A Human Rights Perspective on Puerto Rico’s Fiscal and Physical Future

October 5, 2018

Good Morning! In this morning’s eBlog, we report on the consideration by the Inter-American Commission on Human Rights with regard to perspectives on statehood—and whether the federal government is violating human rights in the U.S. territory created by the Jones-Shafroth Act.

Unequal Treatment? The United States, today, at the Inter-American Commission on Human Rights (IACHR), meeting at the University of Colorado in Boulder, will defend itself from the denunciations of statesmen sectors who charge that the lack of voting rights for Puerto Ricans, who are U.S. citizens, represents a violation of human and civil rights. In a way, that seems ironic, as the co-author of the Jones-Shafroth Act, as Governor of Colorado, before serving in the U.S. Senate, kicked the issue off, performing—in a three-piece suit—the opening kickoff in a game at Folsom Field in Boulder in a game between the U. of Colorado and the Colorado School of Mines, prior to being elected to the U.S. Senate, where he co-authored the Jones-Shafroth Act—the issue under heated debate today, where the U.S. mission to the OAS, will seek to defend against a charge filed by statespersons who are seeking censure against the U.S. for denying Puerto Ricans who live in Puerto Rico equal rights to vote and be represented in Congress—and in the electoral college. Former Gov. Pedro Rosselló Rossello and attorney Gregorio Igartúa is representing Puerto Rico. The U.S. alternate representative to the Organization of American States, Kevin Sullivan, has been requesting—in writing—since last June, the dismissal of the complaints—complaints some of which date back to 2006—which were not even admitted for consideration until last Spring, noting that the current status violates the U.S. Declaration of Human Rights. The Trump Administration response is that, under the current territorial status, Puerto Rico “has a distinctive status, in fact exceptional,” with a “broad base of self-government.” The Administration also asserts that Puerto Rico has a limited participation in federal processes, through the Presidential primaries and the election of a non-voting Representative in Congress. Attorney Orlando Vidal, who has represented former Governor Rosselló González in this process, today’s will help educate about the lack of political rights under the current territorial status, or, as he put it: “Sometimes, it is necessary that someone from the outside, as the Commission is here, and with an independent and objective point of view, clarify situations that for many, for so long plunged into this issue, it is perhaps difficult to perceive clearly,” adding, there is an easily available “friendly solution:” to direct the admission of Puerto Rico as a state. Today’s Commission session will be chaired by Margarette May Macaulay of Trinidad and Tobago.

More than a decade ago, under the George W. Bush administration, Kein Marshall, the Administration’s Director of the Justice Department’s Legal Office, appearing before the House Subcommittee on Insular Affairs, had recommended calling a referendum: “territory yes or no,” followed by, if the current status was rejected, a consultation to determine whether a governing path forward would be statehood or independence—with Mr. Marshall defending, in his testimony, the report of the Working Group of the White House which, among other things, affirmed in 2005 that the power of the Congress is so broad that, if it wanted, it has the authority to cede the island to another country.

From an international governance perspective, in the international forum, it was two years ago that, in an explanatory vote, in October of 2016, the Obama administration supported a U.N. resolution in favor of self-determination and independence; shortly before, however, on June 30, 2016, President Obama had signed the PROMESA, a statute roughly modeled after chapter 9 municipal bankruptcy, except that, in imposing both a financial control board and a judicial process, the outcome, as we have seen, has been a ‘who’s on first, what’s on second’ process—with prohibitive fiscal costs, even as it creates the appearance of a denial of democracy for the U.S. citizens in Puerto Rico. It was 15 years ago that the IACHR determined, in analyzing a complaint filed by a civic group, that nations “cannot invoke their domestic, constitutional, or other laws to justify the lack of compliance with their international obligations.”

El Otro Lado. The other side, as it were, of the Jones‒Shafroth Act, was the Jones Act—an act sponsored by the co-author at the behest of the U.S. shipping industry which has vastly compromised the ability to provide assistance towards Puerto Rico’s recovery from Hurricane Maria—assistance desperately needed for this territory where an estimated 8,000 small businesses still remain shuttered—representing about 10% of the total according to the island’s Urban Retailers Association—and continues to undercut hopes for fiscal and economic recovery. The Jones Act, strongly lobbied for by the domestic shipping industry, mandates that  transportation of goods between two U.S. ports must be carried out by a vessel which was built in the U.S. and operated primarily by U.S. citizens—meaning the cost of materials to help the island recover cost far more than for other, nearby Caribbean nations—and meaning that millions of Americans, including Puerto Ricans following Hurricane Maria last year, are paying hugely inflated prices for gasoline and other consumer products which are vital to recovery—and to equity. The act mandates that carrying goods shipped in U.S. waters between U.S. ports to be U.S.-built, U.S.-registered, U.S.-owned, and manned by crews, at least 75% of whom are U.S. citizens. Mark J. Perry, a scholar at the American Enterprise Institute and Professor of Economics at the University of Michigan this week noted: “Because of this absurd, antiquated protectionism, it’s now twice as expensive to ship critical goods – fuel, food and building supplies, among other things – from the U.S. mainland to Puerto Rico, as it is to ship from any other foreign port in the world. Just the major damage done to Puerto Rico from the Jones Act is enough reason to tell us that now is the time – past due time – to repeal the anti-consumer Jones Act.”

As Arian Campo Flores and Andrew Scurria of Dow Jones last week pointed out, in Puerto Rica’s fiscal year which ended last June, the island’s economy had contracted by 7.6%. An estimated 8,000 small businesses remain shuttered; Teva Pharmacuticals has announced it will close a manufacturing plant in the municipio of Manati—and, manufacturing employment has decreased by 35%. More fiscally depressing: the Puerto Rico government is now projecting that its population will decline by 12% over the next five years—as an increasing number of young, educated, and trained citizens move to the mainland, leaving behind an older, poorer population.

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.

Rebuilding the Motor City, and Reconsidering Colonialism in Puerto Rico

July 27, 2018

Good Morning! In this morning’s eBlog, we consider post-chapter 9 municipal bankruptcy challenges in Detroit, before turning to legislative and legal challenges to Puerto Rico.

A Foreclosed Motor City Future? In Detroit, time is running out for the owners of foreclosed properties under a new program which arose out of a legal settlement two years ago intended to protect the rights of low-income owner-occupants of foreclosed homes to purchase back their properties back for $1,000—a plan which provided that occupied homes on tap for this coming fall’s tax auction will instead be purchased by the City of Detroit and sold to owner-occupants who can prove they qualify for the city’s poverty tax exemption or have in the past—an exemption which would reduce or eliminate property tax liabilities for those who qualify. The plan is an indication of one of the most challenging aspects of fashioning a plan of debt adjustment for recovering from the largest chapter 9 municipal bankruptcy in U.S. history: how does one enhance the property tax base by attracting higher income families to move back into the city without jeopardizing thousands upon thousands of the city’s poorest families?

To date, with a looming deadline in a month, the United Community Housing Coalition has received about 140 applications—the foundation received funds from the City and foundations to purchase the homes—with the assistance available to prospective homeowners who can prove they could have qualified for the tax exemption between 2014 and 2017, but did not receive one—and that they agree to sign a sworn statement they would have qualified in the past. The effort matters: Wayne County Treasurer Eric Sabree estimates as many as 700 owner-occupied homes in Detroit are at risk of being sold at the fall tax foreclosure auction.

Quien Es Encargado? (Who is in charge?) U.S. District Court Judge Laura Taylor Swain Wednesday stated she would issue an opinion soon with regard to the hard federalism question emerging from the by Puerto Rico versus the PROMESA Oversight Board over their authority, noting at the end of the Title II bankruptcy hearing: “I realize the urgency of the situation,” at the end of a Title III bankruptcy hearing in San Juan, referring to two adversary proceedings against the Board–one brought by Gov. Ricardo Rosselló, and the other by the Presidents of the Puerto Rico Senate and House of Representatives—while PROMESA Board attorney Martin Bienenstock described the Governor’s effort to challenge the Board’s efforts to preempt the legislative power and authority of the U.S. Territory’s elected Governor and Legislature as “ineffectual.” Mr. Peter Friedman, representing the Governor and Puerto Rico’s Fiscal Agency and Financial Advisory Authority (FAFAA), responded that the Governor was just trying to raise a narrow set of issues: they want the federal court to reject the notion that they have no meaningful role in governing.  But the unelected Mr. Bienenstock said the Governor’s challenge is based on five discrete issues intertwined with the PROMESA Board’s ability to revive the economy, regain capital markets access, and do other things mandated by the PROMESA law, as he focused especially on two issues: what he characterized as the Board’s power over “reprogramming” the use of unused Puerto Rico government funds, arguing before Judge Swain that if the Governor were permitted to appropriate and authorize funding to carry out his responsibilities, then the PROMESA Board would have lost control over the budget, fiscal plan, and debt restructuring.

In response to this extraordinary claim, Judge Swain said that while she recognized the Board has some authority, she questioned whether it applies to funding lines that had been authorized before PROMESA’s passage, describing the issue as a “conundrum,” even as Mr. Bienenstock testified that the Governor wants to make it legal to “knowingly and willingly” spend more than the PROMESA Board budget authorizes. This raised an issue which goes to the heart of governance in a democracy: should those elected by the citizens of a jurisdiction have the final say as opposed to those who neither reside in nor come from such a jurisdiction have the final governing authority?

Crossing Swords. Puerto Rico Governor Ricardo Rosselló, stated he would not testify before the U.S. House Natural Resources Committee unless Chairman Rob Bishop (R-Utah) said he was sorry for a Tweet tweeted from the Committee’s account last week: “Call your office, @ricardorossello,” accompanied an invitation to the hearing, where invited witnesses were to be grilled on a management crisis at PREPA. Gov. Rosselló noted the tweet falsely suggested that he was hard to reach. Perhaps more importantly, for the Governor, the Chairman’s comments appeared to reflect a disrespect which would not be shown to the Governor of any State, emphasizing the perception that the federal government has a colonialist attitude toward the Commonwealth, where residents are U.S. citizens, but are barred from having a vote in the House and Senate. Chairman Bishop did not apologize for the demeaning tweet, asserting that its removal meant no apology was required—a position hard to imagine he would make to Utah Governor Gary Herbert.

Converting Swords to Plowshares? With Congress adjourning today for six weeks, Puerto Rico Resident Commissioner Jenifer Gonzalez hopes her pro-democracy project can be discussed by Chairman Bishop’s Committee in September: her legislation, HR 6246, would enable the admission of the territory of Puerto Rico into the Union as a State. Chair Bishop, according to the Commissioner, “has a plan” to move the prospects for statehood forward in the short 19-day legislative window before this Congress adjourns in November. Rep. Gonzalez affirmed that her legislative goal is to incorporate Puerto Rico as a territory, which would be considered as a promise of statehood, and create a Congress Working Group, so that, within a period of just over a year, there would be a report on changes to laws that would have to be put in place to admit the island as a state in January of 2021.

Lighting up PREPA? Puerto Rico’s Governor Ricardo Rosselló was a no-show at a Congressional hearing Wednesday afternoon on efforts to wrench control of the bankrupt Puerto Rico Electric Power Authority from Puerto Rico’s government—a hearing, “Management Crisis at the Puerto Rico Electric Power Authority and Implications for Recovery,” with regard to which Chairman Rob Bishop (R-Utah) had written: “Despite your recognition of the politicization that has plagued PREPA and your commitment towards allowing for independence, the recent departure of PREPA’s CEO after only four months of service and the resignation of the majority of PREPA’s governing board are the most recent signs of the utility’s continued dysfunction and a sign that ‘political forces…continue to control PREPA.’” The Governor, late Tuesday had announced he would not be able to participate in the hearing—a hearing at which there was to be a focus on corruption within the utility and the possibility of privatization—but at which the Committee was scheduled to receive testimony from the invaluable chapter 9 expert Jim Spiotto, as well as DOE Assistant Secretary Bruce Walker.  In its most recent audit, Ernst & Young had noted there substantial  doubt whether PREPA could continue as a going concern, since it does not have sufficient funds to fully repay its obligations as they come due and is restructuring its long-term debt. (PREPA utility filed for bankruptcy one year ago in the face of accruing $9 billion in debt, under PROMESA’s provisions in Title III.

“Who’s on First? Who’s in Charge–elected or imposed leaders?

June 22, 2018

Good Morning! In this morning’s eBlog, we consider the physical, fiscal, and mixed governance challenges which must be overcome in Puerto Rico.

Will There Be Luz? Gov. Ricardo Rosselló has signed into law a bill to partially privatize the Puerto Rico Electric Power Authority, potentially affecting the authority’s $8.9 billion in outstanding debt. The new law is intended to provide for the sale of the public utility’s power generation units and make a concession of its transmission and distribution system, according to a statement by the Governor—a concession which could involve a lease arrangement, as was done for Puerto Rico’s main airport. Under the proposed privatization, revenues realized could be utilized to address PREPA’s debt. purchasers would not assume PREPA’s debt; instead the public utility would use proceeds from any sale of a power plant to pay off a portion of the debt, or, as the Governor put it on Wednesday, the money raised could be used, at least in part, to contribute to PREPA’s underfunded public pension system. The new legislation comes in the wake of, last April, the PROMESA Oversight Board’s certification of a fiscal plan which assumed PREPA privatization—but which did not impose assumptions with regard to how the proceeds would be used. Puerto Rico Senate Minority Leader Eduardo Bhatia, an attorney-at-law and the former 15th President of the Puerto Rico Senate—as well as a former Fulbright scholar, noted: “The bill that Governor Rosselló signed today essentially authorizes the Governor to proceed with a ‘market sound[ing]’ and identify any and all potential private sector interest in the development of a new energy system in Puerto Rico,” adding: “Notable is that the bill does not authorize any sale before the Puerto Rico Legislature prepares, within 180 days, a statement of public policy specifically mandating what the new system will look like in 30 years.” Gov. Rosselló noted that Puerto Rico’s Public-Private Partnerships Authority would oversee the potential leasing of the transmission and distribution grid—a process expected to occur over the next year and a half. From a governance perspective, the Governor, PROMESA Oversight Board, and advisory teams plan to form a working group to steer the process.

Quein Es Encargado II? Meanwhile, the seemingly unending governance question with regard to who is in charge appears to be escalating. In putting an end, yesterday, to Puerto Rico’s debate on Law 80-1976, the Law on Unjustified Dismissal, the Puerto Rico Senate not only opened the door to annul the agreement reached by the Executive and the Oversight Board around the budget, but also appeared to intensify the power struggle between Senate President Thomas Rivera Schatz; Governor Ricardo Rosselló Nevares, and the PROMESA Oversight Board. Upon learning the Puerto Rico Senate did not support the repeal of the statute—as demanded by the PROMESA Board, the Governor accused Senate President Schatz of acting to the detriment of Puerto Rico, for political reasons, even as PROMESA Board Chair José Carrión, who, like the Senate President, was in Washington, D.C. yesterday, warned that keeping the labor statute in force would imply reversing the certified tax plan, which includes cuts in vacation leave, days of sickness, and the Christmas bonus, stating: “There is a certified plan. If not (repeal it), we revert to the fiscal plan,” in the wake of his participation at forum sponsored by the Heritage Foundation.

Chair Carrión warned that reversion to the certified fiscal plan would mean at least $300 million in additional budget cuts over the next five years. He noted that the proposed structural reforms seek to “generate economic growth: We have limited powers (to make decisions that boost economic growth), but one of them is the labor area.”

The Board is scheduled to meet a week from today to discuss the upcoming fiscal year budget—scheduled to take effect at the end of next week.

In criticizing the actions of Senate President Rivera Schatz, Gov. Rosselló Nevares said that the upper House leader had opted to “hinder” his administration, and held him responsible for the millions of dollars in cuts that may wreak fiscal harm to the island’s municipios, as well as other governmental entities, noting, in a written statement: “Puerto Rico has just seen how politics is made and not how a future government should be made in times of challenges and difficulties, with this regrettable decision by the President of the Senate. We will follow the path of change and transformation that we have forged; however, this was the time to unite and together to get out of the shameful past we inherited. He chose to hinder, chose to follow the tricks of the past that have put us in this situation: the risk of the loss of billions of dollars for Puerto Rico as a result of restructuring the debt falls on this action. Likewise, the loss of millions of dollars in appropriations for the municipal governments that we had achieved also falls on the President of the Senate. Sen. Rivera Schatz added that he anticipated he would appear before a judicial forum to challenge the powers of the unelected PROMESA Oversight Board to alter Puerto Rico’s budget, noting: “The Senate ends the matter of Law 80. It is not going to repeal Law 80. If it were up to us to go to court to litigate against the Board, I advance that I already talked with lawyers to do so.” (The repeal of Law 80 was a specific condition presented by the Board in exchange for disbursing additional financial aid to municipios, the University of Puerto Rico, and guaranteeing holiday leave and sick days for private sector employees.)

At the same time, during the meeting of the majority caucus of the New Progressive Party, a proposal by Sen. Miguel Romero to ascribe to the Law against discrimination in employment (Law 100-1959) by adding some amendments to Law 80 was defeated  15 -5, with the prevailing majority choosing to defer consideration of the issue during the current session—which ends Monday. Sen. Romero proposed creating a system of fixed payments for dismissals that violate only the Anti-Discrimination Law 100, but insisted on repealing Law 80, which deals with another area of ​​labor law by providing remedies for severance without just cause.

Not unlike in the U.S. Congress, the Puerto Rico House and Senate do not always see ojo to ojo (eye to eye). The House intends to address Puerto Rico’s relationship with the Oversight Board differently, with House President Carlos “Johnny” Méndez stating, yesterday, that he has to study what is the probability of prevailing in a lawsuit with the Oversight Board defense of budget items, adding that he considers the controversy over Law 80 to be over. In response to a question whether the House would join a lawsuit initiated by the Senate to combat the cuts applied by the Board, Senate President Méndez replied: “We have to sit down to see what the arguments are and make a decision: the Promise law has supremacy over everything. It does not even allow us to sue the Oversight Board. We have to see what the arguments are, the legal basis for making a decision. It is not going to be a futile exercise. If we have more than a 50% chance of prevailing, of course we will be there.” He added that, if he opts for litigation, he would challenge the authority and ability of the unelected Oversight Board to establish public policy.

What about Manana? Even as the question of governance proceeded, two PROMESA Board members yesterday concurred with a panel of other experts that an overhaul Puerto Rico’s local labor laws is a key for the territory’s future growth. At a session in Washington, D.C. at the Heritage Foundation, PROMESA Chair Jose Carrion joined Anne Krueger, economics Professor at Johns Hopkins School for Advanced International Studies, and fellow Board Member Andrew Biggs—with their discussion coming on some of the same issues. With Puerto Rico’s elected leaders considering instituting the same at-will employment statutes used in many states, as well as adding more restrictive rules for receiving food stamps and instituting an earned income tax credit to encourage work, the panelists described Puerto Rico’s labor laws as more restrictive than any state—a factor, perhaps, that could help explain the exodus from Puerto Rico of so many better economic opportunities on the mainland. The panelists noted the challenge will be to convince the people of Puerto Rico that a more competitive labor market will produce more jobs, with PROMESA Board member Andrew Biggs, noting that economists predict there would be an additional one percentage point of annual economic growth if the reforms were adopted. PROMESA Board Chair Jose Carrión noted he, as an employer in Puerto Rico, is only too well aware of how “onerous” the labor laws are, adding: “[I]t does not make Puerto Rico competitive with places to where we are losing our population such as Florida.” Employers in Puerto Rico, for instance, are required to give workers 24 hours off after they work 8 hours, said Professor Anne Krueger of Johns Hopkins School for Advanced International Studies, noting that the labor force participation rate is only 38% on Puerto Rico compared to 63% on the mainland, she said. In the end, the PROMESA Board appeared to reach an agreement with the Governor on proposed labor law changes. Now, warns Chair Carrión, if the legislature does not agree, the PROMESA Board will govern in place of Puerto Rico’s elected leaders.

Investing in Fiscal & Human Futures

June 11, 2018

Good Morning! In this morning’s eBlog, we consider the issue of keeping Puerto Rico’s schools open in the face of quasi municipal bankruptcy; then we veer north to assess post-state taken over Atlantic City: What Are the City’s Fiscal Odds for Its Future?  

The Governance Challenge for Schools and Demographic Changes. Puerto Rico Superior Court Judge Santiago Cordero Osorio has ordered the suspension of the closure of three of the U.S. territory’s schools in Morovis, pending an explanation from Secretary of Education Julia Keleher of the reasoning behind her orders. His ruling came as part of a lawsuit brought by the Municipality of Morovis challenging the closures of Alverio Pimentel, Manuel Alonso Díaz, and the Second David Colón Vega schools—and in the wake of the Judge’s earlier decisions ordering the closure of six other schools in the Arecibo region—closures also being challenged by the Teachers’ Association. In his order, Judge Osorio noted that all these claims will be evaluated in a court hearing scheduled for this morning—one to which he has invited the Secretary of Education or a representative to attend, noting: “This Court appreciates and recapitulates that the State must come prepared to justify in accordance with its regulations the closure, not only of the schools subject to this interdict, but of all the schools of the Commonwealth of Puerto Rico that the Department of Education has under its jurisdiction, and that it pretends according to the regulation to close.”

For his part, Mayor Carmen Maldonado of Morovis explained the suit was filed in the wake of a non-response to her request for a meeting with Secretary Keleher, stating, in a press release: “Today we are taking an important step in the defense of public education for Moroveño children. To all parents, principals, teachers and school staff, I invite you to attend that hearing on Monday at the Arecibo Court, so that together we can continue to fight to keep schools open. As I assured them in the many meetings we had, although the power is in the hands of the central government, the reason is on our side and we are going to defend that reason. The fiscal and governance challenge-as we had experienced in Detroit’s chapter 9 municipal bankruptcy, is a state versus local authority issue. Indeed, as the Department’s legal division stated: “The opening and closing of the schools is under the authority of the Secretary of Education and this is established by Law 85 of 2018 (Law on Educational Reform).”

The Rebirth of an Iconic American City?  Victor Fiorillo, writing in the Philadelphia Magazine, asked in his article, “The Re-Re-Re-Birth of Atlantic City,” what if everyone was wrong about the fiscal implications of the closure of the city’s famed casinos. Writing that Atlantic City had first drawn him in about 15 years ago with the opening of the Borgata Casino—at a time when “most other casinos in Atlantic City were in various stages of decay, and here was this brand-new Vegas-style resort with casino restaurants that were actually good and the best shows in town.” But he also noted that, back then, it was really a family focus: “My wife and I spend as much of the summer as possible on the A.C. beach with our 10-year-old and 12-year-old, opting for the relative solitude of the town’s southern end, far from any casinos or bars.” But in revisiting the municipality today, he noted he is not one of the only “believers in Atlantic City,” noting there are “some surprising signs of life these days, not to mention some serious investment—from small ventures, like Longacre’s projects, to big bets like Stockton University’s new beachfront campus and this month’s opening of the $550 million Hard Rock Hotel & Casino in the old Trump Taj Mahal.

Betting on the City’s Future. Mr. Fiorillo then turned to the recent U.S. Supreme Court decision allowing sports gambling, noting: “There’s more money pouring into A.C. right now than in all of Philadelphia,” according to development mogul Bart Blatstein, but, as with gambling, quoting Temple Professor Bryant Simon, author of 2004’s Boardwalk of Dreams: Atlantic City and the Fate of Urban America: “Atlantic City has risen and fallen innumerable times: “This is the story that has been told for a hundred years.” He added: “The irony, of course, is that this new resurgence is happening just a few short years after nearly half the city’s casinos went under, thousands of jobs disappeared, and Atlantic City itself seemed to be left for dead. Then again, maybe there’s no irony here at all. Maybe this more organic, up-from-the-ground rebirth of Atlantic City is exactly the kind of action that could mean sustained success for the city by the sea.”

Leaving on a Jet Plane. Mr. Fiorillo examined the city’s road to its state takeover from a non-fiscal perspective, writing: “It was right around this time that Atlantic City began to fade. Dissertations and books have been written about the many factors that led to the resort’s demise in the late 1960s and early 1970s, but a big one was the sudden ease of jet travel. You could get on a plane after breakfast and be on a beach in Miami for lunch. Atlantic City? Pfft. The Shore town began to disintegrate. By the mid-’70s, the city found itself at a pivotal crossroads. It could do nothing, ride out the downward trend, and see what happened. Or it could come up with some novel and wholly artificial way to inject new life into itself. It opted for the latter, betting that gambling would be Atlantic City’s salvation. Until that point, Nevada was the only place in the United States where you could open up a full-fledged casino. But in 1976, New Jersey citizens voted to make slots and table games legit in Atlantic City. The first casino, Resorts—which just turned 40 and is still standing — opened less than two years later.”

Noting that, for a time, business was booming, he credited Atlantic City’s casinos for bringing hundreds of millions of tourists to the Boardwalk during Atlantic City’s gambling heyday” “Some years, this city of 40,000 residents topped 34 million tourists. But outside the casino walls, the city struggled. The casino owners—including, for a time, Donald Trump—got fat, politicians got their kickbacks, and the impoverished residents of Atlantic City remained just that: And then everything went wrong. The new Atlantic City created in the late 1970s was premised almost entirely on maintaining a casino duopoly with Nevada; once casinos started popping up all over—including in Pennsylvania in 2006—Atlantic City imploded.”

Noting, as we have traced, the city’s fiscal nadir came to a head in January of 2014, when the Atlantic Club, which had opened as the Golden Nugget in 1980, collapsed, followed by Showboat, followed by the Revel, followed shortly thereafter by the Trump Plaza, noting: “Finally, in October 2016, one month before its namesake was elected to the Oval Office, the lights went out at Trump Taj Mahal. In just two and a half years, five casinos vanished, their cavernous buildings shuttered. Atlantic City had bottomed out economically in the most spectacular fashion possible.”

Tracing a Fiscal Turnaround. Writing that when assessed property values drop low enough, neighborhoods become more and affordable—and, ergo, more attractive to developers who could “pick up buildings for pennies on a dollar,” he noted that “Atlantic City suddenly became a risk worth taking”—adding: “Investing in Atlantic City now makes a lot more sense than it did five years ago, but it’s hardly a no-brainer. The city, with its 37% poverty rate) is overwhelmingly poor. Taxes are overwhelmingly high. And walking around on Atlantic or Pacific Avenue, the city’s two main north-south boulevards, which run parallel to and within blocks of the Boardwalk—can be nerve-racking after hours. In daylight, panhandlers accost and prostitutes solicit. Politically, things are hardly ideal: Then-governor Chris Christie instituted a state takeover in 2016.

John Longacre, who has acquired a reputation for building a business by spotting potential where others see potential disaster, and he works primarily in South Philadelphia, where he specializes in recovery projects that save buildings, convert seedy bars into trendy restaurants and turn vacant eyesores into neighborhood hubs, told Mr. Fiorillo: “Every bank in the region is terrified of Atlantic City.” Indeed, Mr. Longacre added: “If you look at the policy surrounding everything that exists in Atlantic City, it’s the perfect storm to keep investors out: From the state handling the zoning to the tax base to rent control, everything that happens from a policy level makes it seem like New Jersey is trying to make Atlantic City fail.” Nevertheless, he seems convinced the fabled city will not fail. Or, as Mr. Fiorillo described it, there are a new breed interested in the fabled city who likely will play an essential role in the city’s future: “It’s not about Aunt Edna and Uncle Fred and their casino bus trips anymore. It’s about younger people who aren’t into Atlantic City for the gambling. It’s about people who don’t just feel comfortable in but desire urban environments, with all their flaws and character. It’s about people who respect and require diversity. It’s about people like me and my wife, who, to be honest, cringe when we drive into a place like Avalon.”

Describing this fiscal and physical revival, he writes about the relationship of small projects complemented by large ones: “The Hard Rock Hotel is finally going to open on the Boardwalk later this month, where the Taj Mahal was until October 2016. Pottstown native Todd Moyer, senior vice president of marketing for this new outpost of the rock-and-roll-themed company, got his start in the casino business in 1990, when he worked as a tuxedoed greeter at, coincidentally, the Taj. I was working for Hard Rock out West, when I got the chance to come home: I jumped at it. Sometimes I would be at a bar or restaurant and hear people talking about Atlantic City being dead, and I’d jump in. I’m a defender and a giant supporter of A.C. We’re building hotels all around the world, but really, all the focus lately has been on Atlantic City.”

As for Mr. Longacre, his view is that he would “love for every casino to go out of business and see Atlantic City re-create itself without them, as an urban beach town.” Nevertheless, he believes there is one massive Atlantic City development which will be a game-changer: Stockton, the nearly 50-year-old public university, which has its main campus in Galloway Township, about 20 minutes from the Boardwalk: it is set to debut a brand-new beachfront Atlantic City campus this September, when one thousand students will use the campus, and many of them plan to live in town. Thus, he notes: “Stockton is huge. It’s the first real institutional investment in years that’s not a casino.”

Rolling the Fiscal Dice? As significant as these fiscal changes appear to be, they almost seem to pale against the city’s real world challenges: Atlantic City has a poverty level three times higher than the statewide rate: more than three times the number below the poverty level—and a disability rate among non-poor residents of just under 25%. In its rental housing, the percentage of residents below the federal poverty level is over 90%. A consequent governing challenge for the post-taken over city and the Garden State remains. Mr. Fiorillo notes that whether the gambles being made by Mr. Blatstein, Mr. Longacre, and others are successful remains to be seen—as does the question with regard to whether all the investment will put much of a dent in Atlantic City’s poverty rate or help the town’s current residents. He adds: “And it’s not going to be this summer or next summer when we find out who, if anyone, wins. Nevertheless, he wrote: “When I consider Point Breeze circa 2008 and that same area today, I have hope for this complicated Shore town. There will always be casinos here, for better or worse, and there will always be crime and poverty and grime. This is, after all, a city. But, 10 years from now, when my own kids are (I hope) in very good colleges, it’s not too hard to imagine us spending a summer weekend at some boutique hotel on New York Avenue. We’ll stop into the Boardwalk La Colombe for a draft latte, served up by a very hip-looking third-year Stockton student on break. For lunch, HipCityVeg down in the inlet. Happy hour will be at some John Longacre-owned brewpub overlooking the Atlantic.”

Assessing the Promise of PROMESA

D-Day, 2018

Good Morning! In this morning’s eBlog, we consider the status—and promise—of the quasi chapter 9 municipal bankruptcy process in the U.S. territory of Puerto Rico.

Nearly two years after the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) was enacted to establish a federally appointed oversight board to oversee a quasi-chapter 9 municipal bankruptcy process for restructuring or adopting a plan of debt adjustment of the U.S. territory’s debt—a statute which enabled the territory to suspend debt payments effective July 1st in 2016 on its debt in excess of $123 billion, the end might be looming. The statute also cleared the way for deep cuts in Puerto Rico’s public service budget—including cuts to health care, pensions, and education. Just over a year ago, Judge Laura Taylor Swain began the process of overseeing the quasi chapter 9 municipal bankruptcy process in search of some consensus on a quasi-plan of debt adjustment. Now that plan is beginning to take shape, with, this week, the Puerto Rico Financial Advisory Authority and Fiscal Agency (Fafaf) ) informing Judge Swain that, as early as next month, there will be a plan to adjust the debt of the Government Development Bank. Attorneys for the Agency have indicated to Judge Swain that as early as June 22nd they intend to provide drafts of the legal documents which are prerequisites to renegotiate the debt of the Government Development Bank (GDB) and the deposits of third parties which the Bank has retained in its custody since its decapitalization about two years ago. The adjustment with the creditors, whether bondholders or depositors, would occur in light of Title VI of the PROMESA statute—the title which provides for a voluntary negotiation between the parties and on which the judicial branch does not issue direct judgment regarding its reasonableness. The goal is to complete such submission by August, according to Christian Sobrino, the Governor’s chief advisor for economic development, who noted: “It is anticipated that at some point in August, the transaction must be closed,” as he discussed details of the quasi plan of debt adjustment process that would mark a milestone in the restructuring of Puerto Rico’s quasi municipal bankruptcy, noting: “This is the only agreement that has both the government and the Oversight Board, and this will demonstrate the ability of Puerto Rico to reach consensual agreements,” as he stressed the importance of the agreement reached with many of the government’s creditors, adding: “Given that they will be negotiable instruments, it will be the first issue of restructured debt issued by Puerto Rico since 2014.”

According to the agency’s motion, the government would open the application process to seek the consent of the creditors on July 5th. According to Mr. Sobrino, the process of compliance with Title VI of PROMESA would begin one day later, when it is expected that Aafaf, after receiving the approval of the Oversight Board, will file a request for a qualified modification of the GDB debt in court. He notes that PROMESA’s Title VI process requires presenting a breakdown of claims by creditors according to their guarantee or priority, but that process would have already been substantially completed upon the approval of the Debt Restructuring Agreement with various funds. (At present, some six credit unions have sued the government for the renegotiation of GDB debt.)

According to the RSA, the agreement between the Puerto Rico Electric Power Authority (PREPA) and its creditors to extend several deadlines under their restructuring support agreement, will be modified again to reflect the changes in the transaction calendar: the GDB bondholders would receive 55 cents of each dollar they lent to the former fiscal agent. Meanwhile, the depositors, including muncipios, would recover a similar amount for the deposits they have put in custody with the GDB—with, in their case, Mr. Sobrino stressing they would receive 55% of the deposits held in the bank. However, if the muncipios have loans in the GDB, their deposits would be used to settle dollar-to-dollar financing, without reflecting the 45 cents which will apply to the rest of the credits: “The approval request will seek to establish clear procedures related to the approval of the qualified amendment, including the timetable for the parties to object the vote portfolio, the request and the tabulation processes, thus ensuring that all parties with an interest in the restructuring of the GDB have an opportunity to be heard in relation to Title VI.”

To date, according to the RSA (the restructuring support agreement), through last December, the GDB owed approximately $3,765 million; it also owed $376 million in deposits to private and similar companies; and another $507 million in deposits from agencies and government entities. The proposed transaction contemplates repaying the bondholders of the municipal loans and government agencies that the GDB still hopes to recover, as well as the sale of properties of the institution, which closed its doors last March.

The Puerto Rican agency’s motion came less than 48 hours before Judge Swain is due back to preside over the general hearing of the Title III cases today—a hearing where Judge Swain must decide whether to authorize a second payment to the professionals involved in PROMESA cases.

A Physical & Fiscal Storm of the Ages

May 30, 2018

Good Morning! In this morning’s eBlog, we worry that, based upon a New England Journal of Medicine study, Hurricane Maria caused far greater human and property devastation than official FEMA and other federal reports reported.

The Journal study reported that at least 4,645 people died as a result of Hurricane Maria, a storm which wreaked some $90 billion in damage and its physical and human devastation across Puerto Rico last year—an estimate which far exceeds the federal government’s official death toll of 64—and makes clear that the brief Presidential visit to throw paper towels marked an embarrassing demonstration—one now in even starker contrast to the White House response to Houston. The study found that health-care disruption for the elderly and the loss of basic utility services for the chronically ill had significant impacts across the U.S. territory, leaving disparate and devastating chaos not just to human lives, but also to Puerto Rico’s electrical grid and public infrastructure—meaning some communities or muncipios were completely isolated for weeks amid road closures and communications failures.

Scientists from the Harvard T.H. Chan School of Public Health and Beth Israel Deaconess Medical Center Researchers calculated the number of deaths by surveying nearly 3,300 randomly chosen households across Puerto Rico, comparing the estimated post-hurricane death rate to the mortality rate for previous year: their surveys indicated that the mortality rate was 14.3 deaths per 1,000 residents from Sept. 20 through Dec. 31, 2017, a 62% increase in the mortality rate compared to 2016, or what they termed 4,645 “excess deaths,” writing: “Our results indicate that the official death count of 64 is a substantial underestimate of the true burden of mortality after Hurricane Maria.”

The study criticized Puerto Rico’s methods for counting the dead, as well as the lack of transparency in sharing information, noting it would detract from planning for future natural disasters. The authors called for patients, communities, and doctors to develop contingency plans for natural disasters. Today, more than eight months after the powerful hurricane’s physical and human devastation, Puerto Rico’s slow recovery has been marked by a persistent lack of water, a faltering power grid, and a shortage of essential services. These failures, moreover, on the cusp of the new hurricane season, have exacerbated Puerto Rico’s fiscal challenges.

The study also found that Puerto Rico’s recovery was hindered by numerous systemic failures, as well as what the scientists determined assessed as a complex method for certifying the deaths in San Juan: they noted that the Centers for Disease Control and Prevention reports that deaths can be directly attributed to storms like Maria if they are caused by forces related to the event, from flying debris to loss of medical services; however, in Puerto Rico, such deaths continued for months.

The government of Puerto Rico, notwithstanding the inadequate FEMA response compared to Houston, nevertheless was sharply criticized for its response , especially after initially reporting that only 16 Puerto Ricans had died as a result of the storm—a number which more than doubled by the time of the President’s very brief visit to assess the damage last September: a number which continued to escalate until early last December, at which time authorities 64 had died, an official death toll, which counted those who suffered injuries, were swept away in floodwaters, or were unable to reach hospitals while facing severe medical conditions. The Journal study, however, concludes there were likely thousands more Americans who died in the weeks and months that followed, but who were not counted—raising questions with regard to both the role of FEMA, as well as the manner and integrity of the Puerto Rico government’s protocols for certifying hurricane-related deaths: Gov. Ricardo Rosselló’s administration did not release mortality data immediately after the storm, nor did his administration’s officials provide much information publicly about the process officials were using to enumerate the dead.

However, in the wake of pressure by Congress, as well as statistical analyses from news organizations assessing a much higher death toll, Gov. Rosselló enlisted the assistance of George Washington University experts to review the government’s death certification process, vowing that “regardless of what the death certificate says,” each death would be inspected closely to ensure a correct tally, stating: “This is about more than numbers. These are lives: real people, leaving behind loved ones and families.”

Dean Lynn Goldman of the George Washington University Milken Institute School of Public Health anticipates the university will release an initial report as early as next month: GW’s findings will include the first government-sponsored attempt by researchers and epidemiologists to quantify Hurricane Maria’s deadliness, as experts are assessing statistical mortality data, intending to examine medical records and to interview family members of those who died—with Dean Goldman making clear that death certificates bearing the phrase “natural causes” will require further investigation.

Simultaneously, the Center for Investigative Journalism in Puerto Rico has gone to court in an effort to seek Puerto Rico’s Department of Health and Demographic Registry’s mortality data for the months since last November, the last month for which such information was available. The Puerto Rico Institute of Statistics has also announced it intends to provide an independent death count and use subpoena powers to retrieve the data.

The Chan School researchers reported there are several reasons the death toll in Puerto Rico has been so drastically underestimated, noting that, for every disaster-related death, such passing must be confirmed by the government’s Forensic Sciences Institute, which requires that bodies be sent to San Juan or that a medical examiner travel to the local municipio; consequently, it can be difficult to track indirect deaths from a worsening of chronic conditions due to the storm; moreover, the researchers reported that the government of Puerto Rico stopped sharing mortality data with the public last December, leading them to write: “As the United States prepares for its next hurricane season, it will be critical to review how disaster-related deaths will be counted, in order to mobilize an appropriate response operation and account for the fate of those affected.”

Many families here are awaiting clarity on what happened to their loved ones when “natural causes” became the only explanation. That is what was written on Leon’s death certificate the morning a local law enforcement official brought the document to the family home. The Puerto Rico Department of Justice’s Yamil Juarbe said in a statement it is customary for local officials in these cases to review bodies for any signs of trauma and talk to relatives to learn about the deceased’s medical history. That information is collected and sent to the central office of the Institute of Forensic Sciences.

Meanwhile, even as FEMA is accelerating community disaster loans to help municipios mitigate the loss of income due to natural disasters, the Government of Puerto Rico reaffirmed that, for the time being, it does not anticipate needing the $4.9 loan: last Friday, FEMA announced that the approval of another $39 million in loans from the CDL program for the municipalities of Aguadilla, Cabo Rojo, Canóvanas, Carolina, Manatí, Mayagüez, Peñuelas, and Orocovis—after, last month, approving $53.7 million in CDL loans for 12 other municipalities, including Bayamón, Caguas, Humacao, Juncos, Ponce, Toa Baja, and Trujillo Alto. Thus, to date, FEMA has allocated at least $ 92.8 million for municipios in the U.S. territory, and $371 million for the U.S. Virgin Islands; the $4.9 billion loan passed by Congress to help local municipios mitigate the loss of income has not been available to Governor Ricardo Rosselló Nevares—something due in part, as Puerto Rico Treasury Secretary Raúl Maldonado noted, because the “Rosselló administration Government has consistently had more than $ 2 billion available…The administration has been very successful in lowering operational costs and achieving an increase in collections.” Nevertheless, access to the loan will remain open through March of 2020—access which could prove invaluable in the event of another disaster or a drop in the income of public corporations.

The Imbalances of Governing

May 29, 2018

Good Morning! In this morning’s eBlog, we observe the ongoing demographic exodus from Puerto Rico—and the apparent agreement between the U.S. territory and the PROMESA Oversight Board to modify old work rules.

The Imbalances of Governing. Ramón Rosario Cortés, Puerto Rico’s Secretary of Public Affairs and Public Policy, has announced the repeal of Law 80, stating; “As agreed [to] by Governor Ricardo Rosselló Nevares with the Fiscal Oversight Board, today we are presenting before the Legislative Assembly a measure of Administration to repeal Law 80, and thus give way to the agreement reached, and that removes from the discussion the elimination of the Christmas Bonus and the reduction of days of sickness and vacations of our workers.” He stressed: “We are confident that, as usual, the Legislative Assembly will consider this measure with great responsibility and analyzing the totality of the circumstances and the reality of Puerto Rico today,” adding, the “Governor exercised his responsibility to achieve this agreement that makes it possible to allocate the funds we need to develop the economy and to pay the Christmas bonus for our public employees.” For his part, Puerto Rico Senate President Thomas Rivera Schatz, one of the strongest opponents of the repeal, warned that the repeal of Law 80 seeks to favor various employers of banking, communications, and insurance companies. Nevertheless, Senator Schatz indicated he would be willing to consider it if the Board’s study details the economic benefits of the agreement.

A Demographic Fiscal Wave? Between last September and last February, that critical period in the wake of Hurricanes Irma and María, passenger exodus from Puerto Rico exceeded inflow by some 233,586 persons. In stark contrast, according to data by the U.S. Bureau of Transportation Statistics provided to the Puerto Rico Institute of Statistics, between September of 2016 and February of 2017, there were 3,988 persons arriving in Puerto Rico than departing—albeit it will not be until we have access to newer U.S. Census Bureau information that the most recent emigration data will be forthcoming. Nonetheless, the preliminary data, based on official information, is that some 1,493,180 left the island between September and February, while 1,259,614 arrived—a pattern consistent with counts of outflows between September of 2016 and February of 2017.Similarly, a chart prepared by the Institute of Statistics indicates that the number of passengers who arrived in Puerto Rico between September of 2016 and February of 2017 reached 1,999,726, compared to the 1,995,738 that left the island.

Based on an analysis of data compiled by the Teralytics Company, a cell phone company, which compiled the data, out of the 407,465 residents of Puerto Rico who left Puerto Rico, 359,815 returned between October and February. Interestingly, however, the company also reported that more people have come back to the island than those who travel to the mainland. According to the company, about 150,000 of those who left, in their sample, preferred Florida, with the first six destinations the counties of Orange (34,858), Osceola (22,610), Miami-Dade (15,233), Hillsborough (13,091), Polk (12,262), and Broward (10,580). The other four municipalities that became main destinations for those who left Puerto Rico were: 7,455 to the Bronx, 7,430 to Seminole, Florida; 5,767 to Hampden, Massachusetts, and 5,357 to Philadelphia. Previously, the Center for Puerto Rican Studies had estimated that there may be a total of 135, 592 people who left Puerto Rico between October of 2017 and February 22nd of 2018. Thus, it appears that by the end of this year, the Commonwealth might have experienced a loss of as many as 470,335 residents since 2017, or some 14% of its population, according to the Center for Puerto Rican Studies. In comparison, the Center has indicated that between 2006 and 2016, 525,769 residents of Puerto Rico emigrated to the United States.

There is, to date, no analysis of the impact of this exodus with regard to assessed property values–and the potential fiscal impact on the island municipalities. 

The Fiscal Challenges of Inequity

May 15, 2018

Good Morning! In this morning’s eBlog, we return to the small municipality of Harvey, Illinois—a city fiscally transfixed between its pension and operating budget constraints in a state which does not provide authority for chapter 9 municipal bankruptcy; then we turn east to assess Connecticut’s fiscal road to adjournment and what it might mean for its capital city of Hartford; before heading south to Puerto Rico where there might be too many fiscal cooks in the kitchen, both exacerbating the costs of restoring fiscal solvency, and exacerbating the outflow of higher income Americans from Puerto Rico to the mainland.

Absence of Fiscal Balance? After, nearly a decade ago, the Land of Lincoln—the State of Illinois—adopted its pension law as a means to ensure smaller municipalities would stop underfunding their public pension contributions—provisions which, as we noted in the case of the small municipality of Harvey, were upheld when a judge affirmed that the Illinois Comptroller was within the state law to withhold revenues due to the city—with the Comptroller’s office noting that whilst it did not “want to see any Harvey employees harmed or any Harvey residents put at risk…the law does not give the Comptroller discretion in this case: The Comptroller’s Office is obligated to follow the law. This dispute is between the retired Harvey police officers’ pension fund and the City of Harvey.” But in one of the nation’s largest metro regions—one derived from the 233 settlements there in 1900, the fiscal interdependency and role of the state may have grave fiscal consequences. As we previously noted, U. of Chicago researcher Amanda Kass found there are 74 police or fire pension funds in Illinois municipalities with unfunded pension liabilities similar to that of Harvey. Unsurprisingly, poverty is not equally distributed: so fiscal disparities within the metro region have consequences not just for municipal operating budgets, but also for meeting state constitutionally mandated public pension obligations.

Now, as fiscal disparities in the region grow, there is increasing pressure for the state to step in—it is, after all, one of the majority of states in the nation which does not authorize a municipality to file for chapter 9 municipal bankruptcy: ergo, the fiscal and human challenge in the wake of the state’s enactment of its new statute which permits public pension funds to intercept local revenues to meet pension obligations; the state faces the governance and fiscal challenge of whether to provide for a state takeover—a governing action taken in the case of neighboring Michigan, where the state takeover had perilous health and fiscal consequences in Flint, but appeared to be the key for the remarkable fiscal turnaround in Detroit from the largest municipal chapter 9 bankruptcy in American history. Absent action by the Governor and state legislature, it would seem Illinois will need to adopt an early fiscal warning system of severe municipal fiscal distress—replete with a fiscal process for some means of state assistance or intervention. In Harvey, where Mayor Eric Kellogg has been banned for life from any role in the issuance of municipal debt because of the misleading of investors, the challenge for a city which has so under-budgeted for its public pension obligations, has defaulted on its municipal bond obligations, and provided virtually no fiscal disclosure; Illinois’ new state law (PL 96-1495), which permits public pension funds to compel Illinois’ Comptroller to withhold state tax revenue which would normally go to the city, which went into effect at the beginning of this calendar year, meant the city reasons did not take effect until January 2018. Now, in the wake of the city’s opting to lay off nearly half its police and fire force, the small municipality with the 7th highest violent crime rate in the state is in a fiscal Twilight Zone—and a zone transfixed in the midst of a hotly contested gubernatorial campaign in which neither candidate has yet to offer a meaningful fiscal option.  

Under Illinois’ Financial Distressed City Law ((65 ILCS 5/) Illinois Municipal Code) there are narrow criteria, including requirements that the municipality rank in the highest 5% of all cities in terms of the aggregate of the property tax levy paid while simultaneously in the lowest percentage of municipalities in terms of the tax collected. Under the provisions, the Illinois General Assembly would then need to pass a resolution declaring the city as fiscally distressed—a law used only once before in the state’s history—thirty-eight years ago for the City of East St. Louis. The statute, as we have previously noted, contains an additional quirk—disqualifying in this case: Illinois’ Local Government Financial Planning and Supervision Act mandates an entity must have a population of less than 25,000—putting Harvey, with its waning population measured at 24,947 as of 2016 somewhere with Rod Serling in the Twilight Zone. Absent state action, Harvey could be the first of a number of smaller Illinois municipalities unable to meet its public pension obligations—in response to which, the state would reduce revenues via intercepting local or municipal revenues—aggravating and accelerating municipal fiscal distress.

Capital for the Capitol. In a rare Saturday session, the Connecticut Senate passed legislation to enable the state to claw back emergency debt assistance for its capital city, Hartford, through aid cuts beginning in mid-2022, with a bipartisan 28-6 vote—forwarding the bill to the House and Gov. Dannel Malloy—as legislators raced to overwhelmingly approve a new state budget shortly before their midnight deadline Wednesday which would:  restore aid for towns; reverse health care cuts for the elderly, poor, and disabled; and defer a transportation crisis. The $20.86 billion package, which now moves to Gov. Dannel P. Malloy’s desk, does not increase taxes; it does raise the maximum tax rate cities and towns can levy on motor vehicles. In addition, the bill would spend rather than save more than $300 million from this April’s $1 billion surge in state income tax revenues. The final fiscal compromise does not include several major changes sought by Republicans to collective bargaining rules affecting state and municipal employees. And, even as the state’s fiscal finances are projected to face multi-billion-dollar deficits after the next election tied in part to legacy debt costs amassed over the last 80 years, the new budget would leave Connecticut with $1.1 billion in its emergency reserves: it will boost General Fund spending about 1.6 percent over the adopted budget for the current fiscal year, and is 1.1 percent higher than the preliminary 2018-19 budget lawmakers adopted last October. The budget also includes provisions intended to protect Connecticut households and businesses which might be confronted with higher federal tax obligations under the new federal tax law changes. Indeed, in the end, the action was remarkably bipartisan: the Senate passed the budget 36-0 after a mere 17 minutes of debate; the House debated only 20 minutes before voting 142-8 for adoption.

In addition to reacting to the new federal tax laws, the final fiscal actions also dealt with the sharp, negative reaction from voters in the wake of tightening  Medicare eligibility requirements for the Medicare Savings Program, which uses Medicaid funds to help low-income elderly and disabled patients cover premiums and medication costs—acting to postpone cutbacks to July 1st, even though it worsened a deficit in the current fiscal year, after learning an estimated 113,000 seniors and disabled residents would lose some or all assistance. As adopted, the new budget reverses all cutbacks, at a cost of approximately $130 million. Legislators also acted to restore some $12 million to reverse new restrictions on the Medicaid-funded health insurance program for poor adults, with advocates claiming this funding would enable approximately 13,500 adults from households earning between 155 and 138 percent of the federal poverty level to retain state-sponsored coverage.

State Aid to Connecticut Cities & Towns. Legislators also took a different approach with this budget regarding aid to cities and towns. After clashing with Gov. Malloy last November, when Gov. Malloy had been mandated by the legislature to achieve unprecedented savings after the budget was in force, including the reduction of $91 million from statutory grants to cities and towns; the new budget gives communities $70.5 million more in 2018-19 than they received this year—and bars the Governor from cutting town grants to achieve savings targets. As adopted, the fiscal package means that some municipalities in the state, cities and towns with the highest local tax rates, could be adversely impacted: the legislation raises the statewide cap on municipal property taxes from a maximum rate of 39 mills to 45 mills. On the other hand, the final legislation provides additional education and other funding for communities with large numbers of evacuees from Puerto Rico—dipping into a portion of last month’s $1.3 billion surge in state income tax receipts tied chiefly to capital gains and other investment income—and notwithstanding the state’s new revenue “volatility” cap which was established last fall to force Connecticut to save such funds. As adopted, the new state budget “carries forward” $299 million in resources earmarked for payments to hospitals this fiscal year—a fiscal action which means the state has an extra $299 million to spend in the next budget while simultaneously enlarging the outgoing fiscal year’s deficit by the same amount. (The new deficit for the outgoing fiscal year would be $686 million, which would be closed entirely with the dollars in the budget reserve—which is filled primarily with this spring’s income tax receipts.) The budget reserve is now projected to have between $700 million and $800 million on hand when the state completes its current fiscal year. That could be a fiscal issue, as it would leave Connecticut with a fiscal cushion of just under 6 percent of annual operating costs, a cushion which, while the state’s largest reserve since 2009, would still be far below the 15 percent level recommended by Comptroller Kevin P. Lembo—and, mayhap of greater fiscal concern, smaller than the projected deficits in the first two fiscal years after the November elections: according to Connecticut’s nonpartisan Office of Fiscal Analysis, the newly adopted budget, absent adjustment, would run $2 billion in deficit in FY2019-20—a deficit that office projects would increase by more than 25 percent by FY2020-21, with the bulk of those deficits attributable both to surging retirement benefit costs stemming from decades of inadequate state savings, as well as the Connecticut economy’s sluggish recovery from the last recession.

As adopted, Connecticut’s new budget also retains and scales back a controversial plan to reinforce new state caps on spending and borrowing and other mechanisms designed to encourage better savings habits; it includes a new provision to transfer an extra $29 million in sales tax receipts next fiscal year to the Special Transportation Fund—designed in an effort to avert planned rail and transit fare increases—ergo, it does not establish tolls on state highways.

Reacting to Federal Tax Changes. The legislature approved a series of tax changes in response to new federal tax laws capping deductions for state and local taxes at $10,000: one provision would establish a new Pass-Through Entity Tax aimed at certain small businesses, such as limited liability corporations; a second provision allows municipalities to provide a property tax credit to taxpayers who make voluntary donations to a “community-supporting organization” approved by the municipality: under this provision, as an example, a household owing $7,000 in state income taxes and $6,000 in local property taxes could, in lieu of paying the property taxes, make a $6,000 contribution to a municipality’s charitable organization.

Impacts on Connecticut’s Municipalities. The bill would enable the state to reduce non-education aid to its capital city of Hartford by an amount equal to the debt deal. It would authorize the legislature to pare non-education grants to Hartford if the city’s deficit exceeds 2% of annual operating costs in a fiscal year, or a 1% gap for two straight year—albeit the legislature would be free to restore other funds—or, as Mayor Luke Bronin put it: “I fully understand respect legislators’ desire to revisit the agreement after five years.” Under the so-called contract assistance agreement, which Gov. Malloy, Connecticut State Treasurer Denise Nappier, and Mayor Luke Bronin signed in late March, the state would pay off the principal on the City of Hartford’s roughly $540 million of general obligation debt over 20 to 30 years. With Connecticut’s new Municipal Accountability Review Board, not dissimilar to the Michigan fiscal review Board for Detroit, having just approved Mayor Bronin’s five-year plan. In the wake of the legislative action, Mayor Bronin had warned that significant fiscal cuts in the out years could imperil the city at that time, albeit adding: “That said, I fully understand and respect legislators’ desire to revisit the agreement after five years, and my commitment is that we will continue to work hard to earn the confidence our the legislature and the state as a whole as we move our capital city in the right direction.”

Dying to Leave. While we have previously explored the departure of many young, college-educated Puerto Ricans to the mainland, depleting both municipio and the Puerto Rico treasuries of vital tax revenues, the Departamento of Salud (Health Department) reports that even though Puerto Rico’s population has declined by nearly 17% over the decade, the U.S. territory’s suicide rate has increased significantly, especially in the months immediately following Hurricane Maria, particularly among older adults, with social workers reporting that elderly people are especially vulnerable when their daily routines are disrupted for long periods. Part of the upsurge is demographically related: As those going have left for New York City, Florida, and other sites on the East Coast, it is older Americans left behind—many who went as long as six months without electricity, who appear to be at risk. Adrian Gonzalez, the COO (Chief Operating Officer at Castañer General Hospital in Castañer, a small town in the central mountains) noted: “We have elderly people who live alone, with no power, no water and very little food.” Dr. Angel Munoz, a clinical psychologist in Ponce, said people who care for older adults need to be trained to identify the warning signs of suicide: “Many of these elderly people either live alone or are being taken care of by neighbors.”

A Hot Potato of Municipal Debt. Under Puerto Rico Gov. Ricardo Rosselló’s proposed FY2019 General Fund budget, the Governor included no request to meet Puerto Rico’s debt, adding he intended not to follow the PROMESA Board’s directives in several parts of his budget—those debt obligations for Puerto Rico and its entities are in excess of $2.5 billion: last month’s projections by the Board certified a much higher amount of $3.84 billion. Matt Fabian of Municipal Market Analytics described it this way: “Bondholders have to wait until the Commonwealth makes a secured or otherwise legally protected provision to pay debt service before they can begin to (dis)count their chickens: The alternative, which is where we are today, is an assumption that debt service will be paid out of surplus funds. ‘Surplus funds’ haven’t happened in a decade and the storm has only made things worse: a better base case assumption is the Commonwealth spending every dollar of cash and credit at its disposal, regardless of what the budget says: That doesn’t leave much room for the payment of debt service and is good reason for bondholders to continue to litigate.” Under the PROMESA Board’s approved fiscal plan, Puerto Rico should have $1.13 billion in surplus funds available for debt service in FY2023—with the Board silent with regard to what percent the Gov. would be expected to dedicate to debt service. The Gov.’s budget request does seek nearly a 10% reduction for the general fund, with a statement from his office noting the proposal for operational expenditures of $7 billion is 6% less than that for the current fiscal year and 22% less than the final budget of former Gov. Alejandro García Padilla. The Governor proposed no reductions in pension benefits—indeed, it goes so far as to explicitly include that his budget does not follow the demands of the PROMESA Oversight Board for the proposed pension cuts, to enact new labor reforms, or to eliminate a long-standing Christmas bonus for government workers.

Nevertheless, PROMESA Board Executive Director Natalie Jaresko, appears optimistic that Gov. Ricardo Rosselló Nevares’s government will correct the “deficiencies” in the recommended budget without having to resort to litigation: while explaining the Board’s reasoning for rejecting the Governor’s proposed budget last week, Director Jaresko stressed that correcting the expenses and collections program, as well as implementing all the reforms contained in the fiscal plan, is necessary to channel the island’s economy and to promote transparency and accountability in the use of public funds, adding that approving a budget in accordance with the new certified fiscal plan is critical to achieve the renegotiation of Puerto Rico’s debt—adding that, should the Rosselló administration not do its part, the Board would proceed with what PROMESA establishes: “The fiscal plan is not a menu you can choose from.”

Can the “City of Fog” Take the Fiscal Bulls by its Horns?

April 25, 2018

Good Morning! In this morning’s eBlog, we seek to understand the fiscal perspective in Puerto Rice from the municipal perspective, where a group of Mayors from the Popular Democratic Party are seeking to put together collaborative models in order to both achieve fiscal savings, and ensure the provision of essential services. The we jet West out of the rain to sunny San Bernardino, where voters in the post chapter 9 municipality are weighing candidates to lead the city through its plan of debt adjustment.

Taking the Fiscal Bull by the Horns. Cayey, Puerto Rico, is known as “La Ciudad del Torito” (town of the little bull), but also as “La Ciudad de las Brumas,” or the City of Fog. Founded in August of 1773, it is one of our nation’s oldest municipalities: its founder—and first Mayor, was Juan Mata Vázquez. The city’s name is also said to have been derived from the Taino Indian word for “a place of waters.” Located in Puerto Rico’s Central Mountain range, Cavey is surrounded by the Guavate, Jjome, Maton, La Plata, and Grande de Loiza rivers—and the Carite Forest Reserve, which offers more than 6,000 acres of protected parkland. The city is also home to Cayey University College, a branch of the University of Puerto Rico. The surrounding areas produces sugar, tobacco, and poultry—and cigars. Coca-Cola and Procter & Gamble have manufacturing facilities in Cayey. But Cayez’s Mayor—or Alcalde, Rolando Ortiz, is his own optimistic bull: it was, after all, just one year ago that he, together with the Mayors of Coamo (Juan Carlos García Padilla) Villalba (Luis Javier Hernández), and Salinas (Karilyn Bonilla) created what is now known as the Services and Permits Alliance, an innovative initiative through which they have managed to generate an increase of $105,000, and have reduced the approval period for municipal permits by 60 percent. Now, Mayor Ortiz reports: “The Fiscal Supervision Board (JSF) has just certified the different fiscal plans of the government agencies and those final determinations make the country in a position of starting, where Puerto Rico has to continue to seek solutions to the problems of Puerto Rican families,” with his remarks coming exactly one year after he met with his colleagues, the Mayors Juan Carlos García Padilla, of Villalba, Mayor Luis Javier Hernández; and Salinas Mayor Karilyn Bonilla, to create what is now known as the Services and Permits Alliance, an initiative through which they have managed to generate an increase of $105,000, and have reduced the approval period for municipal permits by a whopping 60%.

Their municipio coalition, in addition to the savings and efficiency of services, allows this unique coalition to have direct control over the development of infrastructure in their municipalities and protect those areas designated for agricultural use or the development of parks and public recreational areas. In addition, the agreement makes it easier for them to redirect the development to the areas of the urban centers—or, as Mayor Ortiz put it: “Development experts postulate that 70% of the world’s population has to move to live in cities in the coming decades, and cities have to temper that reality and have to organize their territories, their public spaces, in such a way that this mobilization to the urban centers can occur…This organization aims to organize the territory and have control of what is being built and what is developed from the point of view of planning and organization in each of our municipalities.” Mayor Bonillo added: “We have been able to comply with several of the goals we established when we established the service consortium, including that the services would be more accessible to citizens.” She added that the sharing of services would benefit efficiency, explaining that the consortium has a regional office in Cayey and satellite spaces in the remaining three towns—with a shared workforce of 15 employees—along with a technical staff of engineers, lawyers, planners, and inspectors to collaborate with the four City Councils. Or, as the Mayor put it: “He has given us a tool to all municipalities in the process of monitoring the construction taxes of all the permits that are located in each of our towns,” with a focus on four key objectives: accessibility, maximization of resources streamline the permit process and achieve new revenues. Indeed, it appears the model has been so effective that these municipal executives are already focused on the possibility of integrating the areas of Human Resources, Finance, and the Center for Municipal Revenue Collection, an integration that they hope to have completed in six months. Or, as Mayor Hernández explained: “What started as an alliance of permits…now takes another direction, an extension…today this success story is celebrated, but it is the beginning of many other alliances…the design of a platform that has been successful and that can serve as a model for other municipalities.”

Is There Mayoral Promise from PROMESA? The ambitions of the troika of Mayors comes in the wake of, last week, the PROMESA Board’s approval of a number of fiscal plans to be imposed upon Puerto Rico in efforts to address growth, revenue, expenditure, debt, and government reform—plans which some describe as mayhap “overly (and maybe recklessly) optimistic.” Our colleagues at Municipal Market Analytics, for instance, write that “while it is possible that, as the plan supposes, Hurricane Maria and subsequent aid-fueled rebuilding will leave the Puerto Rico economy stronger and larger than if there had been no storm, this should not be a baseline assumption. We note the island economy’s contraction despite decades of annual billion-dollar stimulus injections via deficit borrowing by Puerto Rico’s public entities. Further, with Maria highlighting the island’s increasing vulnerability to weather-related damage and climate change, MMA expects a material long-term reduction in corporations’ interest in locating facilities in Puerto Rico and a related drag on employment, all else being equal.” Writing that the PROMESA Board’s plans provide little margin for error, MMA worries of a potential slide back into bankruptcy. MMA also noted, as have we, that with so many fiscal cooks in the kitchen, and the Governor having already announced his dedicated opposition to any cuts in pensions or labor reforms, there appears little evidence of an overall change in Puerto Rico’s hunger for hard fiscal steps, such as would be required in a plan of debt adjustment.

A Taxing Imbalance. Perhaps demonstrative of the fiscal challenges of multiple cooks in the kitchen, Governor Ricardo Rosselló’s promised reduction of Puerto Rico’s Sales and Use Tax (IVU) in restaurants now appears to hang in the balance, because, according to the PROMESA plan, his government will be mandated to submit to the PROMESA Board quarterly reports on its budget to determine if the tax changes will remain or will be revoked: the Board’s conditions for approving any proposed tax reform join the list of demands that the Board had imposed on Puerto Rico last week: according to the plan, the tax reform must be revenue “neutral,” that is, it must be most unlike the federal tax reform passed by Congress and signed into law by President Trump. Moreover, under the plan, Puerto Rico will be mandated to carry out an annual so-called “fiscal responsibility test,” and submit an annual report which will be the reference to determine if any tax reduction may continue. According to the proposed fiscal plan, in the first two years of its implementation, incentives and subsidies granted through 17 laws will be eliminated or modified: for example, incentives to the film industry, reimbursements for the rum tax, credits, and incentives tied to affordable housing, the elderly, and the renewal of urban centers will be modified—with the Board plan claiming such changes would result in net savings of $123 million—or less than half the savings target announced by the government. Puerto Rico’s House plans to commence its public hearing process on tax reform next Wednesday.

A Sunny Post Chapter 9 Municipal Future? In San Bernardino, California, six Mayoral candidates on Tuesday offered their qualifications for the position, their plans to improve transparency and participation at City Hall and their vision for downtown before a number of citizens—but also an online audience: Mayor Carey Davis, Councilman John Valdivia, City Clerk Gigi Hanna, businesswoman Karmel Roe, general engineering contractor Rick Avila, and San Bernardino school board member Danny Tillman spoke about the city’s future, with Ms. Roe describing the post-chapter 9 municipality as “one big fix and flip,” describing the city as one which has the resources, money, and energy to cure its ails. Mr. Avila said he would run the city like a business and leave politics out of City Hall; while school board member Tillman explained his plan to increase outside investment by making San Bernardino safer and more visually appealing. Ms. Hanna, who has been twice elected to her current position, stated: “People know me, and people trust me…I have one of the largest Rolodexes in town, and I’m not afraid to use it.” Interestingly, the two veterans of the city’s long ordeal into and out of chapter 9 municipal bankruptcy, Mayor Davis and Councilmember Valdivia kept their distance while sharing their respective accomplishments as city leaders, with Mayor Davis touting his leadership in guiding the city through chapter 9 municipal bankruptcy, implementing a new city charter, hiring reputable city officials, and reducing crime—or, as he sought to frame his candidacy: “I’m a proven leader who delivers results.” Each candidate endorsed more participation in local government. Ms. Roe, a regular at City Council meetings, said she would be a “servant leader,” adding: “We cannot build this city divided.” Mr. Avila and Clerk Hanna noted San Bernardino’s negative reputation among prospective business owners, while School Board Member Tillman said the $30 million surplus Mayor Davis mentioned was not a surplus, but rather “money we haven’t spent on things we need.” Their presentations come as voters head to the primary election on Tuesday, June 5th, to select leaders for the city’s post plan of debt adjustment future.