Fiscal & Service Solvency

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eBlog, 03/10/17

Good Morning! In this a.m.’s eBlog, we consider the long-term recovery of Chocolateville, or Central Falls, Rhode Island—one of the smallest municipalities in the nation; then we head West, even as no longer young, to consider the eroding fiscal situation confronting California’s CalPERS’ pension system, before, finally considering how Congress and the President, in trying to replace the Affordable Care Act, might impact Puerto Rico’s fiscal and service-related insolvency.

The Long & Exceptional Fiscal Road to Recovery. It was nearly five years ago that I sat with my class in a nearly empty City Hall in Central Falls, or Chocolateville, Rhode Island, the small (one square mile former mill town of indescribably delicious chocolate bars) with the newly appointed Judge Robert Flanders on his first day of the municipality’s chapter 9 municipal bankruptcy after his appointment by the Governor: a chapter 9 bankruptcy which that very same evening so sobered the City of Providence and its unions that their contemplation of filing for chapter 9 was squelched—and the State initiated its own unique sharing commitment to create teams of city managers, state legislators and others to act as intervention advisory teams so that no other municipality in the state would fall into insolvency. Our visit also led to our publication of a Financial Crisis Toolkit, which we promptly shared with municipal leaders across the State of Michigan at the Michigan Municipal League’s annual meeting in Detroit.
Today, it is Mayor James Diossa who has earned such deserved credit for what he describes as the “efforts and dedication to following fiscally sound budgeting practices,” efforts which, he said, “are clearly paying off, leaving the city in a strong position.” In the school of municipal finance, those efforts were rewarded with the credit rating elevation in its long-term general obligation rating three notches to BBB from BB, with credit analyst Victor Medeiros describing the fiscal recovery as one where, today, the city is “operating under a much stronger economic and management environment since emerging from bankruptcy in 2012…The city has had several years of strong budgetary performance, and has fully adhered to the established post-bankruptcy plan….The positive outlook reflects the possibility that strong budgetary performance could lead to improved reserves in line with the city’s new formal reserve policy.” The credit rating agency added that the city’s fiscal leadership had succeeded in ensuring strong liquidity, assessing total available cash at 28.7% of total governmental fund expenditures and nearly twice governmental debt service, leading S&P to award it a “strong institutional framework score.” That score should augur well as the city seeks to exit state oversight a year from next month: a path which S&P noted could continue to improve if it can build and sustain its gains in reserves and adhere to its successful financial practices, particularly after the city exits state oversight, or, as S&P put it: “Improving reserves over time would suggest that the city can position itself to better respond to the revenue effects of the next recession,” noting, however, the exceptional fiscal challenge in the state’s poorest municipality.

 

How Does a Public Pension System Protect against Insolvency? In California, the Solomon’s Choice awaits: what does CalPERS do when retiree of one of its members is from a municipality which has not paid in? In this case, one example is a retiree of a human services consortium which had closed with nearly half a million dollars in arrears to CalPERS. The conundrum: what is fair to the employee/retiree who fully paid in, but whose government or governmental agency had not? Or, as Michael Coleman, fiscal policy adviser for the League of California Cities, puts it: “Unless something is done to stem the mounting costs or to find ways to fund those mounting costs for employees, then the only recourse, beyond reducing service levels to unsustainable levels, is going to be to cut benefits for retirees,” an action which occurred for the first time last year, when CalPERS took such action against the tiny City of Loyalton, a municipality originally known as Smith’s Neck, but a name which the city fathers changed during Civil War—incorporated in 1901 as a dry town, its size was set at 50.6 square miles: it was California’s second largest city after Los Angeles. Today, Loyalton, the only incorporated city in Sierra County, helps us to grasp what can happen to public pension promises when there are insufficient resources: what will give? The answer, as Richard Costigan, Chair of CalPERS’ finance and administration committee puts it: “We end up being the bad person, because if the payments aren’t coming in, we’re left with the obligation to reduce the benefit, as we did in Loyalton…Otherwise the rest of the people in the system who have paid their bills would be paying for that responsibility.”
As all, except readers of this blog, are getting older (and, hopefully, wiser), cities, counties, states, and other municipal entities confront longer lifespans, so that, similar to the fiscal chasm looming in California, the day could be looming that what was promised thirty years ago is not fiscally available. In the Golden State, CalPERS has been paying benefits out faster that it has been gathering them, leading, at the end of last year, the state agency to reduce the assumed return on its investments to 7 percent from 7.5 percent—an action which, in turn, will requisition higher annual contributions from municipal and county governments, actions mandated by its fiduciary responsibility. While the state agency does not negotiate or set benefits, it does manage them on behalf of local governments, most of which are fulfilling their obligations.

 

Unpromising Turn. The PROMESA oversight board, deeming Puerto Rico’s liquidity to be critically low, has demanded the U.S. territory immediately adopt emergency spending cuts, writing to Gov. Ricardo Rosselló in an epistle that unless the government immediately adopted emergency measures, it could be insolvent in a “matter of months,” suggesting the government consider the immediate implementation of furloughs of most executive branch employees for four days each month, and teachers and other emergency personnel positions, such as law enforcement, two days a month; the Board urged Puerto Rico to put in place comparable furlough measures in other government entities, such as public corporations, authorities, and the legislative and judicial branches, in addition to recommending cutting spending for professional service contract expenditures by half. In addition, threatening public service solvency, the PROMESA Board directed the reduction of healthcare costs by negotiating drug pricing and rate reductions for health plans and providers. Mayhap most, at least from a governing perspective, critically, the PROMESA the board called for the Fiscal Agency and Financial Advisory Administration to implement a new liquidity plan by immediately controlling all Puerto Rico government accounts and spending, writing: “Given Puerto Rico’s lack of normal capital market access and our need to focus on a sustainable restructuring of debt is neither practical nor prudent to address this cash shortfall with new short-term borrowing,” warning Puerto Rico could face a cash deficit of about $190 million by the start of the new fiscal year, and that the Employment Retirement System and the Teachers Retirement System funds will be insolvent by the end of the calendar year. Adding to the threatening fiscal situation, Puerto Rico anticipates the loss of some $800 million in Affordable Care Act funding in the coming fiscal year.

 

Doctor Needed. As the U.S. House of Representatives reported out of two committees, yesterday, legislation to partially replace the Affordable Care Act, bills which, as introduced by the House Republicans—with the blessing of the Trump White House, omitted Puerto Rico, raising the specter that Congress could also fail to fund the U.S. territory’s Children’s Health Insurance Program, omissions Gov. Rosselló’s representative in Washington, D.C. warned might have implications threatening the reauthorization of the Children’s Health Insurance Program (CHIP), which could happen this summer, attributing  Puerto Rico’s exclusion from the two initial bills seeking to repeal and replace Obamacare—the first aimed at granting tax credits instead of direct subsidies, and the other which seeks to convert Medicaid in the states into a plan of block grants, like in the Island—to its colonial status: “As a territory, Puerto Rico isn’t automatically included in health reform legislation. It already happened with Obamacare. The Republican plan is a reform bill for the 50 states.” Indeed, Governor Rosselló’s fiscal plan complied with the PROMESA Oversight Board’s mandate to exclude any extensions of the nearly $1.2 billion in Medicaid funds currently granted under the Affordable Care Act, funds which could be depleted by the end of this year—and without any explanation for such clear discrimination against U.S. citizens.

What Could Be the State Role in Municipal Fiscal Distress?

 

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eBlog, 03/08/17

Good Morning! In this a.m.’s eBlog, we consider the state role in addressing fiscal stress, in this instance looking at how the Commonwealth of Virginia is reacting to the fiscal events we have been tracking in Petersburg. Then we spin the roulette table to check out what the Borgata Casino settlement in Atlantic City might imply for Atlantic City’s fiscal fortunes, a city where—similar to the emerging fiscal oversight role in Virginia, the state is playing an outsized role, before tracking the promises of PROMESA in Puerto Rico.

The State Role in Municipal Fiscal Stress. One hundred fifty-three years ago, Union General George Meade, marching from Cold Harbor, Virginia, led his Army of the Potomac across the James River on transports and a 2,200-foot long pontoon bridge at Windmill Point, and then his lead elements crossed the Appomattox River and attacked the Petersburg defenses on June 15. The 5,400 defenders of Petersburg under command of Gen. Beauregard were driven from their first line of entrenchments back to Harrison Creek. The following day, the II Corps captured another section of the Confederate line; on the 17th, the IX Corps gained more ground, forcing Confederate General Robert E. Lee to rush reinforcements to Petersburg from the Army of Northern Virginia. Gen. Lee’s efforts succeeded, and the greatest opportunity to capture Petersburg without a siege was lost.

Now, the plight of Petersburg is not from enemy forces, but rather fiscal insolvency—seemingly alerting the Commonwealth of Virginia to rethink its state role with regard to the financial stress confronting the state’s cities, counties, and towns. Thus, last month, Virginia, in the state budget it adopted before adjournment, included a provision to establish a system for the state to detect fiscal distress among localities sooner than it did with Petersburg last year, as well as to create a joint subcommittee to consider the broader causes of growing fiscal stress for the state’s local governments. Under the provisions, the Co-Chairs of the Senate Finance Committee are to appoint five members from their Committee, and the Chairman of the House Appropriations Committee is to name four members from his Committee and two members of the House Finance Committee to a Joint Subcommittee on Local Government Fiscal Stress. The new Joint Subcommittee’s goals and objectives encompass reviewing: (i) savings opportunities from increased regional cooperation and consolidation of services; (ii) local responsibilities for service delivery of state-mandated or high priority programs, (iii) causes of fiscal stress among local governments, (iv) potential financial incentives and other governmental reforms to encourage increased regional cooperation; and (v) the different taxing authorities of cities and counties. The new initiative could prove crucial to impending initiatives to reform state tax policies and refocus economic development at the regional level, as the General Assembly considers the fiscal tools and capacity local governments in the commonwealth have to raise the requisite revenues they need to provide services—especially those mandated by the state. Or, as Gregory H. Wingfield, former head of the Greater Richmond Partnership and now a senior fellow at the L. Douglas Wilder School of Government and Public Affairs at Virginia Commonwealth University, puts it: “I hope they recognize we’ve got to have some restructuring, or we’re going to have other situations like Petersburg…This is a very timely commission that’s looking at something that’s really important to local governments.”

The Virginia General Assembly drafted the provisions in the state budget to create what it deems a “prioritized early warning system” through the auditor of public accounts to detect fiscal distress in local governments before it becomes a crisis. Under the provisions, the auditor will collect information from municipalities, as well as state and regional entities, which could indicate fiscal distress, as well as missed debt payments, diminished cash flow, revenue shortfalls, excessive debt, and/or unsupportable expenses. The new Virginia budget also provides a process for the auditor to follow and notify a locality that meets the criteria for fiscal distress, as well as the Governor and Chairs of the General Assembly’s finance committees. The state is authorized to draw up to $500,000 in unspent appropriations for local aid to instead finance assistance to the troubled localities. The Governor and money committee Chairs, once notified that “a specific locality is in need of intervention because of a worsening financial situation,” would be mandated to produce a plan for intervention before appropriating any money from the new reserve; the local governing body and its constitutional officers would be required to assist, rather than resist, such state intervention—or, as House Appropriations Chairman S. Chris Jones (R-Suffolk) describes it: “The approach was to assist and not to bring a sledgehammer to try to kill a gnat,” noting he had been struck last fall by the presentation of Virginia’s Auditor of Public Accounts Martha S. Mavredes with regard to the fiscal stress monitoring systems used by other states, including one in Louisiana which, he said, “would have picked up Petersburg’s problem several years before it came to light…At the end of the day, it appears you had a dysfunctional local government, both on the administrative and elected sides, that was ignoring the elephant that was in the room.”

The ever so insightful Director of Fiscal Policy at the Virginia Municipal League, Neal Menkes, a previous State & Local Leader of the Week, notes that Petersburg is far from alone in its financial stress, which was caused by factors “beyond just sloppy management: It included a series of economic blows,” he noted, citing the loss of the city’s manufacturing base in the 1980s and subsequently its significant retail presence in the region. The Virginia Commission on Local Government identified 22 localities—all but two of them cities—which experienced “high stress” in FY2013-14, of which Petersburg was third, and an additional 49 localities, including Richmond, which had experienced “above average” fiscal stress. Or as one of the wisest of former state municipal league Directors, Mike Amyx, who was the Virginia Municipal League Director for a mere three decades, notes: “It’s a growing list.”

The Commonwealth’s new budget, ergo, creates the Joint Subcommittee on Local Government Fiscal Stress, charged with taking a sweeping look at the reasons for stress, including:

  • Unfunded state mandates for locally delivered services, and
  • Unequal taxing authority among localities.

The subcommittee will look at ways for localities to save money by consolidating services and potential incentives to increase regional cooperation, or as Virginia Senate Finance Co-Chairman Emmett Hanger (R-Augusta) notes: “We need to dig deeply into the relationship of state and local governments,” expressing his concerns with regard to potential threats to local revenues, such as taxes on machinery and tools, and on business, professional and occupational licenses (BPOL), as well as fiscal disparities with regard to local capacity or ability to finance core services such as education and mental health treatment, or, as he puts it: “We do need to address the relative levels of wealth of local governments…We need to look at all of the formulas in place for who gets what from state government…Our tax system is still antiquated, and local governments have to rely too heavily on real estate taxes.”  

The subcommittee will include Sen. Hanger and Chairman Jones, as chairs of the respective Budget Committees, and House Finance Chairman R. Lee Ware Jr. (R-Powhatan), whose panel grapples every year with the push to reduce local tax burdens and the need to give localities the ability to generate revenue for services. Chairman Jones, a former Suffolk Mayor and city councilmember, said he is “keenly aware of the relationship between state and local governments. It is a complex relationship. The solutions aren’t simple…You’ve got to be able to replace that revenue at the local level—you can’t piecemeal this.”

Municipal Credit Roulette. State intervention and a settlement of tax refunds owed to a casino drove a two-notch S&P Global Ratings upgrade of Atlantic City’s general obligation debt to CCC from CC. The rating remains deep within speculative grade, the outlook is developing. S&P analyst Timothy Little wrote that the upgrade reflected a state takeover of Atlantic City finances that took effect in November which has helped “diminish” the near-term likelihood of a default. A $72 million settlement with the Borgata Hotel Casino & Spa over $165 million in owed tax refunds that saves Atlantic City $93 million also contributed to the city’s first S&P upgrade since 1998, according to S&P. Mayor Don Guardian noted that obtaining a CCC rating was “definitely a step in the right direction: As we continue to implement the recommendations from our fiscal plan submitted last year, and working together with the state, we know that our credit rating will continue to improve higher and higher.” Nevertheless, notwithstanding the credit rating lift, Mr. Little warned that Atlantic City’s financial recovery is “tenuous” in the early stages of state intervention, ergo the low credit rating reflects what he terms “weak liquidity” and an “uncertain long-term recovery,” reminding us that Atlantic City has upcoming debt service payments of $675,000 due on none other than April Fool’s Day, followed by another $1.6 million on May Day, $1.5 million on June 1st, and $3.5 million on August 1st. Nevertheless, Atlantic City and the state fully contemplate making the required payments in full and on time. Mr. Little sums up the fiscal states:  “In our opinion, Atlantic City’s obligations remain vulnerable to nonpayment and, in the event of adverse financial or economic conditions, the city is not likely to have the capacity to meet its financial commitment…Due to the uncertainty of the city’s ability to meet its sizable end-of-year debt service payments, we consider there to be at least a one-in-two likelihood of default over the next year.” He adds that, notwithstanding the State of New Jersey’s enhanced governing role with Atlantic City finances, chapter 9 municipal bankruptcy remains an option for the city if adequate gains are not accomplished to improve the city’s structural imbalance, as well as noting that S&P does not consider the city to have a “credible plan” in place to reach long-term fiscal stability. For his part, Evercore Wealth Management Director of Municipal Credit Research Howard Cure said that while the municipal credit upgrade reflects the Borgata Casino tax resolution, the rating, nonetheless, makes clear how steep the road to fiscal recovery will be: “You really need the cooperation of the city, but also the employees of the city for there to be a real meaningful recovery…This could go bad in a hurry.”

Is There Promise in Promesa? Elias Sanchez Sifonte, Puerto Rico’s representative to the PROMESA Fiscal Supervision Board, late Tuesday wrote to PROMESA Board Chairman José B. Carrión to urge that the Board take concrete actions in its final recommendations to address the U.S. territory’s physical health and the renegotiation of public debt—that is, to comply with the provisions of PROMESA and advocate for Puerto Rico with the White House and Congress in order to avoid “the fiscal precipice” which Puerto Rico confronts, especially once the federal funds which are used in My Health expire. Mr. Sifonte also requested additional time for Puerto Rico to renegotiate its debt, reminding the Board that PROMESA “makes it very clear that an extension of the funds under the Affordable Care Act is critical.” With grave health challenges, the board representative appears especially apprehensive with regard to the debate commencing today in the House of Representatives to make massive changes in the existing Affordable Care Act.

Recounting Governor Ricardo Rosselló Nevares efforts to address Puerto Rico’s severe fiscal situation, he further noted that the Governor’s efforts would little serve if the PROMESA Board bars Puerto Rico from a voluntary process through which to renegotiate what it owes to various types of creditors, arguing that Puerto Rico ought to be able to negotiate with its municipal bondholders, and, ergo, seeking an extension of the current suspension of litigation set to expire at the end of May to the end of this year, noting: “It would be very unfair that after all the progress achieved in the past two months, the government cannot achieve a restructuring under Title VI simply because the past government intentionally or negligently truncated the Title VI process at the expense of the new administration.” His letter came as Gerardo Portela Franco, the Executive Director of the Puerto Rico Fiscal Agency and Financial Advisory Authority (FIFAA), reported that administration officials have had initial talks with the PROMESA board about the plan and are in the process of making suggested changes. FIFAA will manage the implementation the measures and lead negotiations with Puerto Rico’s creditors over restructuring the government’s $70 billion of debt.

Fiscal & Public Service Insolvency

eBlog, 03/03/17

Good Morning! In this a.m.’s eBlog, we consider the ongoing challenges for the historic municipality of Petersburg, Virginia as it seeks to depart from insolvency; we consider, anew, the issues related to “service insolvency,” especially assisted by the exceptional insights of Marc Pfeiffer at Rutgers, then turning to the new fiscal plan by the Puerto Rico Fiscal Agency and Financial Advisory Authority, before racing back to Virginia for a swing on insolvent links. For readers who missed it, we commend the eBlog earlier this week in which we admired the recent wisdom on fiscal disparities by the ever remarkable Bo Zhao of the Federal Reserve Bank of Boston with regard to municipal fiscal disparities.

Selling One’s City. Petersburg, Virginia, the small, historic, and basically insolvent municipality under quasi state control is now trying to get hundreds of properties owned by the city off the books and back on the tax rolls as part of its effort to help resolve its fiscal and trust insolvency. As Michelle Peters, Economic Development Director for Petersburg, notes: “The city owns over 200 properties, but today we had a showcase to feature about 25 properties that we group together based on location, and these properties are already zoned appropriate for commercial development.” Thus the municipality is not only looking to raise revenues from the sale, but also to realize revenues through the conversion of these empty properties into thriving businesses—or as Ms. Peters puts it: “It’s to get the properties back on the tax rolls for the city, because, currently, the city owns them so they are just vacant, there are no taxes being collected,” much less jobs being filled. Ms. Peters notes that while some of the buildings do need work, like an old hotel on Tabb Street, the city stands ready to offer a great deal on great property, and it is ready to make a deal and has incentives to offer:  “We’re ready to sit down at the table and to negotiate, strike a deal and get those properties developed.”

New Jersey & Its Taken-over City. The $72 million tax settlement between Borgata Hotel Casino & Spa and Atlantic City’s state overseers is a “major step forward” in fixing the city’s finances, according to Moody’s Investors Service, which deemed the arrangement as one that has cleared “one of the biggest outstanding items of concern” in the municipality burdened by hundreds of millions of dollars in debt and under state control. Atlantic City owed Borgata $165 million in tax refunds after years of successful tax appeals by the casino, according to the state. The settlement is projected to save the city $93 million in potential debt—savings which amount to a 22 percent reduction of the city’s $424 million total debt, according to Moody’s, albeit, as Moody’s noted: “[W]hile it does not solve the city’s problems, the settlement makes addressing those problems considerably more likely.” The city will bond for the $72 million through New Jersey’s state Municipal Qualified Bond Act, making it a double whammy: because the bonds will be issued via the state MQBA, they will carry an A3 rating, ergo at a much better rate than under the city’s Caa3 junk bond status. Nevertheless, according to the characteristically moody Moody’s, Atlantic City’s finances remain in a “perilous state,” with the credit rating agency citing low cash flow and an economy still heavily dependent upon gambling.

Fiscal & Public Service Insolvency. One of my most admired colleagues in the arena of municipal fiscal distress, Marc Pfeiffer, Senior Policy Fellow and Assistant Director of the Bloustein Local Government Research Center in New Jersey, notes that a new twist on the legal concept of municipal insolvency could change how some financially troubled local governments seek permission to file for federal bankruptcy protection. Writing that municipal insolvency traditionally means a city, county, or other government cannot pay its bills, and can lead in rare instances to a Chapter 9 bankruptcy filing or some other remedy authorized by the state that is not as drastic as a Chapter 9, he notes that, in recent years, the description of “insolvency” has expanded beyond a simple cash shortage to include “service-delivery insolvency,” meaning a municipality is facing a crisis in managing police, fire, ambulance, trash, sewer and other essential safety and health services, adding that service insolvency contributed to Stockton, California, and Detroit filings for Chapter 9 bankruptcy protection in 2012 and 2013, respectively: “Neither city could pay its unsustainable debts, but officials’ failure to curb violent crime, spreading blight and decaying infrastructure was even more compelling to the federal bankruptcy judges who decided that Stockton and Detroit were eligible to file for Chapter 9.”

In fact, in meeting with Kevyn Orr, the emergency manager appointed by Michigan Governor Rick Snyder, at his first meeting in Detroit, Mr. Orr recounted to me that his very first actions had been to email every employee of the city to ensure they reported to work that morning, noting the critical responsibility to ensure that street lights and traffic lights, as well as other essential public services operated. He wanted to ensure there would be no disruption of such essential services—a concern clearly shared by the eventual overseer of the city’s historic chapter 9 municipal bankruptcy, now retired U.S. Bankruptcy Judge Steven Rhodes, who, in his decision affirming the city’s plan of debt adjustment, had written: “It is the city’s service delivery insolvency that the court finds most strikingly disturbing in this case…It is inhumane and intolerable, and it must be fixed.” Similarly, his colleague, U.S. Bankruptcy Judge Christopher Klein, who presided over Stockton’s chapter 9 trial in California, had noted that without the “muscle” of municipal bankruptcy protection, “It is apparent to me the city would not be able to perform its obligations to its citizens on fundamental public safety as well as other basic public services.” Indeed, in an interview, Judge Rhodes said that while Detroit officials had provided ample evidence of cash and budget insolvency, “the concept of service delivery insolvency put a more understanding face on what otherwise was just plain numbers.” It then became clear, he said, that the only solution for Detroit—as well as any insolvent municipality—was “fresh money,” including hundreds of millions of dollars contributed by the state, city, and private foundations: “It is a rare insolvency situation—corporate or municipal—that can be fixed just by a change in management.”

Thus, Mr. Pfeiffer writes that “Demonstrating that services are dysfunctional could strengthen a local government’s ability to convince a [federal bankruptcy] judge that the city is eligible for chapter 9 municipal bankruptcy protection (provided, of course, said municipality is in one the eighteen states which authorize such filings). Or, as Genevieve Nolan, a vice president and senior analyst at Moody’s Investors Service, notes: “With their cases focusing on not just a government’s ability to pay its debts, but also an ability to provide basic services to residents, Stockton and Detroit opened a path for future municipal bankruptcies.”

Mr. Pfeiffer notes that East Cleveland, Ohio, was the first city to invoke service insolvency after Detroit. In its so far patently unsuccessful efforts to obtain authority from the State of Ohio to file for municipal bankruptcy protection—in a city, where, as we have noted on numerous occasions, the city has demonstrated a fiscal inability to sustain basic police, fire, EMS, or trash services. East Cleveland had an approved plan to balance its budget, but then-Mayor Gary Norton told the state the proposed cuts “[would] have the effect of decimating our safety forces.” Ohio state officials initially rejected the municipality’s request for permission to file for municipal bankruptcy, because the request came from the mayor instead of the city council; the city’s status has been frozen since then.

Mr. Pfeiffer then writes:

Of concern.  [Municipal] Bankruptcy was historically seen as the worst case scenario with severe penalties – in theory the threat of it would prevent local officials from doing irresponsible things. [Indeed, when I first began my redoubtable quest with the Dean of chapter 9 municipal bankruptcy Jim Spiotto, while at the National League of Cities, the very idea that the nation’s largest organization representing elected municipal leaders would advocate for amending federal laws so that cities, counties, and other municipal districts could file for such protection drew approbation, to say the least.] Local officials are subject to such political pressures that there needs to be a societal “worst case” that needs to be avoided.  It’s not like a business bankruptcy where assets get sold and equity holders lose investment.  We are dealing with public assets and the public, though charged with for electing responsible representatives, who or which can’t be held fully responsible for what may be foolish, inept, corrupt, or criminal actions by their officials. Thus municipal bankruptcy, rather than dissolution, was a worst case scenario whose impact needed to be avoided at all costs. Lacking a worst case scenario with real meaning, officials may be more prone to take fiscal or political risks if they think the penalty is not that harsh. The current commercial practice of a structured bankruptcy, which is commonly used (and effectively used in Detroit and eventually in San Bernardino and other places) could become common place. If insolvency were extended to “service delivery,” and if it becomes relatively painless, decision-making/political risk is lowered, and political officials can take greater risks with less regard to the consequences. In my view, the impact of bankruptcy needs to be so onerous that elected officials will strive to avoid it and avoid decisions that may look good for short-term but have negative impact in the medium to long-term and could lead to serious consequences. State leaders also need to protect their citizens with controls and oversight to prevent outliers from taking place, and stepping in when signs of fiscal weakness appear.”

Self-Determination. Puerto Rico Gov. Ricardo Rosselló has submitted a 10-year fiscal plan to the PROMESA Oversight Board which would allow for annual debt payments of about 18% to 41% of debt due—a plan which anticipates sufficient cash flow in FY2018 to pay 17.6% of the government’s debt service. In the subsequent eight years, under the plan, the government would pay between 30% and 41% per year. The plan, according to the Governor, is based upon strategic fiscal imperatives, including restoring credibility with all stakeholders through transparent, supportable financial information and honoring the U.S. territory’s obligations in accordance with the Constitution of Puerto Rico; reducing the complexity and inefficiency of government to deliver essential services in a cost-effective manner; implementing reforms to improve Puerto Rico’s competitiveness and reduce the cost of doing business; ensuring that economic development processes are effective and aligned to incentivize the necessary investments to promote economic growth and job creation; protecting the most vulnerable segments of our society and transforming our public pensions system; and consensually renegotiating and restructuring debt obligations through Title VI of PROMESA. The plan he proposed, marvelously on the 100th anniversary of the Jones-Shafroth Act making Puerto Rico a U.S. territory, also proposes monitoring liquidity and managing anticipated shortfalls in current forecast, and achieving fiscal balance by 2019 and maintaining fiscal stability with balanced budgets thereafter (through 2027 and beyond). The Governor notes the Fiscal Plan is intended to achieve its objectives through fiscal reform measures, strategic reform initiatives, and financial control reforms, including fiscal reform measures that would reduce Puerto Rico’s decade-long financing gap by $33.3 billion through:

  • revenue enhancements achieved via tax reform and compliance enhancement strategies;
  • government right-sizing and subsidy reductions;
  • more efficient delivery of healthcare services;
  • public pension reform;
  • structural reform initiatives intended to provide the tools to significantly increase Puerto Rico’s capacity to grow its economy;
  • improving ease of business activity;
  • capital efficiency;
  • energy [utility] reform;
  • financial control reforms focused on enhanced transparency, controls, and accountability of budgeting, procurement, and disbursement processes.

The new Fiscal Plan marks an effort to achieve fiscal solvency and long-term economic growth and to comply with the 14 statutory requirements established by Congress’ PROMESA legislation, as well as the five principles established by the PROMESA Oversight Board, and intended to sets a fiscal path to making available to the public and creditor constituents financial information which has been long overdue, noting that upon the Oversight Board’s certification of those fiscal plans it deems to be compliant with PROMESA, the Puerto Rico government and its advisors will promptly convene meetings with organized bondholder groups, insurers, union, local interest business groups, public advocacy groups and municipality representative leaders to discuss and answer all pertinent questions concerning the fiscal plan and to provide additional and necessary momentum as appropriate, noting the intention and preference of the government is to conduct “good-faith” negotiations with creditors to achieve restructuring “voluntary agreements” in the manner and method provided for under the provisions of Title VI of PROMESA.

Related to the service insolvency issues we discussed [above] this early, snowy a.m., Gov. Rosselló added that these figures are for government debt proper—not the debt of issuers of the public corporations (excepting the Highways and Transportation Authority), Puerto Rico’s 88 municipalities, or the territory’s handful of other semi-autonomous authorities, and that its provisions do not count on Congress to restore Affordable Care Act funding. Rather, Gov. Rosselló said he plans to determine the amount of debt the Commonwealth will pay by first determining the sums needed for (related to what Mr. Pfeiffer raised above] “essential services and contingency reserves.” The Governor noted that Puerto Rico’s debt burden will be based on net cash available, and that, if possible, he hopes to be able to use a consensual process under Title VI of PROMESA to decide on the new debt service schedules. [PROMESA requires the creation of certified five-year fiscal plan which would provide a balanced budget to the Commonwealth, restore access to the capital markets, fund essential public services, and pensions, and achieve a sustainable debt burden—all provisions which the board could accept, modify, or completely redo.]  

Adrift on the Fiscal Links? While this a.m.’s snow flurries likely precludes a golf outing, ACA Financial Guaranty Corp., a municipal bond insurer, appears ready to take a mighty swing for a birdie, as it is pressing for payback on the defaulted debt which was critical to the financing of Buena Vista, Virginia’s unprofitable municipal golf course, this time teeing the proverbial ball up in federal court. Buena Vista, a municipality nestled near the iconic Blue Ridge of some 2,547 households, and where the median income for a household in the city is in the range of $32,410, and the median income for a family was $39,449—and where only about 8.2 percent of families were below the poverty line, including 14.3 percent of those under age 18 and 10 percent of those age 65 or over. Teeing the fiscal issue up is the municipal debt arising from the issuance by the city and its Public Recreational Facilities Authority of some $9.2 million of lease-revenue municipal bonds insured by ACA twelve years ago—debt upon which the municipality had offered City Hall, police and court facilities, as well as its municipal championship golf course as collateral for the debt—that is, in this duffer’s case, municipal debt which the municipality’s leaders voted to stop repaying, as we have previously noted, in late 2015. Ergo, ACA is taking another swing at the city: it is seeking:

  • the appointment of a receiver appointed for the municipal facilities,
  • immediate payment of the debt, and
  • $525,000 in damages in a new in the U.S. District Court for Western Virginia,

Claiming the municipality “fraudulently induced” ACA to enter into the transaction by representing that the city had authority to enter the contracts. In response, the municipality’s attorney reports that Buena Vista city officials are still open to settlement negotiations, and are more than willing to negotiate—but that ACA has refused its offers. In a case where there appear to have been any number of mulligans, since it was first driven last June, teed off, as it were, in Buena Vista Circuit Court, where ACA sought a declaratory judgment against the Buena Vista and the Public Recreational Facilities Authority, seeking judicial determination with regard to the validity of its agreement with Buena Vista, including municipal bond documents detailing any legal authority to foreclose on city hall, the police department, and/or the municipal golf course. The trajectory of the course of the litigation, however, has not been down the center of the fairway: the lower court case took a severe hook into the fiscal rough when court documents filed by the city contended that the underlying municipal bond deal was void, because only four of the Buena Vista’s seven City Council members voted on the bond resolution, not to mention related agreements which included selling the city’s interest in its “public places.” Moreover, pulling out a driver, Buena Vista, in its filing, wrote that Virginia’s constitution filing, requires all seven council members to be present to vote on a matter which involved backing the golf course’s municipal bonds with an interest in facilities owned by the municipality. That drive indeed appeared to earn a birdie, as ACA then withdrew its state suit; however, it then filed in federal court, where, according to its attorney, it is not seeking to foreclose on Buena Vista’s municipal facilities; rather, in its new federal lawsuit, ACA avers that the tainted vote supposedly invalidating the municipality’s deed of trust supporting the municipal bonds and collateral does not make sense, maintaining in its filing that Buena Vista’s elected leaders had adopted a bond resolution and made representations in the deed, the lease, the forbearance agreement, and in legal opinions which supported the validity of the Council’s actions, writing: “Fundamental principles of equity, waiver, estoppel, and good conscience will not allow the city–after receiving the benefits of the [municipal] bonds and its related transactions–to now disavow the validity of the same city deed of trust that it and its counsel repeatedly acknowledged in writing to be fully valid, binding and enforceable.” Thus, the suit requests a judgment against Buena Vista, declaring the financing documents to be valid, appointing a receiver, and an order granting ACA the right to foreclose on the Buena Vista’s government complex in addition to compensatory damages, with a number of the counts seeking rulings determining that Buena Vista and the authority breached deed and forbearance agreements, in addition to an implied covenant of good faith and fair dealing, requiring immediate payback on the outstanding bonds, writing: “Defendants’ false statements and omissions were made recklessly and constituted willful and wanton disregard.” In addition to compensatory damages and pre-and post-judgment interest, ACA has asked the U.S. court to order that Buena Vista pay all of its costs and attorneys’ fees; it is also seeking an order compelling the city to move its courthouse to other facilities and make improvements at the existing courthouse, including bringing it up to standards required by the ADA.

Like a severe hook, the city’s municipal public course appears to have been errant from the get-go: it has never turned a profit for Buena Vista; rather it has required general fund subsidies totaling $5.6 million since opening, according to the city’s CAFR. Worse, Buena Vista notes that the taxpayer subsidies have taken a toll on its budget concurrent with the ravages created by the great recession: in 2010, Buena Vista entered a five-year forbearance agreement in which ACA agreed to make bond payments for five years; however, three years ago, the city council voted in its budget not to appropriate the funds to resume payment on the debt, marking the first default on the municipal golf course bond, per material event notices posted on the MSRB’s EMMA.

The Roads out of Municipal Bankruptcy

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eBlog, 2/24/17

Good Morning! In this a.m.’s eBlog, we consider the post-chapter 9 municipal bankruptcy trajectories of the nation’s longest (San Bernardino) and largest (Detroit) municipal bankruptcies.

Exit I. So Long, Farewell…San Bernardino City Manager Mark Scott was given a two-week extension to his expired contract this week—on the very same day the Reno, Nevada City Council selected him as one of two finalists to be Reno’s City Manager—with the extension granted just a little over the turbulent year Mr. Scott had devoted to working with the Mayor, Council, and attorneys to complete and submit to U.S. Bankruptcy Judge Meredith Jury San Bernardino’s proposed plan of debt adjustment—with the city, at the end of January, in the wake of San Bernardino’s “final, final” confirmation hearing, where the city gained authority to issue water and sewer revenue bonds prior to this month’s final bankruptcy confirmation hearing—or, as Urban Futures Chief Executive Officer Michael Busch, whose firm provided the city with financial guidance throughout the four-plus years of bankruptcy, put it: “It has been a lot of work, and the city has made a lot of tough decisions, but I think some of the things the city has done will become best practices for cities in distress.” Judge Jury is expected to make few changes from the redline suggestions made to her preliminary ruling by San Bernardino in its filing at the end of January—marking, as Mayor Carey Davis noted: a “milestone…After today, we have approval of the bankruptcy exit confirmation order.” Indeed, San Bernardino has already acted on much of its plan—and now, Mayor Davis notes the city exiting from the longest municipal bankruptcy in U.S. history is poised for growth in the wake of outsourcing fire services to the county and waste removal services to a private contractor, and reaching agreements with city employees, including police officers and retirees, to substantially reduce healthcare OPEB benefits to lessen pension reductions. Indeed, the city’s plan agreement on its $56 million in pension obligation bonds—and in significant part with CalPERS—meant its retirees fared better than the city’s municipal bondholders to whom San Bernardino committed to pay 40 percent of what they are owed—far more than its early offer of one percent. San Bernardino’s pension bondholders succeeded in wrangling a richer recovery than the city’s opening offer of one percent, but far less than CalPERS, which received a nearly 100 percent recovery. (San Bernardino did not make some $13 million in payments to CalPERS early in the chapter 9 process, but did set up payments to make the public employee pension fund whole; the city was aided in those efforts as we have previously noted after Judge Jury ruled against the argument made by pension bond attorneys two years ago. After the city’s pension bondholders entered into mediation again prior to exit confirmation, substantial agreement was achieved for th0se bondholders, no doubt beneficial at the end of last year to the city’s water department’s issuance of $68 million in water and sewer bonds at competitive interest rates in November and December—with the payments to come from the city’s water and sewer revenues, which were not included in the bankruptcy. The proceeds from these municipal bonds will meet critical needs to facilitate seismic upgrades to San Bernardino’s water reservoirs and funding for the first phase of the Clean Water Factor–Recycled Water Program.

Now, with some eager anticipation of Judge Jury’s final verdict, Assistant San Bernardino City Attorney Jolena Grider advised the Mayor and Council with regard to the requested contract extension: “If you don’t approve this, we have no city manager…We’re in the midst of getting out of bankruptcy. That just sends the wrong message to the bankruptcy court, to our creditors.” Ergo, the City Council voted 8-0, marking the first vote taken under the new city charter, which requires the Mayor to vote, to extend the departing Manager’s contract until March 7th, the day after the Council’s next meeting—and, likely the very same day Mr. Scott will return to Reno for a second interview, after beating out two others to reach the final round of interviews. Reno city officials assert they will make their selection on March 8th—and Mr. Scott will be one of four candidates.

For their part, San Bernardino Councilmembers Henry Nickel, Virginia Marquez, and John Valdivia reported they would not vote to extend Mr. Scott’s contract on a month-to-month basis, although they joined other Councilmembers in praising the city manager who commenced his service almost immediately after the December 2nd terrorist attack, and, of course, played a key role in steering the city through the maze to exit the nation’s longest ever municipal bankruptcy. Nevertheless, Councilmember Nickel noted: “Month-to-month may be more destabilizing than the alternative…Uncertainty is not a friend of investment and the business community, which is what our city needs now.” From his perspective, as hard and stressful as his time in San Bernardino had to be, Mr. Scott, in a radio interview while he was across the border in Reno, noted: “I’ve worked for 74 council members—I counted them one time on a plane…And I’ve liked 72 of them.”

Exit II. Detroit Mayor Mike Duggan says the Motor City is on track to exit Michigan state fiscal oversight by next year , in the wake of a third straight year of balancing its books, during his State of the City address: noting, “When Kevyn Orr (Gov. Rick Snyder’s appointed Emergency Manager who shepherded Detroit through the largest chapter 9 municipal bankruptcy in U.S. history) departed, and we left bankruptcy in December 2014, a lot of people predicted Detroit would be right back in the same financial problems, that we couldn’t manage our own affairs, but instead we finished 2015 with the first balanced budget in 12 years, and we finished 2016 with the second, and this year we are going to finish with the third….I fully expect that by early 2018 we will be out from financial review commission oversight, because we would have made budget and paid our bills three years in a row.”

Nonetheless, the fiscal challenge remains steep: Detroit confronts stiff fiscal challenges, including an unexpected gap in public pensions, and the absence of a long-term economic plan. It faces disproportionate long-term borrowing costs because of its lingering low credit ratings—ratings of B2 and B from Moody’s Investors Service and S&P Global Ratings, respectively, albeit each assigns the city stable outlooks. Nevertheless, the Mayor is eyes forward: “If we want to fulfill the vision of a building a Detroit that includes everybody, we have to do a whole lot more.” By more, he went on, the city has work to do to bring back jobs, referencing his focus on a new job training program which will match citizens to training programs and then to jobs. (Detroit’s unemployment rate has dropped by nearly 50 percent from three years ago, but still is the highest of any Michigan city at just under 10 percent.) The Mayor expressed hope that the potential move of the NBA’s Detroit Pistons to the new Little Caesars Arena in downtown Detroit would create job opportunities for the city: “After the action of the Detroit city council in support of the first step of our next project very shortly, the Pistons will be hiring people from the city of Detroit.” The new arena, to be financed with municipal bonds, is set to open in September as home to the Detroit Red Wings hockey team, which will abandon the Joe Louis Arena on the Detroit riverfront, after the Detroit City Council this week voted to support plans for the Pistons’ move, albeit claiming the vote was not an endorsement of the complex deal involving millions in tax subsidies. Indeed, moving the NBA team will carry a price tag of $34 million to adapt the design of the nearly finished arena: the city has agreed to contribute toward the cost for the redesign which Mayor Duggan said will be funded through savings generated by the refinancing of $250 million of 2014 bonds issued by the Detroit Development Authority.

Mayor Duggan reiterated his commitment to stand with Detroit Public Schools Community District and its new school board President Iris Taylor against the threat of school closures. His statements came in the face of threats by the Michigan School Reform Office, which has identified 38 underperforming schools, the vast bulk of which (25) are in the city, stating: “We aren’t saying schools are where they need to be now…They need to be turned around, but we need 110,000 seats in quality schools and closing schools doesn’t add a single quality seat, all it does is bounce children around.” Mayor Duggan noted that Detroit also remains committed to its demolition program—a program which has, to date, razed some 11,000 abandoned homes, more than half the goal the city has set, in some part assisted by some $42 million in funds from the U.S Department of Treasury’s Hardest Hit Funds program for its blight removal program last October, the first installment of a new $130 million blight allocation for the city which was part of an appropriations bill Congress passed in December of 2015—but where a portion of that amount had been suspended by the Treasury for two months after a review found that internal controls needed improvement. Now, Major Duggan reports: “We have a team of state employees and land bank employees and a new process in place to get the program up and running and this time our goal isn’t only to be fast but to be in federal compliance too.” Of course, with a new Administration in office in Washington, D.C., James Thurber—were he still alive—might be warning the Mayor not to count any chickens before they’re hatched.

Post Chapter 9 Challenges

eBlog, 2/22/17

Good Morning! In this a.m.’s eBlog as we remember the first President of our country,  we consider the accomplishments and challenges ahead for the city recovering from the largest ever municipal bankruptcy; then we visit the historic Civil War city of Petersburg, Virginia—as it struggles on the edge of fiscal and physical insolvency; from thence, we roll the dice to witness a little fiscal Monopoly in the state-taken over City of Atlantic City, before finally succumbing to the Caribbean waters made turbulent by the governance challenges of a federal fiscal takeover of the U.S. territory of Puerto Rico, before considering whether to take a puff of forbidden weed as we assess the governing and fiscal challenges in San Bernardino—a city on the precipice of emerging from the longest municipal bankruptcy in American history.   

State of a Post Chapter 9 City. Pointing to FY2015 and 2016 balanced budgets, Detroit Mayor Mike Duggan, in his fourth State of the City address, pointed to the Motor City’s balanced budgets for FY2015 and 2016 and said the city’s budget will be balanced again at the close of this fiscal year in June—progress he cited which will help the city emerge from state get oversight and back to “self-determination” by 2018. Mayor Duggan cited as priorities: job training, affordable housing, and rebuilding neighborhoods, orating at the nonprofit human rights organization Focus: HOPE on Oakman Boulevard on the city’s northwest side, where residents and others for decades have received critical job training. Mayor Duggan was not just excited about what he called the transformation of city services and finances in a city that exited municipal bankruptcy three years ago, but rather “what comes next,” telling his audience: “We’ve improved the basic services, but if we’re going to fulfill a vision of building a Detroit that includes everybody, then we’ve got to do a whole lot more…You can’t have a recovery that includes everyone if there aren’t jobs available for everyone willing to work.” Ergo, to boost job opportunities, Mayor Duggan announced a new initiative, “Detroit at Work,” which he said would help connect the Motor City’s job seekers with employers, deeming it a portal which would provide a “clear path to jobs.” He also discussed his administration’s program to help city youth secure jobs and the Detroit Skilled Trades Employment Program, a recent partnership with local unions to increase Detroit membership and boost job opportunities.

With regard to neighborhoods, Mayor Duggan touted his Neighborhood Strategic Fund, his initiative to encourage neighborhood development, especially in wake of the exceptional success of Detroit’s new downtown: this fund allocates $30 million from philanthropic organizations toward development, commencing with the engagement of residents in the areas of Livernois/McNicols, West Village, and in southwest Detroit to create revitalized and walkable communities—under the city’s plan to align with the city’s vision for “20-minute neighborhoods” to provide nearby residents with close, walkable access to grocery stores and other amenities—or, as Mayor Duggan noted: “If we can prove that when you invest in these neighborhoods, the neighborhoods start to come back. The first $30 million will only be the beginning. I want everybody to watch…If we prove this works…then we go back for another $30 million and another $30 million as we move across the neighborhoods all through this city.”

In a related issue, the Mayor touted the return of the Department of Public Works’ Street Sweeping Unit, which is preparing to relaunch residential cleanings for the 2017 season, marking the first time in seven years for the program. On the affordable housing front, Mayor Duggan addressed affordable housing, saying that future projects will ensure such housing exists in all parts of the city, referencing a new ordinance, by Councilwoman Mary Sheffield, which seeks to guarantee that 20 percent of the units in new residential projects which receive financial support from the city will be affordable: “We are going to build a city where there is a mix of incomes in every corner and neighborhood and we’re going to be working hard.”

But in his address—no doubt with his re-election lurking somewhere behind his words, Mayor Duggan reflected not just on his successes, but also some missteps, including his administration’s massive federally funded demolition program, now the focus of a federal probe and state and city reviews: that initiative has been successful in the razing of nearly 11,000 abandoned homes since the spring of 2014, but has also triggered federal and state investigations over spiraling costs and bidding practices: an ongoing state review of the program’s billing practices turned up $7.3 million in what the State of Michigan deems “inappropriate” or “inaccurate” costs: the vast majority in connection with a controversial set-price bid pilot in 2014 designed to quickly bring down big bundles of houses—an initiative over which Mayor Duggan has so far rejected the state’s assertion that about $6 million tied to costs of the pilot were inappropriate. Thus, yesterday, he conceded that the federal government’s decision to suspend the demolition program for 60 days beginning last August had been warranted, but noted the city has since overhauled procedures and made improvements to get the program back on track, so that, he said, he is confident the city will raze an additional 10,000 homes in the next two years.

For new initiatives, Mayor Duggan said the Detroit Police Department will hire new officers, and invest in equipment and technology, and he announced the launch of Detroit Health Department’s Sister Friends program, a volunteer program to provide support to pregnant women and their families. On the school front, the Mayor noted what he deemed a “complete alliance” between his office and the new Detroit Public Schools Community District school board, saying the city has joined the Board in its attempt to convince the state’s School Reform Office not to close low-performing schools. (As many as 24 of 119 city schools could potentially be shuttered as soon as this summer.) In a hint of the state-local challenge to come, Mayor Duggan said: “The new school board hasn’t had an opportunity to address the problem…We have 110,000 schoolchildren in this city, which means we need 110,000 seats in quality schools. Closing a school doesn’t add a quality seat. All it does is bounce our children around from place to place. Before you close a school, you need to make sure there’s a better alternative.”

Fiscal & Physical Repair. In a surprising turn of events in Virginia, the Petersburg City Council accepted a motion by Councilman Charlie Cuthbert to postpone the vote on moving forward with the bids for Petersburg’s aging water system, after the Council had been scheduled to vote on whether to move forward with the bids the city had received from Aqua Virginia and Virginia American Water Company to purchase the nearly insolvent city’s water and wastewater system. While the vote, by itself, would not have authorized such a sale, it would have paved the way for formal consideration of such proposals. Under his motion, Councilman Cuthbert outlined a plan to delay the vote, so the Council and the City would have more time to consider options, in part through the formation of a seven person committee, which would be separate from the one the Robert Bobb Group, which is currently overseeing the city in place of the Mayor and Council, has been proposing. Mayhap unsurprisingly, citizens’ reactions to a potential sale has been negative; thus there was approbation when Councilmember Cuthbert’s motion passed—even as it appears many citizen/tax/ratepayers appeared to be hoping for the bids to be scrapped entirely: many had spoken in strong opposition, and there were numerous signs held up in chambers for the Mayor and Council to read: “Listen to us for once, do not sell our water,” or, as one citizen told the elected officials: “We have a choice to make: to make the easy, wrong decision, or the hard, right decision,” as he addressed the Council. The city’s residents and taxpayers appear to want other options to be explored, with many citing reports of Aqua Virginia having trouble with the localities with which it holds contracts.

On the fiscal front, many citizens expressed apprehension that any short-term profit the city would realize by selling its system would be paid back by the citizens in the form of rate-hikes by Aqua Virginia or Virginia American, or as one constituent said: “Never have I seen private industry interested in what the citizens want…They’re going to come in here and raise the rates.” Interim City Manager Tom Tyrell had begun the meeting by giving a presentation outlining the problems with the system. Due to past mismanagement and a lack of investment over decades, the Petersburg water system is in urgent need of upgrades. Tyrell outlined certain deficiencies, such as water pumps that need replacing, and pipes nearly blocked by sediment build up. The water quality has never come into question, but Mr. Tyrell said that the system is very close to needing a complete overhaul: the projected cost needed to get the system completely up to standard is about $97 million. Mr. Tyrell stressed that water rates will need to increase whether or not the city sells the system, going over Petersburg’s water rates, which have been relatively low for many years, ranking near the lowest amongst municipalities across the Commonwealth of Virginia. Even if the rates were to double, he told citizens, the rates still would still not be in the top 15 amongst Virginia localities. The Council had received two unsolicited bids for the system in December, one from Aqua Virginia, a second from the Virginia American Water Company. The Robert Bobb Group recommended to the Council that it move forward to examine the detailed proposals in order to “keep all options open.” The cost of moving forward with the proposals will cost approximately $100,000, which includes the cost of examining each proposal. Thus, the Robert Bobb Group recommended that the Council put together a citizens’ advisory group as an outside adviser group. The council gave no timetable on when they will officially vote to see if the bids will go forward. The people who will make up the seven person committee were not established.

Monopoly Sale. Atlantic City has sold two of its Boardwalk properties and several lots along the Inlet for nearly $6 million, closing on three properties at the end of last week, according to city officials—meaning that a Philadelphia-based developer has gained control of five waterfront properties since 2015. His purchases, he said, reflect his belief in Atlantic City’s revival. Mayor Don Guardian reported the city had received wire transfers for the former Boardwalk volleyball court on New Jersey Avenue ($3.8 million), Garden Pier ($1.5 million) and 12 lots bordered by the Absecon Inlet, Oriental Avenue and Dewey Place ($660,000), according to Atlantic City Planning and Development Director Elizabeth Terenik, all part of a way to raise money for the insolvent municipality – and to spur redevelopment, or, as Ms. Terenik noted: “The effort was part of the Guardian administration’s initiative to leverage underutilized or surplus public lands for economic development and jobs, and to increase the ratable base.” How the new owner intends to develop the properties or use them, however, is unclear—as is the confusing governance issue in a city under state control. The Inlet lots were sold in a city land auction last summer, purchased through an entity called A.C. Main Street Renaissance, according to city officials: the Atlantic City Council approved the auction and voted to name the purchaser, conditional redeveloper of Garden Pier and the volleyball court last year. Unsurprisingly, Council President Marty Small deemed the sales as great news for the city, saying they would bring revenue, jobs, and “new partners to the Inlet area…This instills investor confidence…It lets me know that we made the right decision by going out to auction for land and getting much-needed revenue for the city.”

Paying the Piper. Atlantic City has also announced its intention to issue $72 million in municipal bonds to pay for its tax settlement with the Borgata casino, securing the funds to cover its property tax refunds by borrowing though New Jersey’s Municipal Qualified Bond Act (MQBA), according to Lisa Ryan, a spokeswoman for the New Jersey Department of Community Affairs, which is overseeing the state takeover which took effect last November, with her announcement coming just a week after the state announced it had struck a deal for Atlantic City to pay less than half of the $165 million it owes the Borgata in tax appeals from 2009 to 2015, or, as Ms. Ryan noted: “Qualified bonds will be issued in one or more tranches to achieve the settlement amount…The parties are confident in the City’s ability to access the capital market and raise the necessary amount needed to cover the financing,” albeit adding that the city’s borrowing costs would not be known until the sale. (The Garden State’s MQBA is a state intercept program which diverts a municipality’s qualified state aid to a trustee for debt service payments.) Prior to the New Jersey’s state takeover of Atlantic City, city officials had proposed paying $103 million for a Borgata settlement through MQBA bonding as part of a five-year rescue plan—a plan which the state’s Department of Community Affairs had rejected.

As the state taken over city struggles to adjust, Mayor Don Guardian, in a statement, noted: “I’m glad the state is seeing the wisdom in what we proposed in our fiscal plan back in November…I applaud them for getting the actual amount due upfront lower, even though they have had over two years to do it. It remains to be seen how the other $30 million will be taken care of, but the quicker we can get this issue off the table, the quicker we can move forward tackling the remaining legacy debt.” Atlantic City last utilized New Jersey’s state credit enhancement program in May of 2015 to pay off an emergency $40 million loan and retire $12 million of maturing bond anticipation notes, paying a substantial fiscal penalty for a $41 million taxable full faith and credit general obligation municipal bond sale to address its loan payment with Bank of America Merrill Lynch pricing the bonds to yield at 7.25% in 2028 and 7.75% in 2045. Today, the city, under state control, is seeking to recover from five casino closures since 2014, closures which have bequeathed it with $224 million in outstanding municipal bond debt—debt sufficient according to Moody’s to have saddled the city with some $36.8 million in debt service last year.

Grass Fire? Two separate groups have now filed lawsuits challenging San Bernardino’s Measure O, the initiative citizens approved last November to allow marijuana dispensaries in the city—a measure yet to be implemented by the city—and one which now, according to City Attorney Gary Saenz, will almost surely be further delayed because of the suit. Should Measure O be struck down, the related, quasi-backup Measure N, a second marijuana initiative San Bernardino voters approved last November, but which received fewer votes, would pop up, as it were. The twin suits, one filed by a group of marijuana-related entities, the second by interested property owners in San Bernardino, challenge Measure O on multiple grounds, including the measure’s language determining where dispensaries may operate in the city. One suit charges: “The overlay zones together with the parcel numbers and the location criteria limit the locations within the City of San Bernardino where marijuana businesses may be permitted to only approximately 3 to 5 parcels of land within the entire city, and all of these parcels of land are either owned or controlled by the proponents of Measure O…The locations of these 3 to 5 parcels of land, furthermore, are incompatible for a medical marijuana business by virtue of the locations and surrounding land uses and for this reason are in conflict with the City of San Bernardino General Plan.” Unsurprisingly, Roger Jon Diamond, the attorney for the proponents of Measure O, disputes that number and predicts the challenge will fail, noting that thirteen marijuana dispensaries and related groups that describe themselves as non-profits are operating in San Bernardino or which have invested substantial sums of money in plans to operate in San Bernardino. The soon to be out of chapter 9 municipal bankruptcy city, prior to citizen adoption of Measure O, means, according to Counselor Diamond, that the dispensaries have been operating illegally, or as he put it: “There’s a concept in the law called clean hands: If you don’t have clean hands, you can’t maintain a lawsuit…Here we have people who don’t qualify (to operate a dispensary in their current location), complaining that they would not become legal under the new law. It sounds like sour grapes.”

The second, related suit, filed earlier this month, calculates a somewhat higher (not a pun) number of eligible locations—between three to twelve, but makes the same observation regarding physical location: “We think there is a financial interest in the people who wrote it up,” said Stephen Levine of Milligan, Beswick Levine & Knox: “We don’t think that is fair, because it was so narrowly constricted. Zoning by parcel numbers is a highly unusual practice in California. Let’s include Colorado and Washington State in there, too; they don’t use parcel numbers for this.” (Measure O restricts marijuana businesses to marijuana business overlay districts, which are identified by parcel number, and further prohibits the businesses from being within 600 feet of schools or residentially zoned property.) In this case, Mr. Levine is representing a consortium of property owners calling themselves AMF as well as Wendy McCammack, a business owner and former San Bernardino Councilmember. According to Mr. Levine, the plaintiffs’ interest is in possible changes in assessed property values due to the location of the dispensaries.

Getting High on the City Agenda. The City Council last week, in a closed session, discussed the lawsuit in closed session; however, City Attorney Saenz reported he was unaware aware of the lawsuit and had yet to decide upon a response to either, noting: “We haven’t totally assessed the merits of the lawsuit, nor how we’ll respond.” Nevertheless, the lawsuits’ arguments appear likely to interfere with the city’s process of incorporating Measure O into the development code and beginning to issue permits, or, as Mr. Saenz notes: “It (the AMF lawsuit) very much calls into question the validity of Measure O…Being a city of very limited resources, we don’t want to expend resources on an implementation that’s never going to occur. That would be a waste of resources.” The suits will also complicate governance: last month the city, on its website, and in a letter to interested parties, said it would provide an update in March on when the marijuana measure would be implemented: “City departments are in the process of integrating the provisions of Measure O into the City’s existing Development Code, developing procedures for receiving applications, and identifying provisions that may require interpretation and clarification prior to implementation…The San Bernardino Development Code and Measure O are both complex legal regulatory frameworks and it will require time to properly implement this new law.”

Governance & Challenges. Puerto Rico Gov. Ricardo Rosselló has arrived in Washington, D.C., where he will meet with his colleagues at the National Governors Association and join them at the White House tomorrow; he will also dine with Vice President Mike Pence this week. Last week, in Puerto Rico, he had hosted Chairman Sean Duffy (R-Wisc.), of the House Financial Services Subcommittee on Housing & Insurance, and an author of the Puerto Rico Oversight, Management and Economic Stability Act – in San Juan.  Chairman Duffy told the Governor he is available to amend PROMESA to ensure that the PROMESA oversight board treats Puerto Rico fairly, according to an office press statement. The lunch this week might occasion an interesting discussion in the wake of the Governor’s claim that the PROMESA Oversight Board’s plans for austerity may violate federal law: the Governor’s Chief of Staff, William Villafañe, this week stated: “The Fiscal Supervision Board officials cannot act outside of the law that created the body. If the board were to force the implementation of a fiscal plan that affects people’s essential services, it would be acting contrary to the PROMESA law.” His complaints appear to signify an escalation of tensions between the U.S. territory and the PROMESA Board: Mr. Villafañe added: “The [PROMESA] board is warned that it must act in conformance with the law…The commitment of Governor Ricardo Rosselló is to achieve economies that allow government efficiency, doing more with fewer expenses, without affecting essential services to the people and without laying off public employees.” If anything, Mr. Villafañe added fuel to his fire by criticizing the Board’s new interim executive director, Ramón Ruiz Comas, in the wake of Mr. Ruiz’ radio statement this week that if Gov. Rosselló did not present an acceptable fiscal plan by the end of February, the PROMESA Board would provide its own—and the plan would be deemed the legally, binding plan—in reaction to which, Mr. Villafañe had responded: “To make expressions prejudging a fiscal plan proposal that the board has not yet seen demonstrates on the part of the board improvisation and lack of a collaborative attitude for the benefit of the Puerto Rican people,” adding that “The board must be aware that the federal Congress will supervise the board.” He went on to say that when the Governor presents a fiscal plan, Congress will be aware of the way the board evaluates it.

Mr. Villafañe’s complaints and warnings extend tensions between the board and the U.S. territory: even before the Governor took office in January, a Rosselló official complained that the board was seeking a $2 billion cut in spending. On Feb. 13 the governor rejected the board’s claimed right to review bills before they are submitted to the Puerto Rico legislature. On Jan. 18 the board sent a letter to Gov. Rosselló stating that spending cuts and/or tax raises equaling 44% of the general fund would have to be made in the next 18 months. At its Jan. 28 meeting, board chairman José Carrion, for emphasis, said twice that some governor-proposed changes to the board’s Jan. 18 proposals may be OK, “as long as the ultimate fiscal plan is based on solid savings and revenue projections, a once and done approach, and not simply on hope or predictions that various changes will generate more revenues in the future.”

Federalism & Fiscal Challenges

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eBlog, 2/07/17

Good Morning! In this a.m.’s eBlog, we consider some of the implications of New Jersey’s constitution with regard to the state’s takeover of Atlantic City: does the state takeover violate parts of the Garden State’s constitution? Then we head south to the Caribbean to try to understand the extraordinary fiscal challenges to the neighboring U.S. territories of Puerto Rico and the U.S. Virgin Islands.

New Jersey Federalism? New Jersey Superior Court Judge Julio Mendez has issued an order temporarily blocking the state’s effort to eliminate one hundred Atlantic City firefighter positions—all part of an order which momentarily halts the state from imposing any layoffs or unilateral contract changes to Atlantic City’s 225-member fire department. The issue and legal challenge here arose in the wake of the International Association of Fire Fighters, Local 198, and the AFL-CIO filing a lawsuit arguing that the State of New Jersey’s action under the Municipal Stabilization and Recovery Act—which empowered the state takeover of the City, and authorized New Jersey’s Local Finance Board to take over the city, violates New Jersey’s constitution. The suit comes even as the state’s Department of Community Affairs claims the state had already decided before the ruling to push back implementing the firefighter cuts until next September—with the changes to pay structure, hours, and overtime postponed until the end of next week; however, the state made clear the “temporary restraining order signed by Judge Mendez does not change the State’s timetable for advancing reforms of Atlantic City firefighters’ contracts…We decided to delay implementing the proposed contract reforms until February 19th as a good faith gesture to give the fire department more time to prepare.”

Judge Mendez had initially scheduled a hearing for next Monday; however, the state successfully fought to get the case removed to federal court at an undetermined date. Judge Mendez issued the restraining order despite the state, in a court filing, advising the court it would hold off implementing the proposed 100 layoffs until September, and would delay changes to pay structure, hours, overtime, and benefits until February 19th. However, Judge Mendez’s order bars the state from taking any action under the Municipal Stabilization and Recovery Act that is “in violation of the Due Process and Equal Protection, Contracts, Takings, Collective Negotiation, and Civil Service clauses of the New Jersey Constitution.” The case marks the first legal challenge to the broad state preemption and takeover of Atlantic City imposed by the state last November: the subsequent court case could shape up to be a significant test of the takeover’s constitutionality against criticisms that it violates residents’ civil rights and the collective bargaining rights of the city’s unions.

The state’s strategy in responding by seeking removal to the federal court seems exceptional—and in stark contrast to the unique concept of dual federalism in this country, especially so in this case, because the New Jersey constitution includes a comparable provision with regard to voiding contracts—or, as a colleague late last night noted: “It’s odd for a state law to be appealed to the federal court when there are state constitutional issues at stake.” Nevertheless, the filing raises two issues: 1) would a federal court even consent? It is, after all, a matter of New Jersey law, and 2) it would seem, especially in a New Jersey court, that the state constitution issue should supersede a federal action.  

At the same time, in a separate fiscal arena, Moody’s Investor Service’s affirmed  Atlantic City’s deep-junk level Caa3 bond rating and retained the city’s negative outlook, citing an ongoing “liquidity crisis” and likely default in the next year notwithstanding the state’s takeover—the city, after all, is confronting a structural deficit of more than $100 million and has suffered five casino closures since 2014; it has $240 million in municipal bond debt and more than $500 million in total debt when factoring in casino tax refunds and other obligations. It would seem Moody’s is seeking to ensure investors are aware of what is transpiring—and needed to remind the city’s municipal bondholders that there will be a new Governor who will have to reassess what actions—and relationship with Atlantic City—they ought to consider.

Statehood I? Puerto Rico Gov. Ricardo Rosselló has signed into law a bill for a June referendum on Puerto Rico’s political status. The law provides for a non-binding referendum that would allow the U.S. territory to vote on statehood. The referendum, to be held this June, will allow the voters to choose between statehood and independence/free association. Those in support of Puerto Rican statehood believe approving statehood could help the country restructure its $70 billion in public debt and stave off further federal austerity measures. Functionally, if approved, Puerto Rican statehood would allow the state to receive $10 billion in federal funds per year, as well as allowing government agencies and municipalities to file for chapter 9 municipal bankruptcy. In signing the legislation, Gov. Rosselló called the vote “a civil rights issue;” he said the U.S. will have to “respond to the demands of 3.5 million citizens seeking an absolute democracy.” Importantly, if granted statehood, the U.S. citizens of Puerto Rico would, at long last, no longer be denied many of the benefits provided to citizens in U.S. mainland and Hawaii, including equal access to Social Security and Medicare, despite paying taxes for these services. In addition, Puerto Rico’s representatives in Congress would be granted the same voting rights as all other Members of Congress—except for the Delegate from the District of Colombia. Under the referendum, voters would, in effect, determine whether to alter Puerto Rico’s status as a territory granted under the Jones-Shafroth Act: they will be asked if they support Puerto Rico becoming a state or a country independent of the United States of America. Should voters opt for independence, a subsequent referendum next October would be held to determine whether citizens wish to maintain some sort of association with the U.S., or become independent. In a written statement from Gov. Rosselló, Puerto Rico House of Representatives President Carlos Méndez said, “The colonial situation that currently defines Puerto Rico has deprived Puerto Ricans of participating fully in the federal government, of voting for the president of the United States, of electing representatives with a say and vote in the federal congress, and of receiving equal treatment in opportunities that strengthen socio-economic development and quality of life.”

Statehood or Independence? Even as Gov. Rosselló has signed into law a provision to allow Puerto Rico’s citizens to vote on their own governing destiny, Congressman Luis Gutiérrez (D-Puerto Rico) today plans to offer legislation in Congress to promote a federal plebiscite in which Puerto Ricans can select between independence and a free association pact between Puerto Rico and the United States, with a draft of his proposal, as reported by El Nuevo Día, stating: “The annexation of Puerto Rico as a state of the Union would be detrimental both to the United States and to Puerto Rico. It is time to return sovereignty to Puerto Rico…Statehood and full assimilation—in which Puerto Rico delivers its nationality, culture, Olympic team, language, and ability to determine its future—is not the only option and is not the best option for Puerto Ricans.” Under the proposed legislation, all Puerto Ricans or a father or mother born in Puerto Rico, would be granted the right to vote; rights granted via federal programs, such as veterans, pensions, and benefits from military service would be recognized. The proposal suggests a process to restructure public debt as well as an agreement to keep the current total of federal transfers, as a bloc, during a transitional period. The bill provides that citizenship of Puerto Rico would be recognized; however, Puerto Ricans would be eligible to retain U.S. citizenship.

Caribbean Fiscal Contagion? Fitch Ratings has lowered its credit ratings for the U.S. Virgin Islands, just seventeen miles from Puerto Rico, downgrading its ratings on about $216 million of the U.S. territory’s water and power authority municipal bonds—acting in the wake of the island government’s rescission of a utility rate increase which had been approved last month. Fitch’s action put the island’s ratings eight levels below investment grade—and near default, and came in the wake, last month, of its downgrade of the Virgin Islands’ public finance authority, which borrows on behalf of the government, writing: “The rating downgrade reflects the heightened credit risk as a consequence of the island’s Water & Power Authority’s continued inability to gain regulatory approval of rate relief needed to address its exceptionally weak cash flow and liquidity.” The downgrade came in the wake of the U.S. territory’s increasing inability to issue municipal debt: the government has been unable to issue municipal debt since December, twice delaying a planned $219 million municipal bond sale. The U.S. territory, confronted by budget shortfalls, had intended to use the bond proceeds to help cover the government’s bills. Virgin Islands Governor Kenneth Mapp has proposed a series of tax increases intended to bolster the territory’s finances and restoring its access to the financial markets. However, as the Romans used to say: tempus fugit: Last week, Gov. Mapp warned the government may not be able to make payroll by the middle of this month if nothing is done.

States & Municipal Accountality

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eBlog, 2/06/17

Good Morning! In this a.m.’s eBlog, we consider the new municipal accountability system proposed by Connecticut Gov. Daniel Malloy to create a new governance mechanism which could trigger early state intervention, then we head west to consider whether Detroit voters will re-elect Mayor Mike Duggan to a second term.  

Municipal Accountability, or “Preventing a Train Wreck.” Connecticut Governor Daniel P. Malloy, noting that “Our towns and cities are the foundation of a strong and prosperous state,” said: “Healthy, vibrant communities—and thriving urban centers in particular—are essential for our success in this global economy…In order to have vibrant downtowns, retain and grow jobs, and attract new businesses, we need to make sure all of our municipalities are on solid fiscal ground or on the path to fiscal health.” Ergo, the Governor has proposed a new municipal accountability system intended and designed to provide early intervention for the Nutmeg State’s cities and towns before they slip into severe fiscal trouble—a signal contrast to, for instance, New Jersey—where, as we have noted, such intervention is after the fact; Alabama, where the state not just refused to act, but actually facilitated Jefferson County’s chapter 9 municipal bankruptcy by barring the city from raising its own revenues; California, where the state has absented itself from playing any role in responding to municipal bankruptcy or fiscal distress—and Michigan, where the state acts early to intervene through the appointment of Emergency Managers—albeit such intervention has, as we have observed in the instances of the City of Flint and the Detroit Public Schools contributed to not just worsening the fiscal crises, but also endangered human lives—especially of young children and their futures.

Gov. Malloy’s proposal would create:

  • a four-tier ranking for municipalities in fiscal or budgetary distress,
  • an enhanced state evaluation of local fiscal issues, and
  • a limit on annual property tax increases for cities and towns deemed at greatest risk of fiscal insolvency.

Currently, Connecticut’s chief budget and policy planning agency, the Office of Policy and Management, routinely reviews annual audits for all municipalities. Under Gov. Malloy’s new proposal, which will be outlined in greater detail the day after tomorrow in Gov. Malloy’s new state biennial budget plan, OPM and a new state review board will have added responsibilities to review local bond ratings, budget fund balances, mill rates, and state aid levels—all with a goal of creating a new, four-tiered municipal fiscal early warning system focused on the identification of municipalities confronting fiscal issues well before their problems approach the level of insolvency. Under his proposal, Connecticut cities and towns with the most severe challenges and risks would be assigned to a higher tier—a tier in which there would be increased state focus and, if the system works, greater state-local collaboration. As proposed, a municipality might be assigned to one of the first three tiers if it has a poor fund balance or credit rating, or if it relies on state aid for more than 30 percent of its revenue needs. In such tiers, the state’s cities and towns would face additional reporting requirements. Moreover, cities and towns in Tiers 2 and 3 would be barred from increasing local property tax rates by more than 3 percent per year. For cities and towns in the lowest fiscal category, the fourth tier, the state would also impose a property tax cap. For these municipalities, the state review board could:

  • Intervene to refinance and otherwise restructure local debt;
  • Serve as an arbitration board in labor matters;
  • Approve local budgets;
  • And appoint a manager to oversee municipal government operations.

The system proposes some flexibility: for instance, a municipality would be assigned to a lowest tier, Tier 4, only if it so requested from the state, or if two-thirds of the new state review board deemed such a ranking necessary, according to Governor Malloy—who estimated that about 20 to 25 of the state’s 188 municipalities might be assigned any tier ranking under his proposal, who described those municipalities which might act to seek to work more closely with the state as ones confronted by “pockets of poverty.”

In response, Connecticut Conference of Municipalities Executive Director Joe DeLong said the Connecticut municipal association appreciated the Governor’s efforts to foster dialogue and had “no issue” with his proposals, but said they should be accompanied by other changes, noting: “The overreliance on property taxes, especially in urban areas where most of the property is tax exempt continues to be a recipe for disaster…Oversight without the necessary structural changes, only insures that we will recognize an impending train wreck more quickly. It does not prevent the wreck.”

This Is His City. Detroit Mayor Mike Duggan this weekend vowed to “fight the irrational closing” of a number of public schools in the city, as he initiated his re-election campaign—and, mayhap, cast a swipe at President Trump’s Education Secretary cabinet choice. Making clear that he would not be running what he termed a “victory lap campaign,” he vowed he would seek to change the recovering city’s focus towards “creating a city where people want to raise their families,” vowing to work hand-in-hand with the Detroit Public Schools Community District School Board in the wake of the Michigan School Reform Office’s recent decision to close low-performing public schools in Detroit and another elsewhere in the state—a state action which could shutter as many as 24 of 119 city schools at the end of this academic year, and another 25 next year if they remain among the state’s lowest performers for another year, based on state rankings released this month which mark consistently failing schools for closure. Mayor Duggan added that he had called Gov. Rick Snyder at the end of last week to tell him the closure is “wrong” and that the school reform office efforts are “immoral, reckless…you have to step in.” Mayor Duggan noted that “[R]eform means first you work with the teachers in the school to raise that performance at that school; second you don’t close the school until you’ve created a quality alternative…Neither one of those has happened here.” The Mayor met yesterday with the school board leadership, and has noted that Gov. Snyder had originally taken the position that closure of the city’s schools would create a legal issue, adding: “You do not have a legal right to have no schools when the children have no reasonable alternative nearby…I’m going to be working with the Detroit public schools…We want to start by sitting down together with the Governor and coming up with a solution. That’s going to be the first order of business.”

Detroit Public Schools Community District School Interim Superintendent Alycia Meriweather thanked Mayor Duggan over the weekend, saying: “As stated multiple times, we do not agree with the methodology, or the approach the (state school reform office) is using to determine school closures, and we are cognizant of the fact that all of the data collected is entirely from the years the district was under emergency management…Closing schools creates a hardship for students in numerous areas including transportation, safety, and the provision of wrap around services…As a new district, we are virtually debt free, with a locally elected board; we deserve the right to build on this foundation and work with our parents, educators, administrators, and the entire community to improve outcomes for all of our children.”

Ms. Ivy Bailey, the President of the Detroit Federation of Teachers, which represents about 3,000 city educators, noted: “The bottom line is this is his city…We don’t want the schools to close.” Ms. Bailey said the newly elected school board had just taken office and needs to be given an opportunity “to turn things around.” A representative for Gov. Snyder could not be immediately reached Saturday, nor could Detroit School Board President Iris Taylor.

Last week, Mayor Duggan picked up petitions to run for re-election, joining 14 others, according to records provided by the city’s Department of Elections. None of the prospective candidates have turned in signatures yet for certification. The filing deadline is April 25. The primary is August 8. The Mayor, when asked who his biggest competition is in the race, said only: “[T]his is Detroit, there’s always an opponent.” “There will be a campaign,” he said. “This is Detroit.”

Mayor Duggan comes at his re-election campaign to be the city’s first post chapter 9 leader after being schooled himself in hard knocks: in his first campaign, he had been knocked off the ballot when it was determined he had failed to meet the city’s one year residency requirement; ergo, he had run as a write-in candidate, and, clearly, run effectively: he received 45 percent of the vote in the primary, and had then earned 55 percent of the vote to become the Motor City’s first post-municipal bankruptcy Mayor. Thus, in his re-election effort, he has been able to point to milestones from his first term, including:

  • the installation of 65,000 new LED street lights,
  • improved police and EMS response times,
  • new city buses as well as added and expanded routes,
  • the launch of the Detroit Promise, a program to provide two years of free college to graduates of any city high school,
  • several major automotive manufacturing centers and suppliers,
  • and a new Little Caesars Arena which will be the future home of the Detroit Red Wings and Detroit Pistons,
  • The relocation by Microsoft (announced Friday) to downtown Detroit in the One Campus Martius building early next year,
  • The results, to date, of the city’s massive blight demolition program—a program which has led to the razing of nearly 11,000 houses, primarily with federal funding, since 2014 (albeit a program which has been the subject of a federal criminal investigation and other state, federal and local reviews after concerns were raised in the fall of 2015 over soaring costs and bidding practices.) Officials with the city and Detroit Land Bank Authority, which oversees the program, have defended the effort, and, last week, Mayor Duggan said an ongoing state review of the program’s billing practices turned up $7.3 million in what the state contends are improper costs. Ergo, Detroit will pay back $1.3 million of that total, but the remaining $6 million—mainly tied to a controversial set-price pilot in 2014—will go to arbitration.