“This is how government should work.”

May 15, 2018

Good Morning! In this morning’s eBlog, we fiscally visit the small municipality of Evans, New York, a town of about 41 square miles in upstate New York which was established in 1821—seventeen years after its first settler arrived, and today home to about 14,000—but a municipality so broke after years of fiscal and financial mismanagement that it lost access to the municipal market in the wake of the withdrawal of its credit rating.

Absence of Fiscal Balance? Evans Town Supervisor Mary K. Hosler has reported that the municipality was unable to secure a loan in the wake of the withdrawal of its credit rating. In her 3rd State of the Town Address, where she advised citizens that “much can be accomplished when politics are checked at the door, and a spirit of cooperation is adopted at all levels of our town government;” she added that it was her hope that citizens would leave with “a sense that our Town is mending and moving ahead with strength and momentum,” as she noted: “By way of brief overview, as many of you are aware, the Town has been faced with numerous challenges over the past two years. Unfortunately, a decade of financial mismanagement came to a head during my first year in office, and we were faced with what turned out to be the worst financial crisis in the history of the Town. There were very few options available as the Town was facing the possibility of insolvency or a control board.”

In New York, a municipality—or its emergency financial control board, may file for chapter 9 municipal bankruptcy: the Empire State’s §§85.80 to 85.90 authorize the state legislature to create a financial control board—something created in September of 1975 for New York City; however, the New York State Constitution also contains certain fiscal limitations on municipal debt—including a limit of 9 percent of the average full valuation of said municipality’s taxable real estate for municipalities with populations under 125,000.

Supervisor Hosler introduced Evans Finance Director Brittany Gloss to present the municipality’s financial accomplishments and the progress being made in terms of economic development and, “most importantly: where we are headed,” reminding constituents that any loans would have been “costly to our residents: financially, in the loss of services, and the loss of local control,” adding:  “It has been said that the definition of insanity is doing the same thing over and over again while expecting different results. Well, we stopped the insanity, which meant we had to identify the problems and take action. Every decision was critical to move the needle in the right direction, and work the Town out of this financial disaster. These decisions were often painstaking and gut‐wrenching, but they were necessary to change the Town’s financial course. They were reviewed from all angles, and made with the taxpayer’s interest and the future of the Town of Evans in the forefront. And these difficult decisions have yielded positive results.” In her introduction, Supervisor Hosler, noting the town’s bond rating had been restored to an A rating, reported: “We’re  definitely on the recovery side of the balance sheet,” with the former bank vice president who played a key role in steering the town toward solvency, telling the audience that the municipality had turned to Erie County for assistance two years ago—or, as Erie County Comptroller Stefan I. Mychajliw recalled, the call came as the town’s payroll and bills were piling up, late at night as he was “on the couch with a horrible flu.” Nevertheless, he stated that he advises every town supervisor to let him know if they ever need anything, adding: “That night I had three or four conference calls with three of my most senior staff.”

Remarkably, by the next morning, he had already helped pull together three possible fiscal plans for the town—with the one which led to the fiscal rescue: an unprecedented $980,000 short-term loan from Erie County.

For her part, Supervisor Hosler knew when she ran for office three years ago that there were financial problems; however, it was not until she took office that she discovered thousands of missing financial transactions, internal audits which had never been completed, and a $2.6 million deficit. The fiscal depths appeared to be the result of the municipality’s debt issued in 2007, when the town had borrowed $12.6 million to install new water lines, hydrants, and a water storage tower. In that transaction, instead of putting those funds into a separate account, as required, the town combined the money with the rest of its municipal funds. Thus, a subsequent New York State audit found that $2 million of those funds were used to cover operating expenses, with the bulk for the municipality’s troubled water operations—putting the municipality on a seemingly unending reliance on tax-anticipation notes to make ends meet—that is, until the ends were at the end—or, as Supervisor Hosler described it: “Not six months into office, I’m thinking ‘Holy Lord, this is a big climb’…We had to keep moving on all fronts.”

A year and a half later, Evans has received an A credit rating from S&P Global Ratings, easing the way for the municipality to issue municipal bonds to finance $5.2 million for a new water tower, with S&P noting: “The stable outlook reflects S&P Global Ratings’ view that Evans has implemented various corrective steps to restore structural balanced operations over the past three audited fiscal years. It also reflects our expectation that the town will likely maintain strong budgetary performance, which will likely support its efforts to eliminate its negative fund balance and rebuild its budgetary flexibility.” Indeed, the town’s current deficit of $320,000 is a shadow of its former $2.6 million—and Supervisor Hosler is hopeful it can be eliminated by the end of the fiscal year—a fiscal accomplishment which could create a fiscal bonus: lower capital borrowing costs on municipal bonds the municipality hopes to issue for its water system.

The $2.6 million deficit is down to $320,000, and now Supervisor Hosler is hopeful it can be erased by the end of this year. In addition, with the credit rating, she is hoping to get a lower rate on water bonds to hopefully lower water rates. As Comptroller Mychajliw put it: “I’m just thrilled for her and the town: This is how government should work.”

Advertisements

Exiting from Municipal Bankruptcy

eBlog

March 16, 2018

Good Morning! In this morning’s eBlog, we consider the Motor City’s final steps in its successful exit from chapter 9 municipal bankruptcy; then we worry about lead level threats in Flint, before journeying to the warmer climes of the Caribbean to update the fiscal challenges for Puerto Rico.

Early Departure from Chapter 9. The City of Detroit this week dipped into its budget surplus to devote some $54.4 million to finance paying off the outstanding municipal bonds it had issued as part of its plan of debt adjustment four years ago, with the borrowing then issued by the city to settle debts with municipal bond insurers related to the Motor City’s pension-related debt—here the payments were to finance the remaining principal and interest owed on $88 million in 12-year Financial Recovery, with the city formally moving to pay off $54 million of its 2014 financial recovery bonds. The unexpected payments might make the leprechaun jump to celebrate still another demonstration of improved fiscal health. Here, the payment had the support of the Detroit Financial Review Commission, as well as the Detroit City Council, clearing the way for the city Wednesday to issue a 30-day redemption notice and report it had fully funded an escrow to retire $52.3 million of remaining principal and $2.1 million of accrued interest to fully redeem the 2014C bonds effective April 13th—an action projected to save Detroit’s taxpayers some $11.7 million in interest savings. CFO John Hill noted: “The Mayor and City Council have again shown their commitment to the city’s long-term financial sustainability by taking action to authorize the resolution for the redemption of the entire outstanding principal on the city’s Financial Recovery Bonds, Series 2014C.”  In this case, the C series of unrated, taxable municipal bonds totaled $88.4 million; they carried an interest rate of 5% interest, with the bonds secured by Detroit’s limited tax general obligation pledge and payable from city parking revenues. According to Detroit Deputy Chief Financial Officer John Naglick, approximately $54 million remains outstanding after early maturities amortized and the $15 million sale of a parking garage triggered a mandatory redemption. The C series was part of $1.28 billion of borrowing Detroit closed on in December of  2014 to fund creditor settlements, as well as raise revenues for revitalization efforts, thereby paving the way for its exit from the largest chapter 9 municipal bankruptcy in American history—and mayhap bring the luck of the Irish that the city could exit from direct state oversight within the next few months—especially in the wake of Mayor Mike Duggan recently proposed $2 billion balanced budget—the approval of which could facilitate Detroit’s exit from active state oversight, or. As Mr. Naglick put it: “I expect in April or May we’re going to see the Financial Review Commission vote to end oversight and return self-determination to the city of Detroit.”

The Motor City’s $1 billion general fund, according to the Mayor, continues to be healthy, because the city’s most important source of revenues, its income tax, is producing more revenues. Indeed, the city’s budget maintains more than a 5% reserve, which is projected at $62.3 million. At the same time, the city is continuing to set aside fiscal resources to address higher-than-expected pension payments starting in 2024 when annual payments of at least $143 million begin. Payments of $20 million run through 2019 with no payments then due through 2023 under U.S. Bankruptcy Judge Steven Rhodes’ approved plan of debt adjustment. Detroit’s bond ratings, albeit still deep in junk territory, were upgraded last year, with, just before Christmas, S&P Global Ratings slipping down the chimney to upgrade Detroit’s credit rating to B-plus.

Not in Like Flint. Recent tests of the Michigan City of Flint’s drinking water at elementary schools have found an increase in samples with lead levels above the federal action limit. The Michigan Department of Environmental Quality determined that 28 samples tested last month were above 15 parts per billion of lead. DEQ spokesman George Krisztian reported the increase may be due to changes in testing conditions, such as the decision to collect samples prior to flushing lines. (Samples collected before flushing tend to have higher lead levels because the water has been in contact with the pipes longer.) Thus, according to Mr. Krisztian, the overall results are encouraging, because they meet federal guidelines for lead if treated like samples collected by municipal water systems. Most of the more than 90 Legionnaires’ disease cases during the deadly 2014-15 outbreak in the Flint area were caused by changes in the city’s water supply — and the epidemic may have been more widespread than previously believed, according to two studies published Monday. The risk of acquiring Legionnaires’ disease increased more than six-fold across the Flint water distribution system after the city switched from the Detroit area water system’s Lake Huron source to the Flint River in April 2014, according to a report in the Proceedings of the National Academy of Sciences.

Despite the improvement in lead levels over the last 18 months, federal, state, and local officials have advised city residents to continue using bottled water—as the city continues its costly efforts to extract at least 6.000 lead lines from houses this year and next—with Mayor Karen Weaver reporting that state-funded bottled water should be available to residents until the work is completed; the effort to test the drinking water in the city’s schools has yet to be completed. The Michigan Department of Environmental Quality this week defended its outreach efforts in the city, after the Flint Journal reported on a new report which found that 51% of bottled water users surveyed here said they either had no faucet filter or are not confident they know how to maintain the equipment they do have. Mayor Weaver urges the State of Michigan to continue to finance the distribution of bottled water until the last of the leaded lines are removed.

Even as fears remain about the health of the city’s schoolchildren, the State of Michigan has selected a former emergency manager for two Michigan school districts to serve as interim Superintendent of Flint’s public schools after the school board removed the superintendent and two other senior officials. Thus, Wednesday, Gregory Weatherspoon was unanimously approved for the post by the Flint Board of Education, one day after the Board that Bilal Tawwab, Assistant Superintendent Shawn Merriweather, and the school district’s attorney had been placed on leave. It appears the school district’s roughly 4,500 students, an enrollment that has been falling steadily since 1968, when there were 1000% more students, are still at risk. The lower numbers and ongoing safe drinking water fears augur badly for assessed property values in a city where the population suffered a serious decline from 1970 to 1980, losing nearly 40,000 residents—a loss from which Flint never recovered—and a population which has declined continuously—so much so that an August 2015 WalletHub study revealed that Flint placed dead last, as one of the least healthy real estate markets out of 300 U.S. cities.

Arriba? In Puerto Rico, where about 60% of the U.S. territory’s children live below the federal poverty level, it appears there might be some rising optimism—even amidst growing frustration at the exorbitant costs of the Congressionally-imposed PROMESA process. The optimism comes in the wake of disclosures that Puerto Rico’s earlier estimates of the fiscal and financial impact of Hurricane Maria appear to have been overly pessimistic. The rising optimism appears to be reflected by the rally in Puerto Rico’s municipal bond prices. At the same time, Christian Sobrino, Governor Ricardo Rosselló’s representative before the PROMESA Oversight Board, Wednesday said that the Board’s letter regarding lawyers and advisers high fees in PROMESA Title III cases did “not reflect the truth,” adding he found it “laughable that there are unnecessary expenses on behalf of the government of Puerto Rico:  To start with, the structure of Cofina (the Puerto Rico Sales Tax Financing Corporation) and central government agents was not an invention of Puerto Rico in Title III,” Mr. Sobrino said, referring to the mechanism suggested by the Board to determine whether the Sales and Use tax collection belongs to the corporation which issued the debt or to the central government. He noted that the attorneys and counselors assisting these agents billed, all together, $17 million of the total $ 77.7 million in fees claimed during the first five months of the federal PROMESA law: “These letters reflect imprudence and a ridiculous use of these expressions and do not reflect the truth of what we have done in the government to avoid this. It is out-of-place.”

That led the PROMSEA Board to write to the Congressional leadership to indicate that high expenses for lawyers and advisers fees, participating in that process, are due to the PROMESA—or, as PROMESA Board President José B. Carrión noted: “Historically, the people of Puerto Rico have suffered a problem of wasteful spending, admitting that there has been duplication of efforts in Title III cases.” Representative Sobrino stressed that the government has tried not to duplicate efforts with the Board, but that drawing the fiscal plan and budget, as well as its implementation, are the government’s responsibility, adding that the government agreed that Citibank would act as the leading banker in the Electric Power Authority (PREPA) case, as suggested by the Board, and that only a firm hired by the Board would conduct the audit of the bank accounts. However, Rep. Sobrino stressed that there have been times when the government had to use its lawyers to ensure success in Court, as was recently the case with a claim by the Highway and Transportation Authority bondholders: “We have been forced to hire our lawyers to preserve self-government,” adding that the government intervention prevented that, after Hurricane Maria, Noel Zamot from being appointed as a PREPA de-facto trustee.

The Raceway to Recovery

Taking the Checkered Flag. Detroit, on the verge of posting its third consecutive balanced budget, appears on course to exit state oversight as early as next year in the wake of yesterday’s Comprehensive Annual Financial Report (CAFR) demonstrating the Motor City has steadied its finances after emerging more than three years ago from the largest municipal bankruptcy in U.S. history. The state’s Detroit Financial Review Board could vote to waive its authority over the city as early as next month, according to Detroit Chief Financial Officer John Hill, who noted: “We believe we have met all the criteria for the waiver…I believe this will be the last budget that will be done under the FRC’s authority.” The CAFR, officially released Wednesday, appears to support the city’s hopes to soon regain full authority over its own finances: The report notes that Detroit ended its FY2017 with a $53.8 million general fund operating surplus and revenues exceeding expenditures by $108.6 million—even better than the city had originally projected: it ended its most recent fiscal year with a $63 million surplus—as well as a general fund unassigned fund balance of $169 million, better than 15% increase from the previous fiscal year, leading CFO Hill, as he prepares to present the results to the commission at a meeting later this month, to note: “It allows us to have a really good base of information as we are going into our budget process…It also gives us a chance to address some of the items that are identified as things we need to work on.” Mr. Hill added that Detroit has demonstrated vast improvements in its financial health, citing credit rating agency upgrades from rating agencies, a higher employment rate, and enhanced assessed property values: “I have to say that certainly there has been a positive impact from the financial review commission oversight: It’s been a real constructive process where the city has excelled.”

For his part, Mayor Mike Duggan noted that a third straight balanced budget proves his administration, in partnership with the City Council can “effectively manage the city’s finances: “This is another big step forward and helps set the stage for the end of the active state financial oversight,” as the Mayor preps to present the new budget later this month. Detroit Financial Review Commission member “Ike” McKinnon also credited the leadership role Mayor Duggan deserved for with getting the city’s finances back on track: “I remember when Mike Duggan took over as Mayor, we certainly had some hope and thoughts that things would happen…I did not know that it would happen this quickly. This says a lot about what he’s doing and certainly working with the state.”

The state’s financial review commission could vote to waive its authority over the city as early as next month, according to Mr. Hill. Zin any event, even if it does not, Detroit would no longer require the state board’s approval on budgeting or contracts, as it has since exiting chapter 9 municipal bankruptcy. As Mr. Hill put it: “We believe we have met all the criteria for the waiver…I believe this will be the last budget that will be done under the FRC’s authority.”

Key highlights of Detroit’s CAFR include the Motor City ending FY2017 fiscal year with a $53.8 million general fund operating surplus and revenues exceeding expenditures by $108.6 million. (The City had projected a $51 million surplus for FY2017). Detroit’s general fund unassigned fund balance will be $169 million, a $26 million increase from the previous fiscal year, according to the report. 

Detroit has also reported improvements in its management of $100 million in federal grants with no questioned costs resulting from audits, for the second consecutive year—after, two years ago, the city had federal funding for blight demolition funding suspended for two months due to procedural errors. Thus, hopes are high for the release from state oversight, albeit, concerns remain with regard to the looming 2024 pension payment and subsequent debt restructuring the following year. Mr. Hill notes: “I am sure that the FRC, as well as the city–because we are dealing with those issues, will be looking at those two items to make sure that plans are in place, money has been put aside, and the budget is able to absorb the additional costs that will come in those years.” Detroit is confronted by challenges to amortize debt payments on roughly $630 million of B notes that would see payments jump from $60 million to $120 million by 2025—notes issued as part of the implementation of Detroit’s chapter 9 municipal bankruptcy plan of debt adjustment—notes which are unsecured. Indeed, pending before the City Council is a proposal pending to dedicate $50 million from the city coffers to pay begin paying off the debt. Going forward, according to Mr. Hill, the strategy would be to dedicate a combination of restructuring some of the debt as well as paying it off, with the effort to address pension obligations a critical component to shoring up Detroit’s long-term fiscal health. The Motor City’s  long-term funding model approved by the City Council to modify its pension provisions which established the Retiree Protection Trust Fund, and deposited $105 million–$90 million from amounts reserved in FY2016 and 2017, plus $15 million appropriated in Fiscal 2018—and, for FY2018-2021 including the addition of an additional $115 million, contemplates another $115 million from FY2022–FY2023.

The Precipitous Chapter 9 Road to Recovery

January 3, 2018

Good Morning! In this a.m.’s Blog, we consider the fiscal, scholastic, and governing challenges of the city emerging from the largest chapter 9 municipal bankruptcy in U.S. history.

Visit the project blog: The Municipal Sustainability Project 

The Steep Fiscal Road to Recovery.  After years of failed leadership, financial mismanagement, quasi-chapter 9 municipal bankruptcy which led to a state takeover; the state of Detroit’s Public Schools Community District remains vital to encouraging young families to move back into the city—especially in the wake, last month, of DPS failing to meet critical deadlines necessary to be eligible for vital state aid.  (In 2016, Michigan enacted a $617 million DPS bailout, as we have previously noted.) That action separated the district’s debt from a new district that could start fresh. Now, renewed state intervention would be a critical fiscal step backwards; thus it is fortunate that Superintendent Nikolai Vitti appears to be on top of the situation: he warns that disciplinary action will follow in the wake of DPS’ failure to meet these deadlines, making it critical the Superintendent can trust his staff. It is especially vital now in the wake of a second credit rating upgrade—with the report card having recorded, last month, that DPS that Detroit Public Schools had lost out on $6.5 million in fiscal assistance to whittle down its old debt, because DPS officials had failed to turn in paperwork homework on time, according to Superindent Vitti (Michigan reimburses its public school districts for debt loss under Public Act 86 if they met the Aug. 15 deadline; thus, Superindent Vitte, on Monday, reported: “At this point, Detroit Public Schools is not eligible for the $6.5 million-dollar reimbursement from the state…After speaking with state officials, the available funds have already been disbursed to other qualifying entities. However, we will continue to petition the state to receive the reimbursement.”

Under the agreement, Detroit’s old district is still obligated to pay down its past operating debt; thus, the system’s failure to meet two deadlines last year cost not $6.5 million in aid from the state to help pay down its debt, but also a loss of public trust and confidence. As Superintendent Vitte noted last month: “At this point, Detroit Public Schools is not eligible for the $6.5 million-dollar reimbursement from the state: After speaking with state officials, the available funds have already been disbursed to other qualifying entities.” According to Superintendent Vitti, former CFO Marios Demetriou received the documents, but never completed them or sent them to the state. Even though the missed payout from the state is not expected to harm the day-to-day operations of the new district, it appears to curry a D grade; more importantly, it delays repayment of DPS’ legacy debt—or, as Superintendent Vitti notes: it is “unacceptable….The inability to submit the reimbursement form on time is a vestige of the past that continues to haunt the district…This is directly associated with the need for stronger leaders, systems, and processes. The individuals who were closest to the responsibility to submit the form will no longer be with the district.”

The unscholarly missteps appear to have contributed to ongoing doubts about the city’s fiscal acumen: The Motor City’s credit ratings remain deep in junk-bond territory, even after S&P Global Ratings last month upgraded Detroit’s credit rating from B to B+, while Moody’s last October had lifted its to B1 in the wake of the city’s launch of a new web portal to improve investor access to its financial data and bond offerings, Stephen Winterstein, a Managing Director and chief municipal fixed income strategist at Wilmington Trust Investment Advisors, Inc. to note he was “really optimistic about what they have been doing in terms of disclosure and the investor website is definitely a move in the right direction: The road to recovery is a long one, and I think that Detroit is doing the right things.”

Since exiting from the largest chapter 9 municipal bankruptcy in American history just three years ago last month, Detroit has issued debt twice: in August 2015 with $245 million of local government loan program revenue bonds, and in August 2016 with a $615 million general obligation/distributable state aid backed bond sale—albeit both issuances were via the Michigan Finance Authority, with the first enhanced with a statutory lien and intercept feature on the city’s income taxes. CFO John Naglick said that Detroit is also close to deciding on the underwriting team for a request for proposals it launched in October to find banks to lead a tender offer and refunding of its unsecured financial recovery municipal bonds with the aim of lowering its costs and easing a future escalation of debt service. For its part, S&P, in its upgrade, cited positive momentum the city is building with regard to stabilizing its operations and being better prepared to address future significant increases in pension contributions—or, as the agency noted: “We believe the city’s financial position is now more transparent compared with recent years, as is Detroit’s long-term financial strategy, which relies on fairly conservative growth assumptions…We also believe that the city has a stronger capacity to service its debt obligations than in years past.” Indeed, Detroit’s credit ratings are the highest since March of 2012, just over a year before Kevin Orr filed for chapter 9 bankruptcy in July of 2013. Nevertheless, Detroit’s credit rating remains deep in junk territory and vulnerable to another recession, say market participants. Or, as Michigan Attorney General and gubernatorial Bill Scheutte notes: “We still believe Detroit faces a long path that will require years of prudent decision-making from management and the avoidance of major economic shocks before its debt makes sense for investors looking for high-quality municipal exposure…The city still has an abundance of extremely high-risk characteristics and speculative-grade qualities that investors should be very cognizant of and understand what they are taking on.” Notwithstanding, Detroit appears to be on course to exit state oversight this year: it has presented deficit-free budgets for two consecutive years, enabling it to exit from oversight by the Financial Review Commission oversight; it ended FY2016 with a $63 million surplus; Detroit’s four-year forecast predicts an anemic annual growth rate of only about 1%; thus, any adverse public school news could have repercussions.

 

Putting Humpty-Dumpty Back Together Again

November 13, 2017

Good Morning! In today’s Blog, we consider the election results in Atlantic City, where incumbent Mayor Don Guardian was defeated by two-term Democratic City Councilman Frank Gilliam, in a municipality which has been under state intervention since last November.

Visit the project blog: The Municipal Sustainability Project 

Emerging from State Oversight? In New Jersey, voters elected a new Governor, Phil Murphy—and a new Mayor in Atlantic City, potentially paving the way for Atlantic City to emerge from its state takeover. Indeed, prior to his election, candidate Phil Murphy, who was elected over Republican candidate Lt. Gov. Kim Guadagno, had said he would end the state takeover of the city and instead work together with city officials as partners. The election came almost a year after the state takeover of the city—so that in his victory statement, Mayor-elect Frank Gilliam Jr., noted: “This is the beginning of a new era in Atlantic City: For the past 30-40 years Atlantic City has been taking the back seat, and now it is time for us to actually take the front seat.” How this new era will transform the municipality as it emerges from state intervention—and under a new Governor will be a challenge: the former Governor Chris Christie, under whom the state took over Atlantic City; has been replaced by the voters, who elected Philip Murphy, a former Wall Street banker with no experience in office, as the Garden State’s 56th governor—with Gov.-elect Murphy prevailing in a decisive victory to end the two-term reign of Gov. Chris Christie. The twin changes in governance could play a critical role as the city is emerging from its state takeover. The Governor-elect has proposed instituting a millionaire’s tax; he has also called for boosting public pension funding; he has not publicly discussed what he might propose with regard to the state’s current relationship with Atlantic City. Meanwhile, in Atlantic City, where voters turned Mayor Don Guardian out of office after a single, turbulent term, during which five of the city’s famed dozen casinos shut down, and the State of New Jersey seized control of the city’s assets and governing authority—voters selected Atlantic City Councilman and city native Frank Gilliam, who has served as a member of the City Council since 2009 to replace Mayor Guardian, with the Mayor-elect noting: “This is the beginning of a new era in Atlantic City.” Mayor Gilliam, in his first discussion, surrounded by his colleagues selected to fill the three open council-at-large seats, noted: “It’s going to always be about the people: We love Atlantic City: Now it’s time for us to actually take the front seat.” But the challenges ahead for the newly elected Mayor who, during his campaign, had promised the city’s voters would reverse the previous four years of debt and state takeover will not be easy. The Mayor-elect said he wants to focus on shaping up the city’s finances, improving tax rates, and bringing in more development for the city to appeal to people of all ages. In addition, he said he would like to clean up the beach blocks to raise the value of housing—a slight contrast from Mayor Guardian’s platform of taking credit for stabilizing the city’s finances and more interest from investors on new projects coming to the city, such as South Jersey Gas and Stockton University’s city campus: promises and promises which could not be converted to victory. Rounding out the City Council were victories by incumbent council-at-large candidates George Tibbitt and Moisse “Mo” Delgado, and the third at-large seat was won by Jeffrey Fauntleroy II. The Mayor-elect noted he was looking forward to having a “prosperous” relationship with the governor—describing it as it “is going to be a true partnership.”

Mayhap ironically the shuttered Trump Taj Mahal casino will reopen as a Hard Rock casino resort, bringing new life, and potentially new gaming, hotel revenue, and assessed property values; Stockton University is expected to open its Atlantic City satellite campus as part of a project which could also lead to the construction of a new corporate headquarters for South Jersey Gas in a section of the city starved for economic activity. As Brigid Harrison, a political science professor at Montclair State University put it: most people in the region believe Atlantic City has put its worst problems behind it, and are optimistic about a coming wave of development: “Part of Don Guardian’s greatest legacy will be the fact that he believed in and worked for a diversification of the city’s economic base, and, as Mayor, Frank Gilliam certainly will be able to reap some of the credit and benefits for projects initiated in the Guardian administration…Hopefully Mayor Gilliam will take a page from Mayor Guardian and continue the process of attracting a wide variety of businesses and enterprises to Atlantic City, which will only serve to strengthen the city and the region.”

But the new Mayor will also inherit unresolved challenges and problems, including the state’s takeover of Atlantic City, hundreds of millions in debt, the stalled development of a former airport property, and a city economy, which, albeit less dependent on casinos, is still disproportionately affected by their success or failure. And it is the unwinding of the state takeover which could prove the most challenging: The Mayor-elect, in his campaign, said he would commence with an audit of Atlantic City; he vowed to work closely with the incoming administration of Gov.-elect Murphy in what will be a key challenge with regard to how to unwind the state takeover of Atlantic City—a challenge to work across bureaucratic boundaries in a city where numerous state agencies held vast power even before the state takeover—or, as the Mayor-elect put it: “Atlantic City has been working in silos for 30 years: We have to talk to one another.”

S&P Global Ratings analyst David Hitchcock, in the wake of the election results, wrote that while Gov.-elect Murphy will have the support of a Democratic-controlled legislature, he will, nevertheless, be confronted by signal fiscal challenges due to decades of poor budgetary decisions. Mr. Hitchcock wrote that public pension-funding shortfalls under both Republican and Democratic administrations the last two decades have left the Garden State with a heavy pension liability shortfall along with high debt and consistent structural budget deficits, noting: “These impediments will likely constrain the state’s ability to increase funding for local aid or avoid deficits during an economic downturn, regardless of any near-term tax increases or spending cuts…The magnitude of the credit risks facing Governor-Elect Phil Murphy and the newly elected legislature means the state’s long-term credit conditions will remain challenging for the foreseeable future, no matter what policy direction they choose.”

Fiscal & Physical Storm Recoveries

October 30, 2017

Good Morning! In today’s Blog, we consider, again, the spread of Connecticut’s fiscal blues to its municipalities; then, we observe the lengthening fiscal and human plight of Puerto Rico.

Visit the project blog: The Municipal Sustainability Project 

The Price of Solvency. Ending months of fiscal frustration, the Connecticut House of Representatives late Thursday provided its strong, bipartisan endorsement (126-23) to two-year, $41 billion state budget which closes a gaping deficit, rejects large-scale tax increases, and seeks to bolster the state’s future fiscal stability. Notwithstanding, S&P Global Ratings, the following day, issued its own fiscal storm warnings that it is a budget which will still leave the state’s municipalities at fiscal risk. Governor Dannell Molloy has not yet said if or when he might sign that budget into state law; however, because it passed both Houses by veto-proof margins, the question is no longer “if,” but rather: what will it mean for the state’s municipalities? Thus, S&P warned:  “We note that virtually all local governments will see some reductions to state aid, while only a few—typically those with the greatest economic challenges—will see flat year-over-year state aid.” Similarly, Conn. House Majority Leader Matt Ritter (D-Hartford) told his colleagues: “We’re at the end of a journey: This budget offers needed reforms, but also some immediate comfort that is so needed by a lot of our residents and our towns…In the darkest of days…we found a way to pull through.”

As adopted, the budget bill provides financial assistance to eastern Connecticut homeowners dealing with crumbling foundations, reduced funding for UConn, offers $40 million to help the City of Hartford avoid filing for Chapter 9 municipal bankruptcy. The Connecticut Conference of Municipalities Executive Director Joe DeLong, in the League’s initial analysis of the municipal impact of the bipartisan budget agreement, noted: “Municipal leaders acknowledge the difficult choices made by state leaders in forging this bipartisan budget agreement and the impact they have on the lives of Connecticut residents: The actions taken by State leaders to support cities and towns protects the interests of residents and businesses across the state and for that we are grateful.” With the State facing a $5 billion biennial budget deficit, the state budget agreement spares towns and cities from the draconian cuts set to roll out under the Governor’s Executive Order and includes many significant structural reforms that municipalities have been advocating for years. Mr. DeLong added that the final budget agreement provides for numerous municipal reforms sought by the League last January in its groundbreaking public policy initiative, “This Report Is Different.”  

Connecticut House Speaker Joe Aresimowicz noted: “Leaders do things that are maybe not in their best interests, or may be against their own beliefs, in an effort to do what’s right. And I think that was done,’’ as Rep. Toni Walker (D-New Haven), Co-Chairwoman of the appropriations committee, described the bill as a significant step toward closing a $3.5 billion deficit over the next two years and righting the state’s wobbly finances for decades to come: “I want everybody to understand we must recalibrate the financial future of Connecticut, for our families and for our businesses and this budget begins that process.’’

As adopted, the budget does not increase income or sales tax rates, although it raises hundreds of millions of dollars in revenue via an assortment of smaller measures, such as higher taxes on cigarettes, a $10 surcharge on motor vehicle registrations to support parks, and new fees on ride-sharing companies, such as Uber. On the other hand, the final agreement rolled back proposed taxes on cellphone plans, second homes, and restaurant meals. In the end, small tax increases represent just .85 percent of the budget; fee hikes constituted an even smaller contribution .11%. On the revenue side, the new budget proposes the elimination of a property tax credit for many middle-income homeowners, raises the cigarette tax, and sweeps $64 million from a clean energy fund.

In the wake of the passage, S&P Global Ratings indicated it would review the state’s municipal bond rating, but noted the municipal impact, citing the $31.4 million cut to the Education Cost Sharing Grant, the primary state grant which goes to cities and towns to help operate their schools—albeit, the cut is to be nearly fully restored next year, and distributed using an updated formula which more heavily favors the state’s lowest-performing school districts. The adopted budget also rejected Gov. Malloy’s proposal to mandate that the state’s cities and towns assume some fiscal share of the state’s soaring contributions to the teachers’ pension fund. Nevertheless, the budget was less generous to municipalities on the revenue front: the 2015 state plan to share sales tax receipts with cities and towns is all but eliminated in this budget, which officially ends the diversion of these receipts into a special account: the last remnants of a program which was supposed to distribute more than $300 million per year in sales tax receipts are: A “municipal transition grant” worth $13 million in FY 2017 and $15 million for next year. Similarly axed: a $36.5 million payment this year to offset a portion of the funds communities with high property tax rates lose because of a state-imposed cap on motor vehicle taxes: the new budget would cut $19 million in each year from grants that reimburse communities for taxes they cannot collect on exempt property owned by the state and by private colleges, hospitals and other nonprofit entities.

The adopted budget, however, from a municipal perspective, proposes to revise the prevailing wage and binding arbitration systems: municipalities would have greater flexibility to launch more publicly financed capital projects without having to pay union-level construction wages, and arbiters would have more options when ruling on wage and other contract issues involving municipalities and their employees.

Nevertheless, S&P noted: “Since new state revenue measures would have less than a year to be collected, this may leave the state without the available resources to fully appropriate for these (municipal grants),” adding: “The length of the budget impasse underscores the state’s struggling financial health.” The rating agency last month had already placed nine Connecticut municipalities and one school district on a “negative” credit watch, warning it could lead to a rating downgrade within 90 days unless their fiscal outlook improves, citing the uncertainty of Connecticut’s ability to maintain existing levels of municipal aid, reinforcing Moody’s moody outlook earlier this month when it warned that the state actions could lead to lower bond ratings for 51 municipalities and six regional school districts, placing ratings for 26 cities and towns and three regional school districts under review for downgrade, and assigning negative outlooks to an additional 25 municipalities and three more regional school districts. For its part, S&P warned: “In the end, if state fiscal pressures persist, all local governments in Connecticut will continue to be affected…and the degree of credit deterioration will depend on each government’s level [of] budgetary reserves and ability to adapt.”

Underpowered. House Natural Resources Committee Chairman Rob Bishop (R-Utah) said he does not want to “come to conclusions” before he has all the information regarding the controversial $300 million contract of the Montana-based company, Whitefish Energy Holdings, with the Puerto Rico Electric Power Authority (PREPA); nevertheless, Chairman Bishop has given PREPA Chairman Ricardo Ramos until this Thursday to submit a series of documents related to the contract with the company—a company whose largest project prior to Hurricane Maria was $ 1.3 million in the state of Arizona—especially in the wake of the contract award here made without bidding—ergo triggering a series of questions and requests for investigations by the Office of  Inspector General and from the Government Accountability Office (GAO). Chairman Bishop was part of the Congressional delegation with House Majority Leader Kevin McCarthy (R-Ca.) and Deputy Minority Leader Steny Hoyer (D-Md.), as well as Puerto Rico resident Commissioner in Washington, D.C., Jennifer González. House Speaker Paul Ryan ((R-Wis.) who had earlier visited the town of Utuado, known as “El Pueblo del Viví,’ which was founded in 1739 by Sebastían de Morfi, and derives its name from a local Indian Chief Otoao, which means between the mountains, to see first-hand the devastation caused by Hurricane Maria—in the wake of which he noted: “Our committee, like other groups, will investigate and we will know what is behind the Whitefish contract. I do not know enough right now to come to a conclusion against or in favor, but that’s the idea, to know the details and how it happened.”

The Chairman was not alone: the Federal Agency for Emergency Management (FEMA) has released a statement making clear that agency’s concerns about certain aspects of the contract, including an absence of certainty that some prices were even “reasonable,” in apparent reference to the hourly pay of some employees of the company. FEMA also warned that entities that fail to meet FEMA requirements may not see their expenses reimbursed. Nevertheless, Chairman Bishop said he will not “let” any concern of FEMA “get in the way…FEMA will do its job,” he insisted when asked if he was worried that FEMA would not reimburse the Puerto Rico government for payments to Whitefish. (Last night, Governor Ricardo Rosselló Nevares confirmed that he was about to receive a report he had requested from the Office of Management and Budget about the contract.).

Chairman Bishop noted that, as a result of the destruction caused by Hurricane Maria, he is considering possible changes to the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), albeit, when asked about specific changes, he limited himself to saying that the Oversight Board “does not need more authority;” rather, he said, the focus now needs to be on the provision of power and drinking water. Asked by Majority Leader McCarthy whether the devastation he had witnessed makes him think that the aid mechanism for Puerto Rico should change, he answered that “a lot of infrastructure is needed, and we have to lift the electrical system…I spoke with (Minority Leader) Steny Hoyer. I do not think it would be the best use of taxpayers’ money to build the same grid that we had. We need a 21st century one that is more efficient and effective and we can do it with more transparency,” albeit he was unclear what he meant by transparency. Rep. Hoyer noted: “We know there is an urgency,”  adding the delegation needed to all go back to Washington, D.C. to work together, but “we need an urgency to fix the electrical system and for power to reach the whole island. Governor Rosselló Nevares, who accompanied them on the tour, has said that if the quality of life in Puerto Rico does not reach what it should be: “People will be disappointed, and they will leave.”

The Human & Fiscal Prices of Insolvency

October 20, 2017

Good Morning! In today’s Blog, we consider the spread of Connecticut’s fiscal blues to its municipalities; then we consider the health and fiscal health challenge to Flint; before, finally, observing the seemingly worsening fiscal and human plight of Puerto Rico.

Visit the project blog: The Municipal Sustainability Project 

The Price of Solvency. It appears that the City of Hartford would have to restructure its debt to receive the requisite state assistance to keep it out of chapter 9 municipal bankruptcy under the emerging state budget compromise between the Governor and Legislature. Under the terms of the discussions, the State of Connecticut would also guarantee a major refunding of the city’s debt, as well as cover a major share of the city’s debt payments, at least for this fiscal year and next, with House Majority Leader Matt Ritter (D-Hartford) indicating this was part of a bipartisan compromise the legislature recognizes is needed to avert municipal bankruptcy: “This budget gives the city all of the tools it needs to be on a structural path to sustainability…This solution truly is a bipartisan one.” According to the city’s Mayor Luke Bronin, Hartford needs about $40 million annually in new state assistance to avert bankruptcy. The emerging agreement also includes $28 million per year for a new Municipal Accountability Review Board, likely similar to what the Commonwealth of Virginia has used so effectively, to focus on municipalities at risk of fiscal insolvency and to intervene beforehand: approximately $20 million of that $28 million would be earmarked for Hartford. The new state budget would require Hartford to restructure a significant portion of its capital debt, but the state would guarantee this refinancing, an action which—as was the case in Detroit—will help Hartford have access to lower borrowing costs: the agreement also calls for the state to pay $20 million of the city’s annual debt service—at least for this fiscal year and next.

The state actions came as Moody’s Investor Service this week placed ratings of 26 of the state’s municipalities, as well as three of the state’s regional school districts under review for downgrade, citing state aid cuts in the absence of a budget, warning those municipalities and districts face cuts in state funding equal to 100% or more of available fund balance or cash—with those cities most at risk: Hartford (which currently receives 50 percent of its revenues from the state), New Haven, New Britain, West Haven, and Bridgeport. Moody’s was even fiscally moodier, dropping the credit ratings of an additional 25 Connecticut cities and towns, and three other regional school districts, while maintaining the existing negative outlook on the rating of one town. Moody’s list did not, however, include Hartford. The down-gradings come as the state has continued to operate under Executive order in the absence of an approved fiscal budget, now more than a fiscal quarter overdue. Gov. Dannel Malloy, at the beginning of the week, had submitted his fourth FY2018-19 budget to lawmakers, a $41.3 billion spending plan in the wake of his veto last month of the version approved by the legislature, reporting that his most recent fiscal plan would eliminate some revenue proposals, including new taxes on second homes, cell phone surcharges, ridesharing fees, and daily fantasy sports fees—instead, he has proposed an additional $150 million in spending over the biennium, while simplifying the implementor language. According to Moody’s, under the Governor’s new executive order, state aid to local governments will be nearly $1 billion below last year’s level—or, as Moody’s put it: “The current budget impasse highlights the ongoing vulnerability of funding that Connecticut provides to its local governments.” Connecticut traditionally has provided significant funding to its local governments, largely through education cost sharing grants, but also through payments in lieu of taxes and other smaller governmental grants. Connecticut’s GO bond prices have deteriorated with 10-year credit spreads around 80 basis points, well above historical levels, according to Janney Capital Markets Managing Director Alan Schankel: “A state’s fiscal stress tends to flow downstream to local governments, and Connecticut is no exception.” The fiscal irony is that despite the state’s high per capita wealth, the state’s debt, at 9.2% of gross state product, is highest among the states, lagging only behind Illinois.

Not in Like Flint. U.S. District Court Judge David Lawson has ordered Flint’s City Council to choose a long-term water source for the city by Monday after it spent more than three months refusing to make a decision. In his 29-page opinion, he took Flint’s City Council to task for sitting on an April agreement backed by Mayor Karen Weaver, the state and the federal Environmental Protection Agencies that would see the city stay on the Detroit area water system through a new 30-year contract with the Great Lakes Water Authority, writing:. “The failure of leadership, in light of the past crises and manifold warnings related to the Flint water system, is breathtaking.” Judge Lawson’s decision came in response to a suit filed by the Michigan Department of Environmental Quality last June in the wake of the Flint City Council ignoring the state’s deadline for a water supply decision, arguing the delay would “cause an imminent and substantial endangerment to public health in Flint.” The Council, in hearing and filings, had requested more time from the court; however, Judge Lawson wrote that the state had demonstrated potential for “irreparable injury” in Flint and that there was an urgency to act, because the city’s short-term water agreements have expired and the long-term agreement is time sensitive, concluding: “The City Council has not voted on the negotiated agreement, it has not proposed an alternative, and the future of Flint’s fragile water system—its safety, reliability, and financial stability— is in peril…Because of the city’s indecision, the court must issue its ruling.” Judge Lawson’s order likely ensures the City Council will approve the proposed contract with the Great Lakes Authority that it had been resisting though it was negotiated with Mayor Karen Weaver’s approval. The city could choose to risk defying the court order; however, the State of Michigan has warned that tens of millions of dollars in extensive repairs and updates need to be made to the inactive Flint water plant—repairs which would take three and a half years to complete.

The warnings of Wayne State University Professor Nicholas Schroeck with regard to the risk to public health and the financial stability of the water supply system appeared key to persuading Judge Lawson to side with the state and issue a pre-emptive order. The Judge, in early August, had appointed a mediator in an effort to try gain an agreement between the city and the state Dept. of Environmental Quality; however, when the sides were unable to settle, he warned that  extending Flint’s contract with the Detroit area water system beyond 30 days could result in funding problems: “It seems to me that inaction is inviting intervention.” The Weaver administration analyzed various long-term water options for Flint, and the Mayor said Tuesday the Great Lakes agreement “proved to be in the best interest of public health by avoiding another water source switch, which could result in unforeseen issues.” The Michigan DEQ praised Judge Lawson for “recognizing there is no need to wait…and remains committed to working with the City of Flint to implement a plan once a source water determination has been finalized to ensure compliance with the Safe Drinking Water Act.” In its arguments before Judge Lawson, the State of Michigan had warned: “The City Council’s failure to act will result in at least a 55-63% increase in the water rate being charged to Flint residents, create an immediate risk of bankrupting the Flint water fund, will preclude required investment in Flint’s water distribution system, and create another imminent and substantial endangerment to public health in Flint.” That was similar to a statement from a key aide to Gov. Rick Snyder who had warned that stalling the water contract decision was costing the City of Flint an extra $600,000 a month, because it was paying for two sources—Great Lakes, from which it currently gets its treated water, and Karegnondi, from which it contractually would receive water by 2019 to 2020. Under the 30-year agreement with Great Lakes, Flint would no longer have to make payments to Karegnondi.

Unresponsiveness. President Trump last week awarded himself a perfect rating for his response to the hurricane that devastated Puerto Rico: “I would give myself a 10,” he responded when asked by reporters how he would score his efforts, on a one to 10 scale. He told Fox News correspondent Geraldo Rivera that Puerto Rican governments “owe a lot of money to your friends on Wall Street, and we’re going to have to wipe that out. You can say goodbye to that.” A comment to which OMB Director Mick Mulvaney noted: “I wouldn’t take it word for word.” Indeed, a week later, Congressional Republicans unveiled a relief plan that would only add to Puerto Rico’s unsustainable debt load. In his meeting this week with Puerto Rico Governor Ricardo Rosselló, who was in Washington to press for federal disaster relief, the President claimed: “We have provided so much, so fast.” Yet, today nearly 80 percent of the island remains without electricity, and almost 30 of the island still does not have access to clean water, according to Puerto Rican government figures.

In contrast with Texas after Hurricane Harvey and Florida after Irma, where thousands of repair workers rushed in to restring power lines, only a few hundred electrical workers from outside Puerto Rico have arrived to help: it was not until last Saturday that the Puerto Rican government said it had the federal funding needed to bring in more workers. That compares to some 5,300 workers from outside the region who converged on coastal Texas in the days after Hurricane Harvey to restore a power loss about a tenth of the size that struck Puerto Rico. Similarly, in Florida, 18,000 outside workers went in after Hurricane Irma knocked out electricity to most of the state last month, according to Florida Power and Light; whereas, in Puerto Rico, the challenge of restoration has fallen on the shoulders of about 900 members of local crews—an outcome industry experts report to be a result of poor planning, a slow response by power officials, and Puerto Rico’s dire fiscal situation—a sharp contrast to the President’s claim that his administration deserved a 10 for its response to the hurricanes which struck Puerto Rico and other parts of the United States.

The U.S. Army Corps of Engineers, charged by FEMA with restoring Puerto Rico’s power, estimated that it needed at least 2,000 additional workers. So far, the Corps has brought only about 200 workers, and most of them were dedicated not to restoring power, but to installing generators at crucial locations. In the wake of major storms, such as Katrina, power companies typically rely on mutual aid agreements to get electricity restored: such outside companies send thousands of workers, and electric companies pay for the service with funds from FEMA. However, providing such assistance to Puerto Rico is not just logistically a greater challenge—but also a discriminatorily greater challenge: the Jones Act—which the President only suspended for ten days—means that the time and cost of shipping comes at a 20% premium.  

The Human Storm. Maria risks accelerating the trend of the last decade of economic decline and depopulation, described as “a slower-moving catastrophe,” which is wreaking a devastating toll: The number of residents had plunged by 11 percent, the economy had shrunk by 15 percent, and the government has become fiscally insolvent. Already ranked among the worst cycles of economic decline and depopulation in postwar American history, the aftermath of Maria threatens an acceleration of residents fleeing en masse: accelerating economic decline and potentially accelerating a vicious cycle. Lyman Stone, an independent migration researcher and economist at the Agriculture Department notes: “We are watching a real live demographic and population collapse on a monumental scale.” At a news conference last week, Gov. Rosselló warned that without significant help, “millions” could leave for the U.S. mainland: You’re not going to get hundreds of thousands of Puerto Ricans moving to the States—you’re going to get millions…You’re going to get millions, creating a devastating demographic shift for us here in Puerto Rico.” Puerto Rico Treasury Secretary Raúl Maldonado has warned, meanwhile, that without more aid, the government could suffer a shutdown by the end of the month.

Today, only about 40 percent of Puerto Ricans in the territory are employed or seeking work—more than 33% below levels on the mainland. The danger, now, is of increased flight—but flight by the young and those with college degrees. After all, with the PROMESA Board charged with fashioning a fiscal plan to pay off more than $70 billion in Puerto Rico’s municipal debt calling for efforts to raise taxes and significant cuts to the government, the Board has predicted continuing shrinkage of the Puerto Rican economy. Thus, there is a real apprehension

As a result, for Washington and Puerto Rican officials planning a recovery, the ongoing exodus poses a multifaceted dilemma. “They’ve got to start from the ground up,” a former U.S. Treasury official said of any new plan for the island. In the short-term, at least, the island is likely to see an economic boost; rebuilding after a hurricane often injects a jolt of spending into local economies. But, according to recent research of 90 years of natural disasters in the United States, published as a National Bureau of Economic Research working paper, major natural disasters also have unfavorable effects: They increase out-migration, lower home prices, and raise poverty rates. Like many on the island, Sergio M. Marxuach, policy director for the Center for a New Economy, a San Juan-based think tank, said a massive federal investment is necessary. “We’re going to need some significant government intervention — essentially a big rescue package, not only to rebuild the economy but get it growing…People are saying, ‘I don’t want my children to grow up in a place where the economy is going to be devastated for the next 10 years.’ If enough people think that way, it’s going to be a self-reinforcing downward spiral.”

In addressing complaints about ongoing struggles on the island, President Trump noted this week that the disaster in Puerto Rico in many ways had begun years ago. Puerto Rico “was in very poor shape before the hurricanes ever hit. Their electrical grid was destroyed before the hurricanes got there. It was in very bad shape, was not working, was in bankruptcy.”

At the Level of a Muncipio. While many have considered the fiscal and physical impact on the U.S. territory of Puerto Rico, fewer have considered the fiscal challenge to Puerto Rico’s municipalities. Consider, for instance, Juncos, one of Puerto Rico’s 78 municipalities: it is located in the eastern central region of the island; it is spread over 9 wards and Juncos Pueblo (the downtown area and the administrative center of the city). The city, one of the oldest in the United States,was founded on the request of Tomas Pizarro on August 2, 1797, having previously been a village which evolved from a small ranch, the Hatillo de los Juncos. Hurricane Maria has changed this municipality forever: more than 1,000 families in Juncos lost it all that unforgettable September 20th, when Hurricane Maria struck. Yet, in a remarkable effort, residents of the La Hormiga sector of Las Piñas neighborhood, in the immediate aftermath of the hurricane, organized to help recover the humble community that is often highlighted by criminal incidents in the area: one of the community leaders of the sector, Wanda Bonilla, highlighted the deed of the trash rescuers: “Thanks to them, they have also relieved the pick up of the rubble.” The city’s community board worked immediately to install a shelter in the neighborhood community center given the circumstances that some 17 families, with between five and seven members each, where the storm tore the roofs off their homes—and most of those homes have single mothers. She noted: “Our president, Ivelisse Esquilín, who also lost everything, is helping us through the Municipality and with other donations.” Juncos Mayor Alfredo Alejandro noted that, in the wake of the storm, crossing arms was not an option for anyone “in the neighborhood” even though many of the 60 families living in the sector experienced the grief of having lost their home: “You have to do it because imagine …right now, look here, I have these pieces of a car to see if I invent a type of small generator to, even be, to turn on a fan.” The Mayor described Maria’s devastation to be of “great proportions:” Out of population of 42,000 people, more than 1,000 lost their homes and a comparable number suffered major damage to their structures; 85% of the city’s residents are still without potable water, while there are few expectations that electricity will soon be restored.