the Trump administration had nevertheless “failed” to certify the ballot. Thus, he noted that asking an international body to dismiss its complaint was tantamount to asking it to “turn a blind eye to an inconvenient truth, that Puerto Rico remains the unfinished business of American democracy.” Finally, Gov. Rosselló ended his letter with an appeal to President Trump’s leadership, asking him to “work together to abolish this century old territorial-colonialism once and for all: Statehood for Puerto Rico is not only about realizing Puerto Rico’s full potential. It is about America living up to its most noble values by creating a more perfect Union.” (The Trump Administration has advised the Inter-American Commission on Human Rights (IACHR) that if Puerto Ricans want to vote for President, nothing prevents the government of Puerto Rico from calling for a referendum to determine the position of its residents regarding candidates for the U.S. Presidency—a referendum which, however, would be symbolic.)

The apparent position of the Trump Administration reflects its views that Puerto Ricans, in addition to being able to participate in Presidential primary elections, they may also, according to Kevin Sullivan, the U.S. Deputy Representative to the Organization of American States (OAS), organize and vote in presidential elections. Thus the U.S. representative asked the inter-American tribunal to dismiss the independent complaints filed by lawyer Gregorio Igartua and former governor Pedro Rossello alleging that the lack of participation of Puerto Rico’s residents in Presidential and Congressional elections represents a violation of their human and civil rights. Secretary Sullivan, who asserted that the government of Puerto Rico maintains a “broad” self-government, in a recently disclosed communication from the end of last June, maintained that within the colonial relationship with the U.S. territory, there are some electoral processes related to the federal government. Within this group of electoral processes, he thus sought to highlight as significant the ability for Puerto Ricans to vote in those for presidential primaries, as well as for its non-voting delegate in the U.S. House of Representatives.  Nevertheless, Secretary Sullivan recognized Puerto Ricans’ first vote in favor of statehood via the June 2017 plebiscite, describing that vote as having launched a process of requesting statehood before Congress, which outcome the “United States cannot predict.”

Puerto Rico Resident Commissioner Jenniffer Gonzalez, Puerto Rico’s non-voting Member of Congress, said she would have preferred the recognition of the undemocratic nature of the territorial status, and that statehood remains as “the only viable political status with a relationship with the United States, not territorial and not colonial.”

Puerto Rico Progressive Party representative Jose Aponte noted that it seemed unfortunate “at this point” that the federal government intends to develop some theory with regard to Puerto Rico’s self-government, especially in the wake of enacting the PROMESA law, thereby imposing the PROMESA Board, likening it to colonialism, and emphasizing what he views as Secretary Sullivan’s specious claim in which he advises Puerto Rican leaders that Puerto Ricans, “if they wish…are also free to move to any state,” noting: “It is hypocritical to hide the fact that they have a regime in which we cannot govern with the faculties and minimum rights that any human being deserves.”

Promising Good Gnus? Even if perceived by many Puerto Ricans as colonial overseers, the PROMESA Board, acting in a quasi-Emergency Manager role, such as Kevyn Orr did in putting together and managing the plan of debt adjustment for Detroit, is offering some hope for fiscal promise, as the Board is poised to lift its fiscal forecast and predicting a budget surplus in the wake of the recovery from the devastating Hurricane Maria, predicting a cumulative surplus, prior to debt payments, of in excess of $20 billion through 2058, or 500% greater than its quasi plan of debt adjustment certified by the PROMESA Board last June. PROMESA Board Executive Director has indicated that plan will be certified “in the coming weeks,” adding: “The changes in the fiscal plan will come from new data in actual FY18 revenue and expense figures, budget to actuals, and disaster spending.” Earlier last summer, the PROMESA Board, in certifying the most recent fiscal plan, had estimated that Puerto Rico would have a cumulative surplus of about $4 billion over the next four decades; the new projection, incorporating higher than expected disaster aid and tax receipts, would lift that projection to more than $20 billion.

From the Ashes of Municipal Bankruptcy

September 17, 2018

Good Morning! In this morning’s eBlog, we report, again, on the remarkable fiscal and neighborhood recovery of Detroit—a demonstration of how chapter 9 municipal bankruptcy can lay the foundation for extraordinary fiscal and physical recovery. Then we look south to consider a new strategic plan for Puerto Rico—a U.S. territory surely on notice that it cannot count on FEMA in a major, life-threatening disaster.  

The Phoenix of American Cities? Detroit, the once and mayhap future automobile capital of the U.S. and one-time Motown music capital, filed for the nation’s largest ever chapter 9 municipal bankruptcy five years and two months ago in the wake of a loss of more than a million residents, cuts in state aid, and collapsing real estate values—forcing the city to borrow to meet its operating costs. It came in the wake of the city experiencing periodic episodes of corruption and mismanagement for years—a critical consequence of this former great American industrial city’s dysfunction had been its erosion as a core for jobs: employment had fled the urban core, at a time it was rising in the metropolitan area—even as other cities were seeing something of a city-center revival. The Motor City’s ability to borrow in the municipal markets was exhausted after years of issuing long-term debt to pay its operating bills: the city had listed liabilities in excess of $17 billion—equal to $25,000 for every remaining resident. In his report, the city’s Emergency Manager, Kevyn Orr, described the city as “dysfunctional and wasteful after years of budgetary restrictions, mismanagement, crippling operational practices and, in some cases, indifference or corruption.” For residents, escaping these debts and physical deterioration accompanied by high violent crime rates and unperforming schools meant moving to the suburbs: of the 264,209 households in Detroit, only 9.2% were married couple families with children under 18; another 78,438 households, or nearly 30%, were families headed by women.

Now, as the ever insightful Daniel Howes of the Detroit News has written, the city’s neighborhoods are in play: he wrote: “Three months after Ford Motor Co. confirmed plans to convert Corktown’s dilapidated Michigan Central Depot into its center for mobility and self-driving vehicle development, a consortium backed by $50 million from the Kresge Foundation is planning a cradle-to-career educational complex on the campus of Marygrove College at Wyoming and McNichols.” He was referring to the city’s historic district near downtown, one of the city’s oldest neighborhoods—and one listed on the National Register of Historic Places. It is not just an old part of the city, but one which gained its heritage in the middle of the last century when, in the wake of the Great Irish Potato Famine in the 1840’s, the great Irish migration to the U.S. made Detroit the city with the largest new home—with many Irish settling on the west side of the city; they were primarily from County Cork, and thus the neighborhood came to be known as Corktown. Kresge’s CEO, Rip Rapson, at the end of last week answered “unequivocally ‘yes.’ The time for the pivot to the neighborhoods is now,” in what he deemed an “an unprecedented model of neighborhood revitalization.”

A critical element to this revitalization could come from the physically and fiscally depleted Detroit Public Schools—so physically dangerous and unperforming that they served to discourage families with children from wanting to live in the city; yet, now, as Mr. Howes wrote: “The symbolism is striking. The Detroit Public Schools Community District board, burdened with a legacy of underperforming schools and labor troubles, is wagering it can create a new model for traditional public education by partnering with the University of Michigan’s School of Education, Starfish Family Services, and Marygrove to teach local students and teach their teachers…Borrowing from the residency programs used in medical education, the Ann Arbor university founded 201 years ago in Detroit would leverage its reputation and expertise in what University President Mark Schlissel calls “teamwork in service to the public.” That is, the effort is to anchor community redevelopment, as Chicago did, by education: the Detroit Public School District would operate a K-8 school and a high school carved from the former Bates Academy on the east edge of campus, while the University of Michigan would operate an undergraduate “residency” program for aspiring teachers.

Mr. Howes went on to write that, even as Detroit’s downtown and Midtown attract billions in private investment, especially from mortgage mogul Dan Gilbert and the Ilitch family to big corporate relocations and small business investment, neighborhood residents and the civic groups representing them have continued to ask: ‘what about us?’ The answer, it seems, is driving in: the Ford Motor Co. reports it will invest $740 million to build out the Corktown campus. Kresge is spearheading numerous community initiatives. A JPMorgan Chase program continues to invest in small-business creation.

On the elected front, Mayor Mike Duggan, seeking re-election, has made neighborhood revitalization a key issue in his campaign for, as Mr. Howe noted, two reasons: “It’s politically potent in a city that struggled for decades to provide basic services, and, second, it’s the next obvious step in the city’s revitalization: Reinvesting in downtown and Midtown, essentially the spine of Detroit, helps bolster tax base, fuel economic activity, and create tax-paying jobs. Reinvesting in neighborhoods and improving traditional public education strengthens community and gives Detroiters a reason to stay, to reap the benefits of rising property values.”

Kresge CEO Rip Rapson, a critical player in Detroit’s physical and fiscal recovery, notes: “What this town needs to be shown again and again is you can take big ideas and make them real…So many people are waiting to see efforts like this fail.” The heart, as Mr. Howes noted, of the so-called “P-20 Partnership” is Detroit’s reconstituted public school district, a campaign backed by Kresge’s contributions, the University of Michigan’s commitment to train teachers to teach Detroit’s youth— and the courage of its leadership to develop a new model for educating the city’s kids, right in the heart of a neighborhood.”

A new Strategic Plan for Puerto Rico? While FEMA has approved a new document for emergency response for Puerto Rico, it is a plan with a critical MIA: municipios—and this with time uncertain, as Hurricane Isaac is lurking in the Caribbean and FEMA is caught in a quagmire over the President’s assertion that fewer than 50 lives were lost in Puerto Rico from Hurricane Maria. FEMA’s Deputy Federal Coordinating Officer in Puerto Rico, Justo “Tito” Hernández has asserted that the “The Strategic Plan was revised. And we are already doing exercises based on the plan. That is already finished,”in an interview with El Nuevo Día, claiming the changes are intended to correct errors which were made before, during, and after the hurricane. In addition, the document already required amendments, in line with federal regulations. (As a rule, the Strategic Plan is modified every five years; the current one was created in October of 2014 and revised after Hurricane Maria.) Yet, even though this plan for the Commonwealth is ready, the Emergency Management Plan for each municipio has yet to be certified by the Puerto Rico State Agency for Emergency and Disaster Management or FEMA, according to Commissioner Carlos Acevedo, who noted: “The plans, I am waiting for the company (hired to develop them) to deliver them to me. And they should be handing me the plans tomorrow (today).” However, both Governor Ricardo Rosselló Nevares and Commissioner Acevedo have pointed out, in separate interviews, that the government is prepared to face the challenges of the new hurricane season. Gov. Rosselló Nevares stated that now the “people” have an emergency plan, noting there have been workshops “throughout Puerto Rico on how to develop those personal emergency plans,” that changes were made at federal, state, and municipal levels regarding the distribution of food and medication, and that another “public health response” will be implemented. Nevertheless, Gov. Rosselló Nevares recognized that the island’s infrastructure, including the homes of thousands of families that still have blue tarps on their roofs and the power grid, remain vulnerable, stating: “It is no less true that, although there are parts that are more robust, it is a somewhat more fragile (power) grid. Therefore, we want to change and transform it,” he added, referring to the process he has begun to privatize PREPA, the Electric Power Authority: “There are significant improvements, particularly in the area of preparation, but without a doubt, Puerto Rico remains vulnerable, particularly in the infrastructure area.” The Governor added that this scenario will require quick action to transform the power grid and “a bit of luck that an event like María or even a lower-category one, does not impact Puerto Rico, again, and further collapse areas that are already vulnerable.” In addition, he noted, that already, unlike last year, when the government contacted the American Public Power Association with a month of delay after the cyclone, agreements with energy companies have been reached, albeit noting that other initiatives “take time, but are being executed,” and that 64 people are being trained to exercise “very particular functions” amid any new emergency.

With regard to addressing the dysfunction of the government during Maria, the Governor said that “people have been trained based on these new protocols.” Even so, emergency management experts have indicated that unsettled issues in critical areas with regard to the Commonwealth’s role in future emergencies remain: the preparation that the government claims has been questioned by the former executive Director of the former State Office for Emergency and Disaster Management, Epifanio Jiménez, who reiterated that the problem after Maria was the lack of implementation of the existing plans—or, as he put it: “They’re using Maria’s category 5 as a pretext—which is true, it’s a precedent—but they use it as an excuse to justify the collapse of agencies and agency leaders because, when Hurricane Georges hit, the leaders knew their work and the island recovered after 32 days.”

A simple look at the 2014 Strategic Hurricane Plan, which experts say was not followed, reveals that the Health, Family, Emergency Management Agency, and General Services Administration (SGA) departments, among other government agencies, failed in their respective functions before, during, and after the hurricane; moreover, if all of these agencies had fulfilled their responsibilities, fatalities estimated today at 2,975 (except by the White House) would have been avoided, according to the study by the Milken Institute of the George Washington University.

The Strategic Plan is governed by the National Incident Management System (NIMS), which establishes and defines the entire procedure for emergency management. It is backed by Presidential orders. FEMA develops the plan, theoretically in partnership with state authorities—clearly part of the challenge, as Puerto Rico is in a quasi-twilight zone between being a state or a municipality. This matters, because such a plan is intended to detail the function of what is called the Emergency Support Function, which is nothing more than the function that each agency will have before, during, and after an emergency.

Some of the Changes. The NMEAD Commissioner (Negotiator for the Management of Emergencies and Administrator for Disasters) Carlos Acevedo, said that now the Department of Family Affairs has a list of vulnerable groups. He added that the emergency management center integrated the private sector, and even had training. However, according to Mr. Jiménez:  “That is nonsense,” recalling that the private sector was already integrated into emergencies, because there must be agreements with agencies. To avoid the collapse of communications, Commissioner Acevedo said they now have a voice and data satellite system. The Telecommunications Regulatory Board and the NMEAD have a list of radio amateurs to use analog communication, if necessary, he added, albeit noting: “That has to be refined, and the JRT has to make sure that the private sector responds.” Moreover, Commissioner Acevedo said the services of cell phone companies, which also collapsed in the wake of the hurricane, is an issue that remains in the hands of the private sector. Finally, he noted he has also held meetings with the directors of hospitals and dialysis centers on the island, stressing that each party has increased its capacity to provide services.

Motor City Comeback

September 14, 2018

Good Morning! In this morning’s eBlog, we report Congressional agreement to avert a shutdown, and we report on the remarkable cash purchases of homes in the Motor City, marking mayhap the most dramatic mark yet of Detroit’s Phoenix-like recovery from the nation’s largest ever municipal bankruptcy.  

Keeping the Federal Government Open. The House and Senate yesterday reached agreement to avert a federal government shutdown by passing a large package of appropriations bills, as well as a continuing resolution which will, if signed by the President, fund the rest of the federal government through Pearl Harbor Day, December 7th. The package would keep the government funded past Oct. 1, the deadline for Congress to act. House Appropriations Committee Chair Rodney Frelinghuysen (R-N.J.) reported that the respective House and Senate bodies had completed work on the Defense and Labor, Health and Human Services and Education annual spending bills—bills which in this case represent the bulk of federal discretionary spending: combined, they total $786 billion, nearly two-thirds of all discretionary appropriations. The anticipation is that by including the continuing resolution (CR) in the package, it will make it less likely the President will make good on threats to shut down the federal government over border wall funding, albeit, last week, the President stated: “If it happens, it happens. If it’s about border security, I’m willing to do anything.”  

Motor City Comeback. There is stunning fiscal reversal of fortune in Detroit, where, after, decades ago, families fled the city, and suburban families wanted no part of moving in from the suburbs—contributing to what triggered the largest chapter 9 municipal bankruptcy in U.S. history, suddenly buyers appear to be home shopping—and shopping to purchase homes in Detroit with cash. It seems that affordable housing process, higher income buyers, and growing investor interest—with the investors smelling signal profits from flipping—have made cash deals more common. For the city, a relatively unique one in that it relies on income taxes more than most cities, the impact on assessed property taxes will be icing on the fiscal cake. In the first half of this calendar year, nearly 90% of all single-family and condo purchases were made with cash—more than triple the national average. One cause is that the median price in the first part of this year was only $32,428—which, albeit 20% higher than in the first half of this year: and it seems to be a heck of a bargain: ATTOM Data reports the national median price is $234,000.

So many purchasers are buying for investment purposes: renovating and flipping distressed homes, some as—some as large as 4,200 square feet and with architectural significance—in Detroit’s downtown area and historic neighborhoods. But in older neighborhoods near the regional Federal Reserve offices and the Detroit Institute of Art, home buyers looking to buy those renovated homes—often affluent young professionals or empty-nesters—may also face challenges in getting a mortgage, because those properties are difficult to appraise. Lenders have a challenge in determining the value of a newly renovated home in a neighborhood otherwise filled with distressed properties, because there are few comparable sales to benchmark against. That also makes payments in cash a likely option.

In effect, for the Motor City, this could be a phoenix moment of its fiscal and physical recovery: Quicken Loans is working with Home Depot and the Detroit Land Bank Authority to return Detroit’s vast stock of vacant, abandoned, and foreclosed property to productive use. Under the city’s “Rehabbed and Ready” program, the Authority selects properties in its inventory for Home Depot to rehab; Quicken preapproves interested buyers for mortgage financing; and the homes are purchased—all part of an effort to stabilize the market and create comparable sales to help future buyers.

Quicken Loans Community Fund Vice President of strategic investments, Laura Grannemann, noted: “Tax foreclosure is a force that has generated blight, increased speculation, and driven property values down…But by creating strategically placed sales, it has a ripple effect across the community and allows other individuals to refinance their home and get some equity out or to sell that home and buy a new one.”

The End of State Usurpation of Local Elected Authority? Uneasy shelter from the Fiscal and Physical Storms?

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.

Popping the Cork in Corktown?

August 14, 2018

Good Morning! In this morning’s eBlog, we consider some of the fiscal and physical challenges and changes to one of Detroit’s oldest neighborhoods, Corktown, before venturing to the warm Caribbean waters to witness incipient signs of fiscal and physical revival in Puerto Rico.

Motor City Revitalization. The City of Detroit, first settled in 1701 by French colonists, was the first European settlement above tidewater in North America, founded as a New France fur trading post, before becoming, by 1920, a world-class industrial powerhouse and the fourth-largest U.S. city. One might describe it as a unique municipal center of nations, as the first Europeans to settle there were French traders and colonists from the colony of La Loisiane, today’s New Orleans—traders who were forced to vie with the powerful Five Nations of the League of the Iroquois—setting the stage for what became the Beaver Wars in the 17th century. The greater Detroit metropolitan region of those times flourished as a center of the nation’s fur trade, so that the Crown’s administration of New France offered free land to colonists as a means to attract families to the region—a perennial challenge, and one of the city’s greatest fiscal challenges today. It was in late 1760 that Fort Detroit was surrendered to the British, in the wake of the fall of Quebec—so that control not just of the Detroit region, but of all French territory east of the Mississippi River, was formally transferred to England via the 1763 Treaty of Paris. By 1760, a British census counted 2,000 hardy souls in the city in the wake of the Seven Years’ War—a head count which, as would happen in this century, dropped 30% by 1773, a decade after the English had reserved the territory, under the Royal Proclamation Act of 1763 for the Indians—land eleven years later transferred to Quebec. In a census taken during the American Revolution, Detroit’s population had soared to 2,144, making the city the third-largest city in the Province of Quebec.

Today, Corktown is the oldest surviving neighborhood in Detroit, with the neighborhood named for its early Irish immigrants, who by the early 1850s, made up half of the residents of the 8th Ward (which contained Corktown), but it is a part of the city which has been reduced in size over the years by dint of numerous urban renewal projects, the construction of light industrial facilities, and the construction of the Lodge Freeway. What remains of the residential section is listed on the National Register of Historic Places. It is a neighborhood slated for change in this time of radical changes wrought by the emergence of the self-driving car era—so the Ford Motor Co.’s plans to renovate the historic Michigan Central Depot has raised apprehensions with regard to the potential impact such a large-scale project could have on the area and surrounding neighborhoods with regard to affordability and diversity—enough of a concern that Detroit’s leaders and officials have commenced what is to be a yearlong process to gather feedback from the community regarding the future of the neighborhood. That municipal effort is coming in tandem with a separate effort by Ford to collect input on its proposed plans to revitalize its iconic 100-plus-year-old historic building.

Officials with the city and Ford say they are committed to working with the community as they navigate their plans. The company, on June 20th, had announced its intentions to purchase the abandoned Michigan Central Station, a hulk of a building just blocks from where Kevyn Orr had his office on his first day as the City’s Emergency Manager charged with taking Detroit into the nation’s largest ever chapter 9 municipal bankruptcy—and fashioning a plan of adjustment to be approved by the U.S. Bankruptcy Court. That 18-story building, which starred as a set piece for the flick Batman v. Superman, has been described as representing a “deep, complex wound…a physical reminder of what the city was, and what it many thought it would never be again.”

Simultaneously, the city is seeking to create a strategic framework for the Greater Corktown neighborhood to address the area’s potential for growth, even as it seeks to preserve its heritage and integrity, officials say—a framework which is to detail both a short-term implementation plans and long-term goals for the neighborhood’s development: Detroit’s Planning and Development Department expects, before the month is out, an RFP for a consultant to conduct a series of community meetings in Greater Corktown, with said selection to be announced by the end of next month: the study itself is projected to lead to a recommendations of a final framework in a year.

Not Self-Driving. The city’s plans for Greater Corktown, just one of the city neighborhoods in various stages of planning, was in the planning stage prior to Ford’s depot announcement, creating some governing challenges, or, as John Sivills, the project manager with Detroit’s Planning and Development Department, put it: “The Ford announcement certainly does add a great sense of urgency to it so we can have a plan in place rather than tail-wagging-dog scenario.” That is, as he added: “That the city can have a plan in place such as bring in Ford and provide for inclusionary growth.” Similarly, his colleague, Steve Lewis, central design director for Planning and Development, noted that Detroit’s plan will craft “a vision for the future of the neighborhood that either by optics or by reality is not seen as being dictated by Ford.” Their study is expected to address challenges and opportunities for a number of issues, including zoning, landscape, historic preservation, and housing development.

Will They Drive in Tandem or Self-Drive? Ford is planning to create a 1.2 million-square-foot campus with its anchor at the Michigan Central Depot, with plans to occupy the depot by 2022: the project will include the Grand Hall, which will be open to the public, along with retail space: the 18-story tower will have office space as well as residential space on the top two floors. In addition, Ford intends to develop other buildings on the campus, including the former Detroit Public Schools Book Depository, where Ford plans to house its autonomous vehicle business on the Corktown campus. Ford is, at the same time, seeking community engagement for its Corktown expansion, with the company asserting: “Detroit and Corktown, North Corktown, there’s opportunity and so much potential, and they’re already doing such amazing work that Ford can really just be a platform to shed a light on the work that they’re doing…Maybe help them scale.”

Indeed, scale, as in any city, is an issue: because of the large-scale of the project, it falls under the city’s Community Benefits Ordinance, one approved by Detroit voters in November of 2016, which targets developments worth at least $75 million, if the development gets $1 million or more in property tax abatements or $1 million or more in value of city property sale or transfer: under said ordinance, a neighborhood advisory council is assembled to provide feedback in meetings during the ensuing two months, with the advisory council subsequently working with Ford to create a community benefits agreement.

To date, Detroit City Council President Brenda Jones has selected Hubbard-Richard resident Aliyah Sabree, a Judge in the 36th District Court; City Councilwoman Janee Ayers chose Sheila Cockrel, a Corktown resident and former Councilwoman. The community elected Jerry Paffendorf, co-owner of Loveland Technologies, and Heather McKeon, an interior designer with Patrick Thompson Design. The Detroit Planning and Development Department will name four appointees, and City Councilwoman Raquel Castañeda-López will name one appointee.

Concurrently, Ford has feedback boards and comment boxes in its Ford Resource and Engagement Center, where questions posed include: “Where do you go to get ___ in your neighborhood (nails, hair, dry cleaning, etc.?); What are the top three things you want to see changed in your neighborhood?”; and “Who is an unsung hero, organization and/or business in your neighborhood?” The company reports that it has already received feedback from excitement to issues of apprehension on issues ranging from housing, to jobs, to traffic, and to culture,” adding: “We really love that the community values the diversity of the neighborhoods from Corktown, North Corktown, and Southwest Detroit. We’re really understanding the importance of that. We’re also understanding the importance of workforce. Recognizing that there’s not only potential construction jobs, but also long-term what are some ways we can build a pipeline or clear pathways for some of the other jobs that may be available in the future. Technology jobs, things of that nature. Jobs around (electric and autonomous vehicles.).”

Some have criticized aspects of the Community Benefits Ordinance and the Neighborhood Advisory Council process. Alina Johnson, a resident of the nearby Hubbard-Richard neighborhood, which will also be impacted by Ford’s project, said she feels residents should be trained in advance on advisory council work in order to be most effective on a tight timeline—or, as she put it: “Right now, the main concern is making sure that the folks who have been selected will be able to be inclusive and able to communicate to the public and serve everyone and not necessarily their community in terms when they’re discussing benefits by those impacted by the train station development.”

Blowing Fiscally Back. Despite a double fiscal and physical whammy of hurricanes, and being in the beginning of this year’s hurricane season, Puerto Rico FY’2017 General Fund revenue came in 1.5% higher than budgeted: total revenue was $9.31. Puerto Rico Secretary of Treasury Teresita Fuentes noted: “The level and behavior of tax collections during the past fiscal year in comparison with other years is considered unusual due to the economic effect of hurricanes passing through the island.” That is a sharp fiscal blowback to FAFAA Executive Director Gerardo Portela Franco’s warning last December 5th that he expected Puerto Rico’s fiscal year General Fund revenues to be 25% less than budgeted.  Secretary Fuentes reported that unexpectedly high revenues from April to June had allowed the government to exceed the budgeted number, while Puerto Rico Secretary of the Interior Raul Maldonado noted: “To a large extent the [revenue] increase is attributed to the temporary economic activity of companies associated with recovery tasks and the flow of insurer and federal government money after the hurricanes.” He noted that the greatest increase was derived from the island’s corporate income tax—some $260 million; however, Puerto Rico’s sales and use tax revenues returned $26 million less than projections from the start of the year. Secretary Fuentes said that many businesses had either been closed or had operated partially in the weeks following Hurricane Maria and that in the period the sales tax on restaurant food was temporarily eliminated; however, the sales and use tax revenue rebounded in the last quarter, with Secretary Fuentes pointing in particular to hardware stores and department store sales.

Back to Escuela.  Puerto Rico Governor Ricardo Rosselló Nevares has announced the territory will provide more than 2,000 regular slots to temporary teachers—a step by which he hopes to alleviate the recurring challenge of recruiting educators at each school start—as teachers are often attracted to more generous salaries and benefits on the mainland.  His stated goal is for these educators to be recruited under 10-month contracts by September:We are going to make an effort to convert thousands of temporary places in permanent seats in the education system.” The Governor noted that his action is intended to make it possible to clarify the system and end current uncertainties which have left teachers in the dark with regard to whether she or he still has a job—an apprehension not just of teachers, but also parents, who are confronting their own choices with September looming.

Two years ago, in the midst of an election year, the Governor acted to convert some 1,519 temporary teachers to become full-time employees, noting, then: “You have teachers who were not sure, and now they are going to have certainty, and you have a school system that did not have visibility, now we are building that visibility,” adding that, in his view, this governing decision would not have an adverse impact on Puerto Rico’s budget—and, ergo, not trigger PROMESA Oversight Board fiscal preemption: “If there is any philosophical consideration that they may have, that is another thing. For us, it gives certainty to the system, particularly in the area of needs that we are going to have to supply.” The Governor explained that the measure was possible thanks to two fundamental actions: the creation of an electronic platform which has facilitated the ability of Education Secretary Julia Keleher to assess where staff is needed, especially with regard to what levels and subjects: that is, via the human resources platform, the Secretary can assess, as the Governor noted, the educational organization of each campus, including how many teachers are transient and what subjects they teach. This could be a valuable fiscal step, because online registration will facilitate the ability to confirm the number and location of students—a critical step for the completion of the school consolidation process.

Sec. Keleher has explained that the system will take into account, first, the educators who occupy places where recruitment has proved difficult, such as Special Education, English, and Math—noting the human and fiscal challenges: “You have to honor the transient teacher. It does not seem fair or correct in terms of the reality we want to offer. This is not a good deal for a person who is giving 100% for their students: The Secretary noted the determination is aligned with the anticipated tax revenues. Her request, this year, is for over 5,500 transitory positions—or, as she notes: “The idea is to have the teachers ready for the start of classes, the week before they know where they are going.” Puerto Rico’s statute 85-2018, the Law on Educational Reform “establishes that the Department, in areas of difficult recruitment such as teachers of English, Mathematics, Physics and Chemistry, will promote the permanence of the same within the term of one year, if fiscal availability of the square and of being the same vacancy.”

The Human Costs of Misgovernance

August 7, 2018

Good Morning! In this morning’s eBlog, we consider the awful physical, fiscal, and human challenges of municipal governance.

Human Costs of Misgovernance. In the ongoing trial in the Flint water case, Genesee District Judge William Crawford yesterday heard oral arguments in the case of Dr. Eden Wells, the state’s chief medical executive. Judge Crawford said he will make his decision only after all transcripts are completed and after attorneys are given seven days to file additional briefs with the court, meaning that Dr. Wells will likely have to wait several weeks before she learns whether or not she will have to stand trial on charges, including involuntary manslaughter, related to the Flint drinking water crisis—a trial where she faces charges of manslaughter, related to the Flint water crisis. Yesterday, Special prosecutor Todd Flood told Judge Crawford that Dr. Wells had a duty under Michigan state law to warn the public of Legionnaires’ outbreaks in the area during the 17 months that the City of Flint used the Flint River as its source of water—a source turned to under the direction of a state-appointed emergency manager, rather than the city’s elected leaders. The trial proceeded in the wake of the dismissal of Michigan Gov. Rick Snyder from the suit after, last Wednesday, U.S. District Judge Judith Levy had ruled that the suit filed on behalf of residents and businesses did not claim that Gov. Rick Snyder was aware of risks when the city switched to Flint River water in 2014—unlike other defendants who testified they knew and disregarded the hazards involved. The pending case is over claims filed on behalf of 12 Flint residents and three businesses: it names twenty-seven defendants, including state and local agencies and officials. The plaintiffs are asking the Court to establish a Flint Victims Compensation Fund, providing the affected Flint residents with medical and financial assistance. Should the state lose, such a decision could pose a financial burden for the recently upgraded state’s credit rating. Moreover, such a decision could have adverse implications for Michigan’s Emergency Manager law for distressed local governments.

Special Prosecutor Todd Flood testified: “The defendant neglected or refused to perform that duty. She knew about it…it was reasonably foreseeable that someone was going to get sick‒that someone was going to get harmed,” arguing that state officials, four of whom face criminal charges related to the Flint water contamination, and Dr. Wells, in particular, was required by her official position to halt the flow of the contaminated water she knew could create a threat.  

The arguments deemed Dr. Wells a hero during the water emergency, in no small part because of her giving credence to the work of Dr. Mona Hanna-Attisha, the Hurley Medical Center pediatrician who had studied the blood levels of Flint’s children—and concluded that the percentage of elevated blood levels doubled in the wake of the state decision to change the source of the city’s drinking water. Dr. Wells, Michigan Department of Health and Human Services Director Nick Lyon, and Gov. Snyder ultimately provided public notice of the outbreaks of Legionnaire’s disease in the city related to the Flint water contamination; however, that notice was not given until January of 2016—long after the fatal damage to human health had occurred—and months after the city’s reliance on the contaminated water source had ceased—reliance which resulted in at least 10 deaths—or, as we previously noted, U.S. Judge Judith Levy’s opinion finding that “some government officials disregarded the risk the water posed, denied the increasingly clear threat the public faced, protected themselves with bottled water, and rejected solutions that would have ended the crisis sooner.  

The human health and safety crisis arose from a governing issue: the State of Michigan’s reliance on substituting state appointed emergency managers over municipal elected leaders. Thus, Gov. Ric Snyder, named Darnell Earley as Flint’s emergency manager—displacing the city’s Mayor and City Council—in September of 2013—at a time, according to some to the document before the court in which the plaintiffs allege the defendants knew, prior to the fatal drinking water switch, that the Flint River had been was professionally evaluated and rejected as a drinking water source, with the decision to source water from the Flint River made on April 25, 2014, after the city’s contract with Detroit to receive Lake Huron water ended and the city was awaiting the completion of the new Karegnondi water pipeline—a $285 million pipeline to provide Lake Huron water to Flint and Genesee County. Flint has since entered into a long-term primary water agreement with the Great Lakes Water Authority. (Two and a half years ago, Mr. Earley was one of fourteen officials named as defendants in a class action lawsuit brought in federal court by Flint residents, a complaint alleging that “Defendant’s conduct in exposing Flint’s residents to toxic water was so egregious and so outrageous that it shocks the conscience,” and that: “For more than 18 months, state and local government officials ignored irrefutable evidence that the water pumped from the Flint River exposed (users) to extreme toxicity.” The suit also named Michigan Gov. Rick Snyder, former Flint Mayor Dayne Walling, and former Flint Emergency Manager Jerry Ambrose.