Breaking Up Is Hard to Do.

eBlog, 03/06/17

Good Morning! In this a.m.’s eBlog, we consider the trials and tribulations of really emerging from the largest chapter 9 municipal bankruptcy in American history; then we turn to an alternative to municipal bankruptcy: dissolution.

The Hard Road of Exiting Municipal Bankruptcy: A Time of Fragility. Christopher Ilitch, the Chief Executive Officer of Ilitch Holdings Inc., companies in Detroit which represent leading brands in the food, sports, and entertainment industries (including Little Caesars, the Detroit Red Wings, the Detroit Tigers, Olympia Entertainment, Uptown Entertainment, Blue Line Foodservice Distribution, Champion Foods, Little Caesars Pizza Kit Fundraising Program, and Olympia Development), notes that “We are at a critical time in Detroit’s history,” speaking at the Detroit Regional Chamber’s Detroit Policy Conference: “There’s been no community that’s been through what Detroit has been through. Through the depths, there’s been a lot of choices.” Indeed, as the very fine editor of the Detroit News, Daniel Howeswrote: “There still is, and how they’re made could meaningfully impact Detroit’s arc of reinvention: despite a booming development scene spearheaded now by the Ilitch family’s $1.2 billion District Detroit, Quicken Loans Inc. Chairman Dan Gilbert’s empire-building, more effective policing and a burgeoning downtown scene, four words loom: “We’re not there yet.” Mr. Howes notes that the cost of new construction projects still cannot be fully recouped through commercial and residential rents, adding: “The business climate, including taxes and regulation, still is not as attractive as it could be. And longstanding residents in the city’s neighborhoods worry that the reinvention of downtown and Midtown risks leaving them behind.” Or, as Detroit City Council President Brenda Jones puts it: “We have been talking about downtown and Midtown so much, and we know downtown and Midtown are important…If we are going to subsidize development, we would like to see something in it for us as well.” That is, exiting chapter 9 bankruptcy is not a panacea: one’s city still confronts a steep hill to execute its plan of debt adjustment—and a hill the scaling of which comes at higher borrowing costs than other cities of the same size. That is to say, long-term recovery has to involve the entire community—not just the municipal government. Or, as Mr. Howes notes: “Business leaders stepped in to acquire new police cruisers and EMT trucks, even as some of them finance ‘secondary patrols’ of downtown districts. The moves by General Motors Co. and Gilbert’s Rock Ventures LLC, to name two, to employ off-duty Detroit police officers are supported by Detroit Police Chief James Craig…The partnership has been bipartisan and regional. It’s been public and private, city and suburb. It’s required Republicans to act less Republican and Democrats to act less Democratic. That’s not because either side is suddenly non-partisan, but because the long history of confrontation and suspicion chronically under-delivers.” But he adds the critical point: “[A]s the city moves into an election year, as the memories of recessionary hardship dim, as the construction and investment boom continues. None of it is guaranteed, including collaboration forged by leaders under difficult circumstances…If there’s any town in America that can make its virtuous circle become a vicious cycle, Detroit is it. Remembering what’s worked, what hasn’t, and how inclusion can improve the chances for success remains critical…It’s a tricky balance that depends most on leadership and transparency so long as the macro-economic environment remains positive. If there are two themes connecting the reinvention of Detroit with its present, they are that a) experts expect the building and redevelopment boom to continue and b) neighborhood concerns are real and should not be dismissed.” In Detroit, it turned out going into chapter 9 municipal bankruptcy—a slide enabled by criminal behavior of its Mayor, and the profound failure to make it a city on a hill—a city which would draw families and businesses—was easy. That means getting out—and staying out—is the opposite in this fragile time of recovery, or, as Moddie Turay, executive vice president of real estate and financial services at the Detroit Economic Growth Corp., notes: “There’s a ton that’s happening here. We’re just not there yet…We have another five or so years to go. We are at a fragile time — a great time in the city, but still a fragile time.”

Disappearville? Breaking Up Is Hard to Do. Mayor Margaret J. Nelms and her Council Members in Centerville, North Carolina have voted to dissolve the town’s charter and become unincorporated in the wake of voters’ rejection, in January, of an effort to raise property taxes. The municipality (town), founded in 1882, in the rural northeastern corner of Franklin County had a population of 89 as of the 2010 census, a ten percent decline from the previous census: this is a municipality without a post office or a zip code—or, now, a future. It was incorporated during the same time period as the dissolution of the nearby town of Wood in 1961, roughly 80 years after first settlement. Unlike elected officials of other Franklin County municipalities (as well as the county itself) which have four-year terms, in Centerville, the Mayor and its three-member Town Council are elected every two years. The city’s downtown consists of two small old-fashioned country stores—Arnold’s and The Country Store, with one also the local gas station. The City has its own volunteer fire department: there is no police department, so Centerville—like the surrounding unincorporated area—is patrolled by the Franklin County sheriff.

Sen. Chad Barefoot (R), whose district includes Centerville, the sponsor of the state legislation [Senate Bill DRS45094-LM-35 (02/16)] to dissolve the municipality, noted: “There are a lot of towns like Centerville in North Carolina…What they’re doing is pretty courageous. They’re acting like adults. It’s something very hard to do, but it’s very responsible.” His proposed bill, the Repeal Centerville Charter, will allow the dissolution of the town, except that the governing board of the Town of Centerville would be continued in office for days thereafter for the sole purpose of liquidating the assets and liabilities of the Town and filing any financial reports which may be required by law, with any remaining net assets to be paid over to the Centerville Fire Department, which would be directed to use those funds for some public purpose. (In Centerville, the main municipal services provided to residents are: streetlights in the town center; Centerville also pays for an annual audit and holds municipal elections, although only a dozen citizens voted in the most recent municipal election, in 2015.) Centerville will continue to exist as a community, but any local-government services will be provided by the county: any remaining municipal funds left over after the town is unincorporated will be donated to the local volunteer fire department, according to the legislation. Dissolution is a painful choice: Frank Albano, the owner of an antique store in Centerville, rued the city did not consider other fiscal options, such as charging businesses like his an $100 annual operating fee, or asked $5 per float in the New Year’s Day parade. He notes: “The more local the government is, the better.”

The decision to dissolve is, however, not new: it was nearly a century ago that Farrington Carpenter, a Harvard-educated rancher in Colorado, noted that—at the time—there were 20 counties in the Mile High state with populations under 5,000. Municipalities—and their voters—rarely agree to give up their identities, leading him to query: “How can such small counties afford the cost of a complete county government?”  On the other end of the country, in Pennsylvania, home to more municipalities than any state in the union, running the gamut from metropolitan cities to first, second, and third class townships, it has long been a vexing governance conundrum how such a governing model is sustainable. Indeed, James Brooks, my former colleague from when I workd at the National League of Cities, where he serves as Director of City Solutions, reports that according to NLC’s 2015 report examining the economic vitality of cities, the smallest cities have generally been slower to recover—or, as one commentator describes it: “They can’t solve their problems themselves…Wealth has left these little cities to such a degree that they’re basically bankrupt.”

Are Municipal Bankruptcies at the End of the Longest Stretch in U.S. History?

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eBlog, 1/29/17

Good Morning! In this a.m.’s eBlog, we consider an extraordinary ending to mayhap the most significant string of chapter 9 municipal bankruptcies in American history, with U.S. Bankruptcy Judge Meredith Jury’ milestone decision that she will issue a written confirmation order to confirm San Bernardino’s plan of debt adjustment. When San Bernardino emerges from the longest municipal bankruptcy in U.S. history, it will mean that for the first time since the Great Recession, no municipality is in bankruptcy—albeit, in the case of East Cleveland, Ohio, the absence appears to be more a matter of incompetency than governance.   

The End of the Longest Road. Nearly four and a half years after filing for what has become the longest municipal bankruptcy in U.S. history, the California municipality of San Bernardino is ready to celebrate its likely last appearance before U.S. Bankruptcy Judge Meredith Jury, after Judge Jury on Friday agreed to issue a written confirmation order consistent with the fifty page proposal the city’s attorneys had submitted, noting: “The last words I will say is congratulations to the city…I look forward to the order and I look forward to the city having a prosperous future.” Expectations are that San Bernardino will remain in its current bankruptcy status for about two more months, as Judge Jury deals with a smattering of creditors who have said they intend to appeal her decision. One such creditor, as we have previously noted, is a citizen of the city who alleged he had been beaten by San Bernardino police officers six years ago—a beating in which he testified he had incurred brain damage; ergo he is appealing that he should be entitled to more than the one percent of the amount a jury had awarded—and should also be allowed to be to sue the officers individually, with his attorney having testified before the court that, notwithstanding San Bernardino’s municipal bankruptcy, an appellate court, in the City of Vallejo’s chapter 9 bankruptcy, had ruled that individual police officers should be held liable for excessive force. However, Judge Jury had ruled that, unlike Vallejo, San Bernardino’s plan of debt adjustment did include an injunction against claims against city employees, holding that San Bernardino “has demonstrated, with unrefuted evidence, that the city does not have the financial resources to pay the holders of litigation claims except pursuant to the terms of the plan…There certainly are no legal bases or equitable grounds for treating the four objectors any differently than all of the other holders of litigation claims.” Judge Jury did not advise the city when she would sign the confirmation order—a date which will start the two-week clock for any appeals—but not interfere with the projected official exit from the nation’s longest ever municipal bankruptcy projected for April.

In the wake of the momentous day, Mayor Carey Davis said: “The bankruptcy has been a major focus, and now we can work more on our other goals.” That is, the city’s plan of debt adjustment could best be likened to a municipal fiscal blueprint demonstrating both for the federal bankruptcy court, but also for the city’s citizens as well as credit rating agencies: a detailed 20-year recipe and guidance with regard to the city’s blueprint for reinvesting in police and infrastructure in a future of constrained fiscal options—a blueprint that emerged from a strategic plan developed via a series of meetings two years ago, where, Mayor Davis noted, leaders “had to make one of the first goals fiscal stability, although we have begun to turn that corner already, with three years of balanced budgets, two years of surpluses.”

Nevertheless, as the records demonstrate, filing for chapter 9 municipal bankruptcy is a politically and fiscally expensive undertaking: San Bernardino will end up expending at least $25 million for attorneys and consultants—albeit that will likely turn out to be a pretty smart investment: the city estimates the final, court-approved plan of debt adjustment will provide for some $350 million in savings—savings reflected in substantial concessions by retirees, unions, and payment obligations to the city’s municipal bondholders—or, as San Bernardino City Attorney Gary Saenz said outside the courtroom: “I’m very proud that all of our creditors recognize that, while the deals are tough, they’re best for all involved…Each of those decisions, we made with the people of San Bernardino in mind. They are the most important reason we did anything. This was all done so they can get the service levels they deserve.”

Governance Insolvency?

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eBlog, 1/0617

Good Morning! In this a.m.’s eBlog, we consider the political and legal turmoil in the insolvent municipality of East Cleveland, before turning to the continued uncertainty with regard to Atlantic City’s future. Then we try to get schooled in the new governance set to commence for Detroit’s public schools, before returning to what appears to be a state of emergency declared this week by the new Governor of Puerto Rico.

Bankrupt Municipal Governance? The insolvent city of East Cleveland is confronted not just with fiscal insolvency, but, increasingly, governance chaos in the wake of the recall of its former Mayor and the city’s Law Director, Willa Hemmons, yesterday issuing a legal opinion that appointments made to the City Council last week were illegal. That opinion was countered late yesterday by East Cleveland Councilwoman Barbara Thomas, who issued a statement contradicting Ms. Hemmons’ opinion that appointments to council made in a December 29th meeting were illegal, writing that not only was there an absence of a quorum, but also the actions were in violation of the city’s charter. The Councilwoman, who represents Ward 2, and Nathaniel Martin, at-large council member, had selected Devin Branch and Kelvin Earby to fill the Ward 3 and at-large seats left open when voters recalled former Council President Thomas Wheeler and Mayor Gary Norton. Ward 4 councilwoman Joie Graham had left the meeting last week during executive session, because she did not agree with the interview process for new members. In response, Councilwoman Thomas, in a statement, claimed she had met with an unnamed attorney and believes that Law Director Hemmons has confused “charter positions which apply to organizational meetings of City Council following a regular election with the procedures Council is required to follow to fill a vacancy on Council.” In addition, the Councilwoman charged the document was improperly served. Thus, she stated: “I am disappointed, because I had hoped that having a new mayor would give us an opportunity for a fresh start and that the administration and Council would work together for the benefit of the citizens of East Cleveland.”

Confused Governance. Meanwhile, in Atlantic City—which has a Mayor and Council and a state appointed Emergency Manager, but which is under a state takeover, Mayor Don Guardian yesterday offered his now unofficial State of the City speech. Unsurprisingly, he listed the numerous challenges facing his city, including a state takeover and hundreds of millions of dollars in debt. Mayor Guardian also requested billionaire investor Carl Icahn to sell the abandoned Trump Taj Mahal Casino, stating the city cannot afford to allow such a critical component of its historic boardwalk to continue vacant indefinitely, deeming such inactions the “the worst of the worst” in terms of outcomes for the property—and the city’s tax rolls. The Tropicana, which was boarded up last October, not only hammered the city’s anticipated property tax revenues, but meant 3,000 people lost their jobs, and, of course, the city lost a key attraction for visitors. Mr. Icahn had shuttered it last fall in the wake of a strike by the casino’s workers’ union. Mr. Icahn, however, responded by saying he would be happy to sell the casino to the insolvent city, but only if the city made Mr. Icahn whole by paying him the $300 million he claims he had lost on his real estate gamble, adding Mayor Guardian was wrong to attack an investor who had previously rescued the city’s Tropicana casino and attempted to do the same with the Tropicana. Prior to last summer’s strike to restore health insurance and pension benefits—which had been terminated in federal bankruptcy court—and the subsequent closure, Mr. Icahn had promised to invest some $100 million into the casino—a promise never kept.

Learning to Govern in the Big D. With the retirement of former U.S. Bankruptcy Judge Steven Rhodes, who had so generously accepted the Governor’s challenge to serve as the Detroit Public School Emergency Manager, Detroit’s newly elected school board is planning a major celebration this month as it will assume control of city schools which have been under gubernatorial-appointed emergency managers for years. Moreover, with the state having creating a dual system of public and charter schools, the governing challenge for these new school board members promises to be daunting. Whom will the newly elected board select to be superintendent? Will a majority vote to file suit to prevent further school closures? How will the new board address the challenge of balancing state-created charter schools versus public schools? How can the new Board create balance so that there can be a smooth transition with long-struggling schools which will rejoin the district this summer?  The seven board members who were elected by Detroit voters in November have been doing some prep learning themselves: they have devoted the last two months in an intensive orientation on Detroit schools, trying to comprehend a complicated district which now serves about 45,000 children in 97 schools—children who will be future civic leaders, but, mayhap more importantly, a school system whose reputation will be critical in determining whether young families with children will opt to move into Detroit—or leave the city.

Extraordinary Governmental Authority & Promising Insurance? In Puerto Rico, Governor Ricardo Rosselló Nevares this week signed a decree which provides him extraordinary authority, similar to those granted a governor in the wake of a natural disaster. The new executive order declares a state of emergency, with the emergency creating a “risk of accelerating capital flight from the territory, putting at risk natural resources, and risking public health and safety.” The new Governor’s actions came as the U.S. territory of Puerto Rico and some of its instrumentalities failed to make municipal bond interest payments this week, Puerto Rico’s largest municipal bond insurer, Assured Guaranty Ltd. subsidiaries, made $43 million of interest payments to holders of insured general obligation and other municipal bonds. The payments came as Puerto Rico’s infrastructure financing authority PRIFA was unable to transfer funds to its bond trustee to pay debt due New Year’s Day on certain tax-exempt bonds, according to a regulatory filing on Tuesday, further confirmation of a default by the U.S. territory. The trustee for PRIFA’s series 2005B and 2006 bonds claimed it had not received sufficient funds from PRIFA for the payment of debt, although it held a small residual amount from prior payments that it allocated to pay interest. In addition, the trustee for its series 2005 C bonds reported it did not receive funds from PRIFA to pay debt service. The territory had said last week that PRIFA would have insufficient funds to make the full payment on its special tax revenue bonds, Series 2005A-C and Series 2006; ergo, $36 million was expected not to be paid. As of midweek, the island’s largest bond insurer, Assured Guaranty Municipal Corp. and Assured Guaranty Corp. had received and processed $43 million of claim notices for missed January 1 payments, out of $44 million of total expected claims, with the expected claims including $39 million of Puerto Rico general obligation payments and $5 million for Puerto Rico Public Buildings Authority payments. In addition, on Tuesday, the Puerto Rico Electric Power Authority made the full interest payment due on its bonds insured by Assured Guaranty; thus, no insurance claims were filed. In a statement, Assured President and CEO Dominic Frederico said: “While the outgoing Puerto Rico administration has once again chosen to violate Puerto Rico’s constitution by ignoring the senior payment priority securing the Commonwealth’s general obligation bonds, we look forward to working with the new administration, PROMESA Oversight Board and other creditors to achieve consensual restructuring agreements that respect the constitutional, statutory, contractual and property rights of creditors while also supporting the island’s economic recovery…We were pleased that PREPA made its bond interest payment, and we continue to join PREPA and the other participating creditors in seeking implementation of the consensual restructuring contemplated by the PREPA restructuring support agreement.” In its release, the company wrote that any obligor where amounts were due but no claims are expected, the payments were made by the obligor from its available funds or reserves, adding that municipal bond investors owning Puerto Rico-related bonds insured by Assured Guaranty will continue to receive uninterrupted full and timely payment of scheduled principal and interest in accordance with the terms of the insurance policies.

Leaving Municipal Bankruptcy: Such Sweet Sorrow

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eBlog, 1/03/17

Good Morning! Happy New Year! In this a.m.’s eBlog, we consider the next—and final—steps for the City of San Bernardino to exit the nation’s longest in U.S. history municipal bankruptcy, then we consider the underlying fiscal strengths that could be critical to Atlantic City’s emergence from state control and back to solvency. Finally, we try to assess whether one of President Obama’s final laws—expanding Petersburg’s national park—might help the fiscally ailing municipality, before finally comparing and contrasting the fiscal dilemmas of two U.S. territories: Puerto Rico and Guam.

Leaving Chapter 9. In just over three weeks, San Bernardino could receive its exit clearance from U.S. Bankruptcy Judge Meredith Jury from the longest chapter 9 municipal bankruptcy in U.S. history. That will reduce court-related costs and burdens to the city; the real issue will be with regard to how it implements its plan of debt adjustment, with Mayor Carey Davis noting: “The city is poised and setting the stage for quite a bit of continued growth and improvements for 2017.” But, in the wake of the long bankruptcy, the new city which emerges will be different: it will have a new charter as soon as California Secretary of State Alex Padilla confirms the city’s election results, clearing the path for the city to begin implementing a new charter much more similar to those of other, successful cities—changes such as moving to a system where the City Council votes with the Mayor to set policy which is then implemented by the city manager. That change will take effect immediately; other changes will need to be implemented by the City Council approving changes to the municipal code. For her part, Judge Jury noted the city’s plan of debt resolution did not hinge on the charter approval; nevertheless, she praised the outcome: “(City officials) successfully amended their charter, which will give them modern-day, real-life flexibility in making decisions that need to be made…There was too much political power and not enough management under their charter, to be frank, compared to most cities in California.”

There were other critical steps to this longest-ever plan to exit municipal bankruptcy, including: catching up on audits for the first time since 2010, the city caught up on its audits, perhaps allowing it to operate in 2017 under less suspicion and with eligibility for more state and federal grants; significant outsourcing, especially with the transfer of the 137-year old Fire Department to county control; redevelopment at the Carousel Mall, and attempts to alleviate homelessness; albeit Mayor Carey Davis notes: “As you can see, there’s a full plate ahead of us in 2017…I’m sure there will be some unexpected needs that will be in place with a stronger city hall, a city hall that is doing a much better job with our financial reporting, but I think that with the changes of 2016 we’ll have a strong front to show investors.”

Spinning the Wheel of Misfortune. A key challenge for Atlantic City—and the State of New Jersey, which has assumed control over the city, relates to casinos: how to emerge from over reliance on gambling, which produces some 67 percent of the city’s revenues. Despite losing half its value in Atlantic City over the past decade, the gaming industry appears to remain a critical component of Atlantic City’s future. Notwithstanding the multiple bankruptcies of former casino owner and now President-elect Donald Trump in the fabled city, the industry still represents a more than $3.7 billion economy: in 2015, the casino industry totaled revenues of $3.7 billion, $2.4 billion of which was from gambling, according to New Jersey state figures. Through the first nine months of last year, there was $2.8 billion in total revenue. Ironically, the impact of Trump Taj Mahal Casino Resort’s closing in October remains to be determined. Still, as seemingly mouth-watering as such revenues would appear to be, they contrast with the more than double $5.2 billion in casino revenues from a decade ago—since then competition from outside the market has contributed to the closing of five casinos since 2014. So it seems to be a positive sign that over the past couple of years, Atlantic City properties increased their non-gaming attractions, with the increase in non-gaming attractions demonstrating a steady growth in non-gaming revenue. Indeed, between 2012 and last year, non-gaming revenue nearly quadrupled from $252 million to more than $998 million, according to state records.

A Fiscal Battlefield. President Obama has signed into law new federal legislation for a major expansion of Petersburg National Battlefield: the battlefield commemorates the Civil War’s longest battlefield conflict, marked by bursts of bloody trench warfare spanning some 10 months from 1864 to 1865. The new law, however, does not pay for the addition of more than 7,000 acres to the existing 2,700 acres of rolling hills, earthworks, and siege lines already under protection at Petersburg. Supporters of the new law say the larger boundary would not only protect historic sites from commercial development, but also give park visitors a more comprehensive understanding of the Petersburg campaign, which left tens of thousands of men dead. According to National Park Service figures, the park draws approximately 200,000 visitors a year, far fewer than such higher-profile sites as Gettysburg in Pennsylvania, with more than 1 million tourists annually. Nevertheless, the park has proved key to the area economy, bringing in some $10 million a year. Officials hope expanding the battlefield’s protected footprint would bring in even more visitors. However, the newly enacted legislation does not include any new funding.

The land changes come as the City of Petersburg, trying to unwind nearly $19 million in unpaid obligations, having reduced its employees’ pay and experienced the repossession of its firefighting equipment, is trying to determine how the federal changes might affect its fiscal distress. Today, according to National Park Service figures, the park draws about 200,000 visitors a year. Notwithstanding, the Petersburg park plays a key role in the regional economy, bringing in some $10 million a year. Thus, officials hope expanding the battlefield’s protected footprint would bring in even more visitors—visitors who might help enhance the city’s tax base. That might happen, as the Park Service’s first priority is expected to focus on the acquisition of still more private property and most vulnerable to commercial development. While that would risk creating a fiscal issue due to foregone property tax revenues, it might have the counter impact of raising the assessed values of property within the city limits—and create a means to help the city grapple with nearly $19 million in unpaid obligations.

Are Fiscal Crises Contagious? A question has arisen whether the promise of the newly enacted PROMESA law to provide a quasi-municipal bankruptcy mechanism for the U.S. territory of Puerto Rico to address its fiscal meltdown might be contagious for the territory’s U.S. counterpart Guam, where Fitch Ratings has cut Guam’s business-tax revenue bonds to junk, noting that PROMESA “fundamentally” alters the premise used to rate debt issued by U.S. territorial governments. Even though Guam is nearly 10,000 miles away from Puerto Rico, analysts claim the new Congressional law has set a precedent which could let other U.S. territories escape from obligations to their municipal bondholders. In contrast, S&P Global Ratings analyst Paul Dyson maintains an A rating for Guam—a rating which he notes reflects the territory’s ability to pay investors, adding that the new federal PROMESA law “currently applies only to Puerto Rico.” Indeed, Mr. Dyson points out that: “We have no indication that Guam is going to do something similar to PROMESA.” S&P reports that Guam’s economic outlook is stable: the territory is host to U.S. Air Force and Navy bases, and its economy likely to benefit from U.S. plans to expand its military operations on the island, which is the closest U.S. territory to potential hot spots in Asia. In contrast, however, Guam has not adopted a balanced budget; it has rising pension liabilities, and growing debt—debt of some $3.2 billion in obligations for a population of about 165,700, according to data compiled by Bloomberg.

The Many & Daunting Challenges of Municipal Bankruptcy

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eBlog, 12/30/16

Good Morning! In this a.m.’s eBlog, we consider the retirement of an exceptional public leader, retired U.S. Bankruptcy Judge Steven Rhodes, who presided over Detroit’s largest in U.S, history chapter 9 municipal bankruptcy and then went on to accept the unforgiving position of emergency manager for the Detroit Public Schools—a key role in the ongoing challenges to recovery from the nation’s largest ever municipal bankruptcy. Then we head into the gale of the Northeaster to New Jersey’s Atlantic City—as the state slowly begins to unroll the mechanics of its takeover of the fiscally insolvent municipality, before finally heading to the warmer West Coast, where San Bernardino leaders are preparing for the restoration of municipal authority and coming back from the nation’s longest-ever chapter 9 municipal bankruptcy.

Retirement after Extraordinary Work.  Electronic rhythm guitar player and retired U.S. bankruptcy judge Steven Rhodes, to whom Michigan Gov. Rick Snyder presented the challenge of becoming emergency manager, an offer he accepted, came out of retirement, and became the school district’s fifth emergency manager—with the official title “transition manager”—on March 1 for a salary of $18,750 a month. Now, nearly 10 months later, a Detroit district plagued by about $515 million in operating debt has been replaced with a new, debt-free Detroit district, courtesy of a $617 million bailout for which Judge Rhodes had lobbied the Republican-led Legislature. But the legacy of Judge Rhodes, who is set to depart tomorrow, remains to be fully appreciated. Judge Rhodes, who presided over Detroit’s chapter 9 municipal bankruptcy before leaving to accept the Governor’s appointment to serve as the emergency manager for the Detroit Public Schools system—a position in which he served for about 10 months to be in charge of the state’s largest school district during one of its most tumultuous periods—and during which, last June, the state created, in effect, a dual system of charter and public schools. At the inception of this harrowing task, he inherited a school system collapsing from a string of teacher sick-outs that closed dozens of schools, sparked a lawsuit, and from a system of unsafe public buildings. As we have previously posted, the legislature and Governor had enacted a $617-million financial rescue package which created the new district to replace the old Detroit Public Schools—even as it created a separate system of charter schools—and put Judge Rhodes in charge of overseeing the complex task of overseeing the new, 45,000 student district. He leaves, unsurprisingly, with a system in fiscally and physically significantly improved condition—helping, in his final chapter of public service, to help bring in additional fiscal resources via the sale of more than a dozen small, unused parcels of land for $3 million to Olympia Development, the developer of the new Little Caesars Arena in Detroit, and future home to the Red Wings and Pistons. In addition, the school district agreed to sell its license for the radio station at the Detroit School of Arts to Detroit Public Television in an agreement valued at $9 million, pending regulatory approval. (Detroit Public TV already pays the district for being able to operate the station, WRCJ-FM (90.9). Under the agreement, the station will stay in the district. (Students will have enhanced opportunities to learn about broadcasting as a result of the deal, according to DPS officials.) As part of the transition, Judge Rhodes has transferred authority to a seven-member elected public school board which will take office in January, making it the first school board with any significant decision-making power since 2009, when a series of state-appointed emergency managers began controlling the district.

In an interview with the Detroit Free Press, Judge Rhodes said that at the “very highest level, the most challenging part of the job for me was the politics of it. Because, as a judge, I was never involved in politics. We had a fixed process. We engaged that process, the process concluded with a result, and we moved on. But here, there are political considerations to everything, and I was not prepared for that.” In response to a follow-up question with regard to the greatest challenges of his emergency position, Judge Rhodes responded: “What surprised and disappointed me the most was the level of antagonism between Detroit on one side and the rest of the state and Lansing on the other side. Each side has predisposed views of the other side that are not based on fact, and that are not only unproductive, but counterproductive, and are not in the best interest of the children in the city. Both sides need to find very specific ways and methods to break through that, and they need to do it very soon.”

Now, he notes, the newly elected school board will have to take “very specific actions to reach out to decision- and policy-makers in Lansing to work with them on achieving Detroit’s goals, to educate them on where DPSCD is, the progress it has made, and how it’s going to make progress in the future. And it has to do that outreach in a spirit of collaboration, cooperation, and reaching out for help, and with the assumption that people in Lansing want to help, not with the assumption that they are anti-Detroit.” He added that the school board will also have to do something few other school boards in the U.S. must: it will have to carve out a constructive relationship with the Detroit Financial Review Commission (FRC): “I hope and expect that the board’s relationship will simply continue the relationship that I and the staff here have already established, which is a cooperative, collaborative working relationship that recognizes our autonomy, (and) at the same time recognizes the value that the FRC brings to enhancing the credibility of DPSCD…We have an example, a concrete example, of how the work of the FRC benefited DPSCD financially. It was the adviser that the FRC retained that helped us to identify a health insurance provider that was more comprehensive and less money.

Arithmetic. As to the new system’s fiscal viability, Judge Rhodes noted: “It’s better than where I hoped it would be. My goal was to have a balanced budget for this year, meaning revenues equaling expenditures. It turned out, through the hard work of the staff, and selling certain assets that we were not using and would never use, we actually will have a surplus this year, which we will use to create a much-needed fund balance…It’s not as much of a fund balance as we need, but it’s a really good start, and not one that I would have predicted or foreseen when we were putting our budget together last spring. (The school district has a $48.2-million projected fund balance, or reserve fund. It’s roughly $650-million, the FY2017 budget is balanced.) With regard to the system’s fiscal stability going forward, Judge Rhodes noted: “I’m confident that we are in a position to maintain a balanced budget going forward. I think there are also opportunities to increase the fund balance, which is something we should be doing. There are aspects of school finance, however, that do concern me. In order to achieve academic success, which is our goal, as it is every school district’s, funding provided by the Legislature has to recognize two fundamental distinctions between Detroit and other school districts. No. 1 is that 60 percent of our students live in poverty, which means it’s more challenging to educate them, and therefore more expensive to educate them. And you can attribute those expenses to enhanced reading services, enhanced wraparound services, and enhanced truancy and attendance services.

He noted a second, distinguishing factor and challenge: “A second factor (is) our special needs and special education children. We have a higher percentage than other districts. They are of course more expensive to educate, and in some cases, significantly more expensive to educate. And I don’t want to give the impression that we don’t want those students. We do, we absolutely do. They are as entitled to an education as any other child. But the reality is they are more expensive to educate. While some of that difference is made up by federal grants, it’s not all of it. And so, that puts an extra strain on the budget….School funding is based now, generally speaking, on the concept that equality is equity. We give the same amount for every child in the state. The problem is equality is not equity, or I should say is not always equity. In this case, it’s not.”

The State of the City. As the State of New Jersey takeover of Atlantic City continues to unroll, it appears one of the final actions of 2016 will be a state imposed mandate to the city for an across-the-board pay cut, a 15-step salary guide with pay capped at $90,000, increased health-care contributions from employees, and the imposition of 12-hour work shifts for police officers.  The orders by Mr. Chiesa, the quasi-ruler of the city, appear to be the beginning of what will be a more comprehensive effort on how part to address the city’s $500 million of debt–with Mr. Chiesa indicating he now intends to meet with all of the groups involved. In an email to members obtained by the Press of Atlantic City, union President Matt Rogers recapped a meeting the union delegation had the day before yesterday with representatives from the state who are in command of Atlantic City as part of the state takeover. Among the state’s emerging demands are an across-the-board pay cut, a 15-step salary guide with pay capped at $90,000, increased health-care contributions from union members, and tasking officers to work 12-hour shifts. It seems that some of the state’s demands were similar to a new contract the city and union had already agreed upon; however, the state had refused to approve. It appears the state will insist upon the layoff of an additional to 250 members. The actions mark some of the first under the reign of former New Jersey Attorney General Jeffrey Chiesa as he has insisted upon meeting with all of the groups involved in the city’s budget and vital operations prior to focusing on addressing the city’s $500 million of debt.

Prepping to Exit Chapter 9. As San Bernardino prepares to exit municipal bankruptcy—the nation’s longest ever—next month, City Manager Mark Scott reports he will be meeting with Mayor Carey Davis and the City Council, as well as his key managers to put together an action-focused work plan, noting: U.S. Bankruptcy Judge Meredith Jury will put out a “written ruling on January 27, and then there will be several months of paperwork before we officially exit bankruptcy.” Ergo, his goal is to be ready by that date in the wake of approval of its plan of debt adjustment under which the beleaguered city eliminated some $350 million in one-time and ongoing expenditures—a goal immeasurably helped by city voter approval last November of a new charter—albeit a charter which still awaits approval by California Secretary of State Alex Padilla, paving the way for the city to transition from a strong mayor council-manager form of governance—and one without an elected city attorney—which the manager described as one which led to multiple agendas and infighting which had contributed to pushing “the city into bankruptcy. No one was working together.” Under the newly adopted charter, the mayor will have a tiebreaker vote except when it comes to appointing or removing the city attorney, city manager, or city clerk positions, at which point, the mayor would have one vote. Indeed, as part of his agreement to work for the city, Mr. Scott informed the city’s elected officials he was unwilling to stay at San Bernardino long-term absent adoption of a new charter, noting: “I was not interested in working in such a confusing form of government for long…I wanted to help, but it was contingent on the charter being able to pass. The pre-existing form of governance was unrecognizable to anyone who studied government.”

If it can be deemed easy to slide into municipal bankruptcy, getting out and long-term recovery is a challenge—one which will require innovative policies to attract new economic growth via zoning and land use policies that attract investment in key locations—a challenge made more difficult in the city’s case not only because of its bankruptcy, but also because of last year’s terrorism incident—one which could hardly be expected to serve as an incentive for new families or businesses. Another critical hurdle is the city’s 34% poverty rate–the highest of any large city in the state, along with the worst homicide rate per capita in the state. Thus, unsurprisingly, Mr. Scott notes that San Bernardino will be fiscally solvent before it is service level solvent: he has predicted the city’s police service levels will be where they should be in a few years; however, it will probably take a decade for parks and recreation to reach pre-bankruptcy levels; moreover, the city is in no position to issue new capital debt, because it lacks the requisite fiscal resources to pay bondholders.  

The Daunting Road to Recovery from the Nation’s Longest Ever Municipal Bankruptcy

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eBlog, 12/09/16

Good Morning! In this a.m.’s eBlog, we look back on the long and rocky road from the nation’s longest municipal bankruptcy back to solvency taken by the City of San Bernardino, a city in a Dillon Rule state, which we described in our original study as the former gateway from the East to Midwest of the L.A. basin and former home to Norton Air Force Base, Kaiser Steel, and the Santa Fe Railroad, but which in the 1990’s, with the departure of those industries and employees, fell into hard times. By the advent of the Great Recession, 46% of its residents were on some form of public assistance—and nearly one-third below the poverty line. By FY2012, the city faced a $45 million deficit; its fund balance and reserves were exhausted—leading the city to file for chapter 9 municipal bankruptcy (note California codes §§53760, 53760.1, 53760.3, 53760.5, and 53760.7—and where, effective on the first day of this year, new statutory state language specifically created a first lien priority for general obligation debt issued by cities, counties, schools, and special districts, so long as the debt was secured by a levy of ad valorum taxes pursuant to California’s Constitution.) As we have noted, in the 18 states which authorize chapter 9 filings, states have proscribed strikingly different legal mechanisms relating to the state role—varying from a state takeover, such as we have described in the case of the nation’s largest municipal bankruptcy in Detroit, but to a very different regime in Jefferson County and San Bernardino—where the elected municipal officials not only remained in office, but here the respective states—if anything—contributed to the severity of the fiscal challenges. Then we turn to what might be Congress’ last day in town this year—and whether funding to help the City of Flint might be enacted: Will Congress pass and send to the President a bill to provide emergency assistance to Flint?

Back to a City’s Viable Future. San Bernardino leaders this week issued a detailed statement on the arduous road to recovery they have travelled and what they intend for the road ahead, albeit noting the city is already well along its own blueprint for its recovery, as it awaits formal approval from U.S. Bankruptcy Judge Meredith Jury from its chapter 9 municipal bankruptcy early next year. In its statement, San Bernardino reported it had implemented about 70 percent of its recovery plan. That’s turned once-dire projections for the future upside down—a virtual u-turn from when the city’s fiscal analysts three years ago projected that in FY2023, the city would have a deficit of $360 million if dramatic changes were not achieved. But today, the city instead projects an unallocated cash balance for FY2023 of $9.5 million, or, as the statement reads: “Now, the city is on the cusp of emerging from bankruptcy as a changed city with a brighter future.” The municipal statement is primarily focused on the governance and fiscal changes made to create a virtual u-turn in the city’s fiscal ship of state since entering what became the nation’s longest municipal bankruptcy—a change in fiscal course without either state aid or state imposition of an emergency manager or a state takeover. The statement notes: “Given the emergency nature of its filing, it took the city several months to assess its financial condition—until April 2013, at which time the city adopted a final budget for fiscal years 2012-13 and 2013-14…The city’s initial financial assessment, however, only reflected further concern over its financial future. In September 2013, Mayor [Pat] Morris announced that absent fundamental modernization and change the city faced a 10-year deficit of a staggering $360 million. The future of San Bernardino looked bleak.”

The statement itemized what appeared to be the key steps to recovery, including achieving labor agreements—agreements which resulted in savings in excess of $100 million, and involved the termination of virtually all health insurance subsidies coverage for employees and retirees, writing that the city calculated the resulting savings to amount to about $44 million for retirees and $51 million for current employees. The statement notes some $56 million in other OPEB changes. A key—and hard-fought change—was achieved by contracting out for essential public services, with one of the most hard fought such changes coming from the annexation agreement with the San Bernardino County Fire Protection District: an agreement under which the county assumed responsibility for fire and emergency medical response—a change projected to save San Bernardino’s budget nearly $66 million over the next two decades just in public pension savings, but also as much as $5 to $6 million in its annual operating budget—and that is before adding in the parcel tax revenues which were incorporated in that agreement. San Bernardino also switched to contracting out for its trash and recycling—an action with a one-time franchise payment of $5 million, but increased estimated annual revenues of approximately $5 million to $7.6 million. The switch led to significant alterations or contracting out for an increasing number of municipal services. Or, as the paper the city released notes: “Modern cities deliver many services via contracts with third-party providers, using competition to get the best terms and price for services…The city has entered into a number of such contracts under the Recovery Plan.”

Governance. The city paper writes that the voters’ approval of a new city charter will allow San Bernardino to eliminate ambiguous lines of authority which had created a lack of authority, or, as U.S. Bankruptcy Judge Meredith Jury put it earlier this week: “(City officials) successfully amended their charter, which will give them modern-day, real-life flexibility in making decisions that need to be made…There was too much political power and not enough management under their charter, to be frank, compared to most cities in California.”

Rechartering San Bernardino’s Public Security. San Bernardino’s Plan of Debt Adjustment calls for increasing investment into the Police Department through a five-year Police Plan—a key step, as a study commissioned to consider the city’s public safety found the city to be California’s most dangerous municipality based on crime, police presence, and other “community factors.” The study used FBI data and looked at crime rates, police presence, and investment in police departments as well as community factors including poverty, education, unemployment, and climate: The report found a high correlation between crime rates and poverty—with San Bernardino’s poverty rate topping 30.6 percent. Thus, in the city’s Police Plan portion of its plan of adjustment, the report notes:  “The Mayor, Common Council, and San Bernardino’s residents agree that crime is the most important issue the city faces,” the city says in the Police Plan, submitted to the federal bankruptcy court as part of its plan. The plan calls for $56 million over five years to add more police, update technology, and replace many of the Police Department’s aging vehicles.

The Cost of Fiscal Inattention. Unsurprisingly, the fiscal costs of bankruptcy for a city or county are staggering. The city estimates that the services of attorneys and consultants will cost at least $25 million by the time of the city’s projected formal emergence from chapter 9 next March—albeit those daunting costs are a fraction of the $350 million in savings achieved under the city’s pending plan of debt adjustment—savings created by the court’s approval of its plan to pay its creditors far less than they would have otherwise been entitled: as little as 1 cent on the dollar owed, in many instances. Or, as the city’s statement wryly notes: “In addition, the city’s bankruptcy has allowed the city a reprieve during which it was able to shore up its finances, find greater cost and organizational efficiencies and improve its governance functions…Thus, all told, while the city’s exit from bankruptcy will have been a hard-fought victory, it was one that was critical and necessary to the city’s continued viability for the future.”

Out Like Flint. The House of Representatives on what it hopes to be its penultimate day yesterday approved two bills which, together, would authorize and fund $170 million for emergency aid to Flint and other communities endangered by contaminated drinking water. The emergency assistance came by way of a stopgap spending bill to keep the federal government operating next April in a bipartisan 326-96 vote and, separately, a water infrastructure bill which directs how the $170 million package should be spent by a 360-61 vote. Nevertheless, the aid for the city is not certain in the U.S. Senate: some have vowed to stop it, at least in part because the bill includes a controversial drought provision which would boost water deliveries to the San Joaquin Valley and Southern California.

Post Municipal Bankruptcy Governance

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eBlog, 11/09/16

Good Morning! In this a.m.’s eBlog, we observe election results in San Bernardino, where the voters, by a wide margin in a city in chapter 9 municipal bankruptcy longer than any other city in U.S. history, voted to move to a city manager type of governance; then we head sharply across the nation to New Jersey, where, this morning, the New Jersey Local Finance Board will begin the process for the state to determine if and how it would wrest governance authority from Atlantic City. Finally, we do a U-turn back to the West coast, where voters in post-chapter 9 Stockton voted to reject the incumbent mayor and elect one of the youngest new mayors in the nation—Councilmember Michael Tubbs, who jubilantly crowed:  “We have a great opportunity to show the nation, ‘How do you reinvent yourself?”  

Post Municipal Bankruptcy Governance. Voters in the nation’s city nearing the denouement of the longest-ever municipal bankruptcy are on the verge of replacing a governing document which many city leaders and, in our in-depth report, we believe has hobbled the city for years, voting by an official 60 percent margin to adopt Measure L, which would replace the San Bernardino City Charter with a new one—that is, the rules of the road that govern how the city is run, comparable to a state’s constitution, essentially moving the city to a city manager form of government, will change dramatically. The measure replaces San Bernardino’s charter with a new one, written over a two-year period by a committee based on state and national models. Or, as the head of the drafting committee which authored the new charter noted, “This is the beginning of a new day for the city, one that a lot of people worked very hard for, and I want to thank all of you: This city can now become what it used to be and what it should be.” His comments were in sharp contrast to former City Attorney James Penman, one of the leading opponents of Measure L, who said he was not surprised by the apparent defeat and hoped he was wrong in his predictions that the charter change would enable corruption, adding he prayed he was “wrong: I want to see San Bernardino do well, and I hope that whoever the future city managers are led well.” Mr. Penman stated that a city manager form of government works best when voter engagement is high—something which, historically, has not been the case in San Bernardino. However, advocates of Measure L believe that gloom will change, because turnout in future elections is projected to increase substantially, because it moves future elections for city officials from odd-number years to match California state elections—November of even-numbered years. (Four years ago, 61 percent of San Bernardino voters came out to vote for President, compared to the last Mayoral election in 2013 when the election turnout was below 16 percent.) Measure L was drafted over a two-year period by a committee based on state and national models. As adopted it provides that the offices of city attorney, city clerk, and city treasurer—currently elective offices—will instead be appointed, and responsibility for some day-to-day operations will shift from elected City Council members to the city manager, who is appointed by the City Council. In addition, pay for police will be set through collective bargaining, instead of through the unique formula San Bernardino has used for decades, which bases the pay on the average of 10 like-sized California cities. San Bernardino has operated under its own city charter, albeit amended several times, since 1905.

State Preemption of a Municipality? The New Jersey Local Finance Board will consider in the next few hours whether to wrest power and authority from Atlantic City’s Mayor and Council and grant them to a state official to turn around the city’s near insolvency in the wake of last week’s rejection of the city’s turnaround plan, when New Jersey Department of Community Affairs Commissioner Charles Richman, in a 14-page reply, said the city’s supplemental information did not change his view, in some part because it was still overly reliant on state aid and a partnership with the state: “The extent to which the city minimizes the plan’s weaknesses by invoking the value of a partnership to propel the plan forward is, to me, confirmation that the plan does not stand on its own. Ergo, this morning, following are the ten powers the state can take under the so-called takeover law:

State Usurpation Powers. The state’s takeover law provides for state authority powers, including authority to “unilaterally modify, amend, or terminate any collective negotiations agreements, except those related to school districts.” The law also permits the state authority of “selling, conveying, leasing, monetizing, or otherwise disposing of any interest in any municipally-owned assets.” (The city’s Bader Field, a 143-acre former airstrip, and the Municipal Utilities Authority, the city’s waterworks, are considered two of the city’s most prized assets—and monetizing those assets had been a signal part of the city’s proposed, but rejected recovery plan.) The state can unilaterally “appoint, transfer, or remove employees” of the city, up to and including department and division heads; such state authority excludes appointed officials who have received tenure.

  • Enter shared services agreements.The state, under the law, may strike agreements with Atlantic County, other municipalities, or “any instrumentality of the state” to share or consolidate municipal services. (Atlantic City recently reached a shared services deal with Atlantic County for senior and health services.)
  • Restructure debt.The state can retain bond counsel, adopt bond ordinances, and take “any other steps necessary” to restructure and adjust debt. (Atlantic City has roughly $500 million in total debt.)
  • File papers in bankruptcy court. The State of New Jersey may file a chapter 9 municipal bankruptcy petition and other pleadings and papers with any United States court or federal bankruptcy court for the purpose of “effecting a plan of readjustment or composition of debts;” however, the state must first have the approval of the legislative Joint Budget Oversight Committee.
  • Abolish city departments.The state’s sweeping powers also include “dissolving, terminating, transferring, abolishing, or otherwise disposing of any municipal authority, board, commission, or department.”
  • Control legal affairs.The state can take over the city’s litigation and legal affairs, including suing in the city’s name, prosecuting, defending, and resolving litigation, arbitration, disputes, and controversies.
  • Purchasing goods and services.The state may procure any “goods, services, commodities, information technology, software, hardware, or other items” on behalf of Atlantic City; and
  • Veto meeting minutes.The state can veto minutes from the governing body and “any board, commission, or department” of the city. Copies of meeting minutes must be sent to the director of Local Government Services, who can approve or veto any action taken by the city.

In response to Atlantic City’s information and efforts to avert a state takeover, as well as Mayor Don Guardian’s epistle late last week to the New Jersey Department of Community Affairs, the Department, created to provide administrative guidance, financial support, and technical assistance to local governments, community development organizations, businesses and individuals, has scheduled the following agenda items for its meeting today:

11:15 AM City of Atlantic City
Atlantic – NJSA 52:27BB-87 0 Proposed Adoption of Municipal Budget

11:20 AM City of Atlantic City
Atlantic – NJSA 52:27BBBB-1 et seq. – Confirmation of Powers under Municipal Stabilization and Recovery Act. 

Under said Act, the Commissioner of the Department of Community Affairs has 150 days in which to approve or reject the city’s five-year plan. Should the Department find that the proposed plan failed to achieve fiscal stability, a state takeover would take effect. Moreover, the statute also provides authority for a state takeover if Atlantic City, at any point, fails to follow the five-year plan—although it permits Atlantic City the right to appeal the Commissioner’s decisions to a Superior Court judge.

In its 25-page document, as we previously noted, the city sought to respond to the criticisms of the state to its report and urge that the city’s proposed plan is the best way to address its fiscal future. The timing, one day after the Presidential election, is mayhap ironic, coming after last week’s closure of candidate Donald Trump’s Taj Mahal casino—one he once called “the eighth wonder of the world,” despite, ironically, taking his Atlantic City casinos through bankruptcy four times. Nevertheless, he last week said: “There’s no reason for this,” in a recent interview as his friend and fellow billionaire Carl Icahn prepared to close the casino. Thus, in another blow to the city’s tax base and employment and other sales and hotel tax revenues, the Taj Mahal closed its doors amid a strike by union members that had lasted more than 100 days, making it the fifth Atlantic City casino to close since 2014. Mr. Trump claimed both sides should have been able to work out an agreement to keep the casino open. Local 54 of the Unite-HERE union had gone on strike July 1st, after the Local was unable to agree with Mr. Icahn on a new contract to restore health insurance and pension benefits—benefits which were terminated two years ago in a federal bankruptcy court. So last August, Mr. Icahn decided to close the casino, stating it lacked a “path to profitability.” That path, according to candidate Trump, is now forever closed: “Once it closes, it’s too expensive to ever reopen it.” The casino’s closure of course impacted Atlantic City’s fiscal challenges: its impact in lost jobs (nearly 3,000 workers—bringing the total jobs lost by Atlantic City casino closings to 11,000 since 2014), reduced assessed property values.

New Hands at the Tiller. Stockton City Councilman Michael Tubbs appeared certain this morning to become Stockton’s first black mayor after vaulting to a resounding lead over incumbent Anthony Silva in an election upsetting night across the country. At the age of 26, the Mayor-elect of the formerly bankrupt city stated: “We have a great opportunity to show the nation, How do you reinvent yourself? I’m tired of talking about where we’ve been. I’m more interested in talking about where we’re going. We have to mature as a community and start demanding solutions.” Outgoing and defeated former Mayor Tony Silva said: “The people have spoken…I respect the will of the people. I want to thank everyone who believed in me and stood by me…My heart will always belong to Stockton. I will always be remembered as the People’s Mayor and I will support the new mayor and I will ask my supporters to also support him and help us make Stockton an amazing city.” Mayor-elect Tubbs’ victory margin was an overwhelming 40-percent. In his acceptance speech, Mayor-elect Tubbs noted: “You don’t get 70 percent of the vote out of nowhere…This victory is yours and ours. This room is what Stockton looks like. It’s people from gated communities and Conway Homes, black people, Asians, white people. Each of us is what it will take to move Stockton forward.” Indeed, it is a remarkable pinnacle for the new Mayor-elect, who was raised by a single mother in south Stockton, earned his bachelor’s and master’s degrees from Stanford University and was elected to the Stockton City Council in 2012. The new Mayor noted, last night: “Stockton has a long history of turning tragedy into triumph…The Stockton I know, I met in this campaign…I am more resolute than ever that Stockton’s best days are ahead. This is a prelude to a beautiful chapter. Michael Tubbs will not write it himself. We will write it together.”