A Tale of Two Cities

July 3, 2018

Good Morning! In this morning’s eBlog, we consider a tale of two cities connected by geography and history, but divided by a fiscal chasm.

A Fiscal Dividing Line. Mayor Kevin Mumpower was reelected in a unanimous Council vote, Tuesday, to serve a second, consecutive term as Mayor of Bristol, Virginia, an independent, border municipality in southern Virginia of just over 17,000, where, on Thursday, the Council has scheduled a work session to complete its review of applicants for boards and commissions. The Council’s first regularly scheduled meeting is scheduled for next Tuesday. The city is twinned with its neighbor, Bristol, Tennessee, which has a larger population of over 27,000. The twin cities’ heritage dates back more than 250 years to when Evan Shelby came to the area in 1766—an area once inhabited by Cherokee Indians. At first, Mr. Shelby had settled his family at Big Camp Meet—the current day site of the twin border cities, but a site then which Shelby had renamed Sapling Grove, where he built a in 1774 on a hill overlooking what is today downtown Bristol, but which was then a key stop on an expanding nation’s road West for early American explorers such as Daniel Boone and George Rogers Clark—a fort known as Shelby’s Station. Nearly a century later, in 1853, Joseph Anderson, when surveyors projected a junction of two railroad lines at the Virginia-Tennessee state line, Reverend James King conveyed much of his acreage to his son-in-law, Joseph R. Anderson, who then laid out the original town of Bristol, Tennessee/Virginia. About that time, Samuel Goodson, who owned land adjoining the original town of Bristol at the Virginia-Tennessee border, with Beaver Creek serving as the dividing line between the two colonies, began a development known as Goodsonville; however, he was unable to incorporate Bristol across the state lines of Tennessee and Virginia. Three years later, in 1856, Goodsonville and the original Bristol, Virginia were merged to form the composite town of Goodson, Virginia—the very year when the Virginia and Tennessee Railroads reached the cities, with, ergo, two depots, one in Bristol, Tennessee, and the other in Goodson, Virginia; albeit the depot located in Goodson continued to be referred to as Bristol, Virginia. Thirty-four years later, Goodson, Virginia once again took the name Bristol. In 1998, Congress declared Bristol the “Birthplace of Country Music,” in recognition of its contributions to early country music recordings and influence.

Contiguous to the Virginia Bristol is Tennessee, Bristol, with a slightly greater population of around 25,000, has a median income for a household in the city just over $30,039. Nevertheless, despite their abutments, the twin municipalities have starkly different fiscal situations—with the southern twin in Tennessee in fiscal health, but its northern Virginia twin in a near fiscal crisis, seemingly overwhelmed with debt—even after assistance from the Commonwealth of Virginia helped avert deep cuts in funding for the municipality’s public schools. At present, it appears that interest payments by the city are on a course to consume as much as a quarter of the city’s operating budget—or, as City Manager Randall Eads put it: “We’re about as low as you can go and not have cuts to services…We are truly rebuilding this city from the foundation up.”

While the Commonwealth of Virginia does not specifically authorize chapter 9 municipal bankruptcy, the state’s courts, six years ago, ruled that “local governing bodies have only those powers expressly granted, those necessarily or fairly implied from expressly granted powers, and those that are essential and indispensable” (see Sinclair v. New Cingular Wireless PCS, 283 Va. 567,576 (Va. 2012), the state’s Dillon Rule compounds the fiscal quandary, providing that if “[T]here is a reasonable doubt about whether legislative power exists, the doubt must be resolved against the local governing body.”

Nevertheless, as the Commonwealth’s Auditor of Public Accounts, Martha Mavredes notes: “The state takes great pride in fiscal soundness and when localities start to falter, that reflects poorly on the state.” Indeed, as we have previously noted, the Commonwealth, two years ago, as Petersburg teetered on the verge of insolvency, had tasked Ms. Mavredes to develop a municipal fiscal early-warning system—a system which, in its first report, put Bristol, along with Petersburg, at the head.

Manager Eads noted: “One of the biggest things we have to overcome as a city is our demographics,” referring to the fiscal challenge in a municipality where nearly a quarter of its residents are in poverty, with more than 40% on some of government assistance, and more than 80% of its school population eligible. That is, it has become clear to Mr. Eads that a new fiscal approach will be necessary.

A Tale of Two Cities. In one area where distinguishing one Bristol from another is enabled by small brass plaques embedded down the center line of State Street which have “Tennessee” on one side and “Virginia” on the other, the twin, bi-state municipalities share a library and an emergency dispatch system; they have connected water systems, and they share payments for the electric bills to finance the neon signs over State Street, which read: “A good place to live.” The twin cities’ city halls are just blocks apart.

However, as we know, looks can be deceiving. Here, the issue of waste appears to have precipitated the fiscal parting of ways: the Virginia Bristol’s old landfill reached capacity about two decades ago; so the municipality opted to construct a new one in a 20-acre limestone pit—one in which the walls were porous. In order to prevent seepage of dangerous chemicals, the city had to purchase a new lining for the landfill walls nearly every other year‒at a cost of $1.2 million each time. That meant, with fees insufficient to cover operating and maintenance costs, the municipality was adding to its debt: currently, Bristol is trying to finance more than $30 million in debt from the landfill, forcing the city to write off $22 million siphoned from the general fund to cover expenses.

Even as unanticipated expenses have soared, the city’s tax base has eroded, hard hit by the collapse of the coal industry, especially in the wake of one of the nation’s largest coal companies, Alpha Natural Resources, headquartered in the city, filing for bankruptcy twelve years ago—at almost the same time as Ball Corp. moved its metal lid-making plant to Mexico. A commercial area developed just off I-81 in the 1990s began to sour. The combination appeared to contribute to the consequent closure of Bristol Mall.

Looking for a fiscal and commercial recovery, the city’s leaders opted to try to enter the commercial real estate business, creating The Falls, intended to be a $260 million hub of restaurants and shops—albeit without, mayhap, closely examining how such a commercial development would be affected by an even larger such development in adjacent Tennessee—where the Tennessee General Assembly had enacted legislation intended to assist its border cities compete with rivals in other states. Because the Volunteer State has no personal income tax, but it has sales tax of up to 9.75%, or nearly double Virginia’s, the difference appears to have been an important factor in providing incentives for those who reside near the border between the two states to opt to reside in Tennessee, but shop in Virginia. The new law allowed developers who built retail within 15 miles of a border to recoup some of the sales and use tax, making projects more attractive.

That led one entrepreneur, Steve Johnson to purchase a 200-acre piece of property, valued at close to $250 million, called The Pinnacle, a complex made up of a million square feet of shops and restaurants, anchored by a Bass Pro Shop, CarMax, Marshalls, and a Belk department store. Unsurprisingly, local Bristol, Virginia officials asked Mr. Johnson to consider developing The Falls instead, pressing the Virginia Legislature to enact provisions for sales and use tax revenue rebates for project developers. In the meantime, Mr. Johnson decided developing the site would be too expensive to level and grade, the roads were too small, and the location was just wrong. Undeterred, the city found another developer, so that, today, The Pinnacle counts nearly 70 merchants, while The Falls has fewer than 10. Thus, instead of helping the city deal with its landfill debt burden, The Falls has significantly added to the fiscal quandary, adding nearly $48 million to the city’s debt—and its political dissatisfaction.

Indeed, unsurprisingly, voters tossed all five Councilmembers from office, electing a slate which included two write-in candidates—and a Council which, early last year, hired a new City Attorney, Randall Eads, who had been a criminal defense attorney, perhaps a key factor in a region which has experienced a plague of methamphetamines and prescription drug abuse. Within six months, the Council removed the then city manager and asked Mr. Eads to step in—perhaps a step that opened his eyes to how grave the city’s physical and fiscal challenges were. In a city beset by such serious drug abuse, one of his first challenges was where to host the perpetrators: the city’s jail, after all, had a capacity of 67 inmates, but, in March, 240 prisoners: the escalating drug crisis meant overcrowding in the municipal jail, and unanticipated costs for those who could not be squeezed in at a regional holding facility at a cost of $38 per inmate per day.

That forced Mr. Eads to see if he could find a way to reduce the inmate population, leading him to propose an alternative punishment program for nonviolent offenders, one which would help them find work and subject them to regular drug testing. Simultaneously, Mr. Eads has been replacing city department heads and working to build morale; he has even been paying for staff picnics out of his pocket. However, it seems as if he has been trying to climb out of a sand hole: absent fiscal changes, the municipality anticipates it will soon face a $2.4 million annual shortfall in debt service payments.

But just on the other side of the state line, in another Bristol City Hall (Tennessee), Bristol City Manager Bill Sorah, who has previous experience in the Virginia Bristol, notes the legal distinctions, especially the differences in the constitutional status of each city: The Commonwealth of Virginia is the only state in which municipalities are independent entities: they are not incorporated as art of the surrounding county. In contrast, Tennessee’s Bristol is a unit of the surrounding Sullivan County: ergo, it faces no problem with inmate overcrowding, no criminal courts to finance, no jail, and no public school system. It has the legal authority denied its counterpart to annex land—authority unavailable on the other side of the border, where Virginia has had a moratorium on annexation for nearly four decades—one the General Assembly recently extended to 2024.

Searching for fiscal solutions. Earlier this year, Virginia Auditor Mavredes granted Bristol $100,000 to hire a consultant to help determine potential fiscal solutions—help which Manager Eads is sure to appreciate—or, as he put it: “We’re in it…so now we’ve got to fix it.” Thus, the city has jacked up fees at the landfill and is pressing ahead with The Falls, and is focusing on putting together a fiscal blueprint to pay down debt and build cash reserves. Indeed, rather than let his city go to pot, he is even entertaining the potential lease from local investors to purchase the shuttered Bristol Mall: the investors are interested in financing a local start-up, Dharma Pharmaceuticals, which wants to convert the vast facility into an operation producing cannabidiol, the marijuana derivative which the Commonwealth Virginia recently approved for treating certain illnesses—meaning the abandoned Penney and Belk buildings could go to pot.

With city’s fiscal year beginning at the end of this week, city leaders have been looking ahead: Mayor Kevin Mumpower outlined his short-term priorities at the beginning of this week’s City Council meeting, and City Manager Randy Eads reported he had an agenda, but would defer presenting it until after the meeting. Mayor Mumpower said many of his goals focus on the city’s long-term fiscal fortunes: “We don’t want the city to ever get to the place it got two years ago. We want it stable and moving forward, so we’re going to look at the charter, see what we can do to refine it and maybe present a few things to the state legislature to draft for us to solidify the city’s financial footing…We know future Councils can undo what we do, but, the way I look at it, that’s on them. Our responsibility is to try to do the right thing.”

The Mayor noted that this could turn out to be a lengthy, detailed process to determine reasonable thresholds so that, in the future, there would be fiscal strictures on borrowing. He reported that his second priority would be promoting economic development and hiring an economic development coordinator—someone with a focus on attracting new businesses to the city. He described a third priority to develop a program to provide inmates job opportunities in order to reduce recidivism and the city’s expensive jail population, noting: “We want to establish that inmate work release program. That is going to be a home run if Randy [Eads], the Sheriff and the Commonwealth’s Attorney can figure this out: We’ve already had several meetings about how we would train these inmates, get them certified, give them a skill set so they’re employable. That would save the city $500,000 to $750,000 a year—that one goal. If that’s successful, it would be a really big deal for the city.”

A second is completion of a state-funded study of the city’s solid waste landfill operations, with that coming as the Council had just voted to increase residential trash collection by $4 per month in order to help offset operating costs, or, as the Mayor put it: “We need to figure out what we’re going to do with our last big albatross: We’re subsidizing the landfill $500,000 this year—it was $1 million—but we’ve done that at the expense of the community.” Finally, Mayor Mumpower reported his last priority would be to establish restricted funds where funds would be set aside for specific needs, including key capital needs such as a fire truck, a school building fund, and another exclusively to pay down debt service: “We need to have money set aside only for those purchases so we don’t have to worry about where those funds are coming from.”

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Fiscal Recovery & Home Rule

April 6, 2018

Good Morning! In this morning’s eBlog, we can safely write: free, free at last, as Michigan Governor Rick Snyder has signed an order releasing Flint from receivership and state oversight—making it the final  municipality to be under such state fiscal control. Then we turn East to the Empire State to assess whether New York will grant the same fiscal liberty to Nassau County, before dipping into the warm Caribbean to assess the ongoing fiscal and political tug of fiscal war so critical to the fiscal future of Puerto Rico. Finally, before your second cup of java, we jet back to King George, Virginia, as the rural county struggles to reduce its more than $100 million in indebtedness.

Setting the Path for a Strategic Recovery & a Return to Home Rule. Gov. Rick Snyder announced he has signed an order to release the City of Flint from receivership and state oversight—making Flint the final city in the state to exit such oversight and preemption of local authority. His decision came as the lame duck Governor, who has been under fire for his selection of emergency managers to the Genesee County city and handling of the Flint water crisis, came at the behest of the Flint Receivership Transition Advisory Board. The decision marks the end of an era of state usurpation of municipal authority—especially in the wake of the role of state imposed emergency managers in the state’s lead contamination crisis for their decisions to switch to the Flint River—decisions which led to the drinking water health crisis, as well as to the devastation of the city’s assessed property values, as well as contributed to the poisoning of thousands of citizens and the deaths of 12. The Governor stated: “City management and elected leadership have worked hard to put Flint on a stronger path…With continuing cooperation between the city and state, Flint has an opportunity to take advantage of the momentum being felt around the city in terms of economic development, which can lead to stronger budgets and improved services for residents.”

The announcement cleared the path for Michigan state Treasurer Nick Khouri’s expected signature on a “Flint RTAB resolution that repeals all remaining emergency manager orders,” with the repeal effectively securing the municipality from seven years of state emergency management, restoring full authority to the city’s Mayor and Council—or, as Mayor Karen Weaver put it: “We’ve just got our divorce…I feel real good about it…I remember when I was campaigning (in 2015) — it was one of the things I talked about, was I wanted to work on getting home rule back to the City of Flint. I know it’s how we got into this mess (the water crisis), was having an emergency manager and our voice being taken from the city and taking the power away from the local elected officials. We’ve shown that we’ve been responsible, and we’re moving this city forward.” That state preemption had come in the wake of a state financial review team opining that a “financial emergency existed” in Flint, and that the city had no “satisfactory plan in place to address the city’s fiscal problems,” leading to the preemption of local control and state imposition of an emergency manager from that time until shortly after Mayor Weaver was elected in November 2015.

Will Nassau County Be Free at Last? In a comparable governing and federalism issue in New York State, Nassau County Executive Laura Curran, who took office at the beginning of this year, has submitted a revised spending plan which relies upon new revenue initiatives, after, at the end of last year, the Nassau Interim Finance Authority had rejected a $2.99 billion budget and ordered $18 million in cuts due to revenue uncertainty. The new, proposed budget, which was submitted to the Authority on March 15th, contains $54.7 million in projected savings and revenues; however, the Authority’s Executive Director, Evan Cohen, Wednesday expressed apprehensions with regard to required legislative approvals needed for some of the revenue initiatives, even as he praised the new County Executive, who attended the Authority’s session Wednesday evening in an effort to secure support for proposed new revenues and avoiding a reliance on borrowing sought by previous administrations. Director Cohen, in a letter, wrote: “Our analysis indicates that the projected risks confronting the County will impede its chances for ending FY 2018 in [generally accepted accounting principles] balance…Strong management and legislative cooperation will be essential to any chance of success on that fiscal front,” stressing in her epistle that the County is confronted by political challenges to get the Republican-controlled Nassau County Legislature to agree to and implement some of her revenue plans: the County is seeking approval of some $9.7 million of $29 million in additional projected revenues, even as it is already confronting resistance on a proposal to change fees for Little Leagues and other non-profit groups to use county-operated athletic fields. A County spokesperson noted: “It is a viable operating budget except for the risks associated with the overwhelming cost of commercial and residential claims for tax overpayment…Once again, it is clear that the county’s poor fiscal health is intertwined with the broken assessment system and the failed the tax policies of the previous administration.” Nevertheless, the Authority identified $104.7 million of projected risks in the modified budget. County Executive Curran noted that this figure, which is up from $101.4 million of projected risks cited in the December review of the budget, reflects her administration’s decision to fund $43.8 million for to honor a court judgment mandating the payment to two men who were exonerated in the wake of a 1985 murder conviction. The Authority praised the County Executive her fiscal plan to pay off the judgment through operating revenue rather than through the issuance of municipal debt. The gold star from the Authority could begin to clear the path for exit from state oversight.

Modern Day Colonialism? The Puerto Rico Senate Wednesday voted unanimously to terminate its appropriations to fund the PROMESA Oversight Board, which, under the law, is defined as an integral part of the U.S. territory’s government; the federal act specifies that Puerto Rico’s government revenues are to be used for its funding. Puerto Rico Sen. President Thomas Rivera Schatz, an attorney and former prosecutor, who was born in New York City, as well as Gov. Ricardo Rosselló both conveyed messages of defiance to the Oversight Board, with the messages coming in the wake of Gov. Rosselló’s epistle to Chairman Rob Bishop (R-Utah) of the House Natural Resources Committee defending his independent power relative to that of the Oversight Board and denouncing the quasi-imperialist effort to preempt the authority as the elected leader of the territory—an effort unimaginable for a Member of the U.S. Congress to take against any Governor of any of the 50 mainland states. Senate President Schatz noted: “The key message we want to send here is that we do not bend, we respond to the people who chose us, and we defend the Puerto Rico citizens and the American citizens who live on the island.” He added: “If there is anyone who defends the board, I urge you to tell us if the American dream and the principles of freedom and democracy that inspired the creation of the American nation accept as good that the Board’s executive director [Natalie Jaresko] earns $650,000 with all possible luxury benefits…” adding that Ms. Jaresko “lives at the expense of the people of Puerto Rico while trying to eliminate the Christmas bonus to workers of private companies and the government…and is also trying to reduce your working hours or eliminate your vacation. And who is attacking the medical services, education, and housing of the Puerto Rican people.”

Nevertheless, by submitting a revised fiscal plan—a plan which includes only 20 of the 48 recommendations made by the PROMESA Board, regarding financial and technical matters, Governor Ricardo Rosselló yesterday ruled out any alternative, as he, during a round table at La Fortaleza, insisted that the PROMESA Board may not establish a plan in which it enters into public policy issues, a prerogative that only holds for the Puerto Rico government—as would be the case with any of the nation’s other 50 states. Nevertheless, he added that it is not about having to go to court to assert Puerto Rico’s democratic rights against the PROMESA Board. Simultaneously, the Governor ruled out giving way to a measure such as that approved by the Puerto Rico Senate to stop the disbursement of public funds for the operation of the body of Congressional creation. The projected allocation of funds for the six-year PROMESA Board term is projected to cost the taxpayers of Puerto Rico up to $1.4 billion—a figure which includes operational budget, expenses of advisors, and everything related to the representation for the process of Title III of PROMESA. Thus, the Governor added: “We do not have to go to court. That is what I would like everyone to understand. We are doing what is in law that we must do. Our preference would be that all matters that we can agree, that can be executed. That we can work in that direction, but our action if they (the PROMESA Board) certify something that is the work and the right of the elected government of Puerto Rico, which does not match the public policy of our government, that part is simply not going to take. Our warning is for what to do if what they are going to do is weaken a fiscal plan before measures that obviously are not going to be executed.”

In response to the measure approved by the Puerto Rico Senate, the Governor noted: “[H]here we must show that we are a jurisdiction of law and order, and I am following the steps of our strategy…What I have said is that in the face of the future, I will always seek to defend the people of Puerto Rico. Although I understand the feeling of the Legislative Assembly, the frustration, which is a prevalent feeling, the fact is that everyone’s approach, and we discussed it yesterday in the legislative conference…must be within the subject in law, demonstrate that the fiscal oversight board cannot implement public policy issues.” He stressed that responsible, prudent actions “are aimed at achieving a fiscal plan that is enforceable.”

Referring to the 202-page document, provided to the PROMESA Board before 5:00 pm yesterday, Gov. Rossello said that once the numbers are analyzed “We are basically about [at a] $100 million difference from where they wanted to be and where we are,” highlighting that the document, through structural reforms and adjusted fiscal measures, proposes the government will achieve a surplus of $1,400 million by FY2023—that is, a document which places Puerto Rico on the path “of structural balance and restoration of growth,” insisting it is important to approve the plan Puerto Rico submitted, because it will allow for a better position toward the judicial process for debt readjustment or Title III, comparable to a chapter 9 plan of debt adjustment. Stressing that “after implementing all government transformation initiatives and structural reforms, and incorporating the federal support received for health assistance and disasters, Puerto Rico will accumulate a surplus of $6,300 million by FY2023.”

With regard to other PROMESA proposed changes, the Governor stated that Puerto Rico had agreed to a number of the PROMESA recommendations, mentioning that more than a dozen corresponded to economic aspects, noting, for example, that Puerto Rico had requested $94.4 million in federal disaster assistance because of Hurricane Maria, but on the recommendation of the Board had reduced that by nearly half to $49.7 million. With regard to differences on estimated GNP for FY2018, he noted that it had been readjusted from a fall of negative 3.9% to negative 12%, because of the resulting economic slowdown of Puerto Rico—adding, that by next year, he anticipates a rebound of 6.9%, in part because of the flow of federal aid for post-hurricane reconstruction and disbursements from insurers, which will decrease considerably in subsequent years to 0.6% positive growth in GNP by FY2023. He noted that the revision for the population decline due to migration varied significantly from a fall to negative 0.2% in the previous plan to a decrease of negative 6.4% this year.

For his part, House Natural Resources Committee Chairman Bishop has written to the PROMESA Board to criticize it for its lack of dialogue with the creditor community, lack of sufficiently aggressive action to make structural and fiscal changes in Puerto Rico, and suggesting the Board take steps to end the local government’s separate legal representation in the Title III bankruptcy cases—an epistle which, unsurprisingly, Gov. Rosselló described as anti-democratic and colonialist. Earlier, the Governor made public his own letter to Chairman Bishop in which he had written: “Your letter is truly disturbing in its reckless disregard for collaboration and cooperation in favor of an anti-democratic process akin to a dictatorial regime imposing its will by imperial fiat and decree…I cannot and will not permit you to elevate concerns of bondholders on the mainland above concern for the well-being of my constituents.” In his epistle, the Governor made clear his view that, contrary to its claims, the PROMESA Board does not have the legal authority to “take over the role of the elected government of Puerto Rico.” He added that while the Puerto Rico government “recognizes that structural reforms are key to Puerto Rico’s future success; it does not need the Board to substitute its judgment for our own in that regard.” With regard to reducing the Title III litigation costs to Puerto Rico’s government, the Governor expressed apprehension at any effort to preempt or take away the “government’s own voice and own representation in its own restructuring process,” adding that he believes Chairman Bishop’s committee “faces a fork in the road:” It can support the process found in the Puerto Rico Oversight, Management, and Economic Stability Act, or the “other path lies obstructionist behavior that would undermine the duly elected government’s authority and legitimacy…If the committee, led by you, Mr. Chairman, persists on this ruinous path, the people of Puerto Rico and their brothers and sisters on the mainland will know who to hold accountable,” adding: “Your letter embodies everything that is wrong with this process and only serves to reinforce the dismissive and second-class colonial treatment Puerto Rico has suffered throughout its history as a territory of the United States, which undermines our efforts to address the island’s fiscal, economic, and humanitarian crises.”

Colonial Eras? Meanwhile, in the former British colonies, the aptly named King George County, Virginia, where indigenous peoples of varying cultures lived along the waterways for thousands of years before Europeans came to America, Algonquian Indians some three hundred fourteen years ago first came into conflict, when early colonists retaliated for the tribe’s attacking the farm of John Rowley, capturing and shipping 40 people, including children older than 12, to Antigua, where they were sold into slavery—paving the way for the county to be formally established in 1720, when land was split off from Richmond County, Virginia—before it was substantially reorganized in the critical year of 1776, with land swapped with both Stafford and Westmoreland Counties to form today’s political boundaries—some twenty-five years after its native son, James Madison, the nation’s fourth President, was born there. Today, the county of about 26,000, with a median family income of $49,882, is looking to pay down its debt; however, one of its primary sources of revenue is no longer available: therefore, the Board of Supervisors is working on an ambitious fiscal plan to try to reduce about 30 percent of the county’s debt over the next five years, meaning it will seek to shift some of its reserve funds in order to allocate more new funds each year to pay down its debt—an effort which one consulting firm in the state described as unique: Kyle Laux, a senior vice president of Davenport & Co., a financial counseling firm for King George, Caroline, and Spotsylvania counties, noted: “What the county administrator and board are doing is unique…and it’s unique in a really good way: It’s thinking long-term about the county.”

The effort comes after the most recent campaign, when several Board of Supervisors members campaigned on the need for King George to reduce its $113 million in accumulated debt—debt which, when current County Administrator Neiman Young came on board a little over a year ago, he described as shocking—especially that no actions had been taken to address the accumulating debt. Indeed, at a work session two months ago, Mr. Young laid out numbers that caused those listening to gasp aloud. While the county has a proverbial golden goose with the King George Landfill, it turns out that the bulk of the non-odoriferous revenues generated from the landfill is already accounted for‒for the next two decades. Indeed, even the its expansion, the landfill is expected to reach capacity in 29 years—which, in turn, means that, for the next two decades, $6.2 million of the $7.5 million the county currently receives annually from the landfill is already consumed to finance capital debt. Thus, County officials wanted to change those numbers; ergo, they asked Davenport to rustle up a fiscal plan—and, subsequently, at a recent work session, County Supervisors supported the application of some $3 million from general and capital improvement reserves to pay down capital debt, with the fiscal plan adjusted to mesh with the County’s which provide that King George must have a certain amount set aside. Thus the County is proposing to add about $1 million each year for four years from revenues. Some of that would come from additional revenues King George would receive in the wake of upcoming reassessments, with the remainder from an annual surplus. The idea is to pay down the debt in three different payments between 2019 and 2023—recognizing that because every dollar paid on the debt principal saves about 41 cents in interest, the plan would free up about $11.1 million in cash flow and pay off $6.57 million in principal, according to Mr. Laux.

However, in the world of municipal finance, little is easy. Indeed, as the Supervisors learned during the work session, the amount pulled annually from revenue sources would likely fluctuate in order to address operational needs. Thus, the Board opted to place school resource officers in two of the county’s three elementary schools; it already has officers at its middle and high schools, and is applying for a grant to place a deputy for the third elementary school. Along with other operational expenses, ergo, the county is considering the set aside of some $200,000 from FY2019 revenues, far below the $750,000 proposed—or, as Board of Supervisors Chair Richard Granger put it: “It doesn’t necessarily blow up our plan, but it’s doing something rather than nothing.” He added government debt is like a home mortgage, not a credit card.

The County’s existing debt is based on a fixed rate, and the principal is repaid annually. If supervisors opt not to go forward with plans to pay down the debt sooner, the County is scheduled to repay about half of its debt within 10 years, according to a Davenport report. However, because paying down the principal faster would free up fiscal resources, the County’s new debt reduction and mitigation plan should reduce about 30% of the county’s debt over the next five years, which equates to roughly $22 million, an amount which Administrator Young understandably described as “huge.” But Supervisor Ruby Brabo had the last word: “The landfill is going to go away, folks. We either raise your taxes 30 cents or we make sure the debt is paid off before it does.”

The Motown Comeback

March 23, 2018

Good Morning! In this morning’s eBlog, we consider the un-decaying of Detroit, as the Motor City takes steps to transform its future from its core out. Then we return to the frigid northern steppes of northern Michigan to assess the ongoing physical, fiscal, and governing challenges in Flint.

Pending City Council approval, Detroit will purchase 142 acres of the historic the historic Michigan State Fairgrounds, property which could become the home of a major employer, a regional transit hub, and a new focal point for the post-chapter 9 city’s vibrant fiscal recovery, with the decision coming after Michigan state officials give the city a green light. The Michigan Land Bank Fast Track Authority Board of Directors approved proposals Wednesday to sell the Detroit property where the Michigan State Fair was once held, as Mayor Mike Duggan, standing in front of the former site of the Michigan State Fair, which closed after more than century in 2009 stated: “Detroiters need jobs. There is no reason we can’t have 1,000 to 2,000 people working here.” Under the proposals, the city will purchase approximately 142 acres of the property for $7 million. Magic Plus plans to buy 16 acres, Detroit officials said the city will lead the redevelopment of the property with input from the community. Josh Burgett, the Michigan Land Bank Fast Track Authority’s director, said: “The historic State Fairgrounds is an important site for residents, the City of Detroit, and the entire region: All parties involved have worked hard to bring redevelopment to the site, and this public/private agreement is marrying two visions for the State Fairgrounds to create jobs and provide commercial destinations for those new employees and current residents.” If and when the City Council approves the proposed purchase, the City of Detroit will take ownership of the land this summer and Magic Plus will take ownership of its land in May. Joel Ferguson, principal of Magic Plus LLC, said his company will work with the city and area residents to determine the best use of the property. A number of uses have been suggested, such as a movie theater and restaurants, and Mr. Ferguson said he has a list of businesses interested in the site, stating: “(Residents) want a number of different stores that would service that immediate area. We don’t know what that will be. We’re working with the city and community, and they’ll highlight what they want us to do.” For his part, Mayor Duggan said he was confident the Council will approve the purchase, under which the city will pay an initial $3.5 million and another $3.5 million when the development is near completion, adding that he has been approached every day by employers who want to return to the city:  “I don’t see us going out for a (request for proposal) for housing or strip malls or anything like that: I see us talking to the major employers, looking at designing the land around regional transit and a major employment center. That’s what we hope to do.”

The purchase is the culmination of legislation Gov. Snyder signed into law nearly six years ago to allow for the transfer of the site to the Michigan Land Bank to be returned to productive use. Since then, the Land Bank has been working with Detroit and Magic Plus LLC to redevelop the site. St the same time, in what could be a related development, the Ford Motor Co. is reported to be pursuing a deal to purchase the abandoned Michigan  Central Station, a beautiful old building just outside of the historic downtown area–a station which has been abandoned and empty for nearly three decades–predating Detroit’s historic chapter 9 municipal bankruptcy. Crain’’s is reporting that the deal between Ford and the current owner, the Moroun family, could be announced as soon as next month–likely paving the way for Ford’s second recent investment in Detroit’s historic Corktown neighborhood, after, three months ago, Ford announced it would put 200 employees in The Factory, a building less than a half a mile from Michigan Central Station. A redeveloped train station could house 1,000 Ford employees. (The automobile company currently houses most of its employees in facilities around the Detroit suburb of Dearborn.) This would mark Ford’s second recent investment in Detroit’s Corktown neighborhood, after, three months ago, the company had announced it would put 200 employees in The Factory, a building less than a half a mile from Michigan Central Station. A redeveloped train station could house 1,000 Ford workers. The deal could profoundly mark a vital step in the Motor City’s remarkable recovery from the largest municipal bankruptcy in U.S. history–especially with the downtown core already experiencing a revival in business and culture–even as, to date, the surrounding neighborhoods have struggled to keep up. Indeed, the news of the redevelopment Corktown has ample room for new housing and businesses and redeveloping Michigan Central Station would throw the neighborhood the attention and money it needs to grow has reignited discussions about the future of Corktown, the consequences of having such a powerful company as an anchor in the community, and, most significantly, what possible bigger shifts are in store for property in the area. A search of available records, using Loveland Technologies mapping service, found that of the 86 properties closest to the old depot, nearly 20% are owned by the City of Detroit. Given the city’s history of working with developers to encourage construction, the surrounding area may undergo a range of infrastructure and aesthetic improvements. In addition to Roosevelt Park, which sits in front of the depot, the city owns four massive plots of land to the west of the train station, 10 small plots on 18th Street and one property on 17th Street. Jed Howbert, of Mayor Duggan’s Jobs and Economy Team, noted: “To state the obvious, we love all corporate investment in the city that creates jobs. So we’d be as enthusiastic about Ford as any other tenant looking at major  investments.” What remains to be fleshed out are how a community benefits agreement would shape any Ford agreement. To date, in the Motor City, only six projects have been subjected to the law — four of them Dan Gilbert initiatives. The end results, according to a new report from WDET, found that “after 12 weeks of community benefits talks with residents across the four projects, Bedrock committed to two community benefits in its agreements with the city. The first: Bedrock would communicate with residents about construction-related activity. And the second: Bedrock would support job training initiatives, something the company has been doing for years.”  Rashida Tlaib, a former Michigan state Representative who also is part of the Equitable Detroit Coalition, hopes that even without public funding, Ford would meet with the community. “I just hope there is an actual sit-down and agreement on whatever future development Ford Motor Co. would like to have there,” said Tlaib, adding that it was difficult to speak about the future as so much of the process has been obscured. “It’s unfortunate a lot of these deals are done behind closed doors and often the role of the city is much more prominent than they’re revealing to all of us,” she said. 

Out like Flint? Environmental Protection Agency Administrator Scott Pruitt said that eradicating lead from drinking water is one of his top priorities three years after the Flint water crisis; however, he reported he was worried Americans are not “sufficiently aware” of the threat: “I really believe that we ought to set a goal as a country that, over the next 10 years, that we ought to work with respect to investments in our infrastructure to eradicate lead in our drinking water…It can be achieved. Some of the mental-acuity levels of our children are being impacted adversely as a result of this.” Administrator Pruitt is concerned that parents and citizens do not understand the threat of lead in drinking water or toys, noting the Administration is “looking at ways we can contribute to that dialogue: I do think that what happened in Flint is something that could happen elsewhere. We just simply need to take steps to do all that we can to address it prospectively and proactively,” adding that the White House proposal to bolster the nation’s infrastructure over the next decade would include investments in aging water infrastructure; however, that federally unfunded plan includes no provisions for replacing the thousands of lead service lines throughout the country–a cost estimated around $40 billion to $45 billion, even as it stresses the need for state and local governments to invest in such upgrades. Administrator Pruitt noted he would “love” to see local governments investing more in water infrastructure: “These water treatment facilities – they have authority to bond out, to raise fees, to invest in corrosion control, the replacement of service lines and the rest…And some of them just aren’t doing it.” The EPA Administrator was silent on the enormous fiscal disparities which so adversely affect fiscally stressed municipalities like Flint with vastly disproportionate levels of poverty. 

More constructively, Gov. Rick Snyder has proposed having water customers across Michigan pay a $5 annual fee to help upgrade aging infrastructure and replace lead pipes in their local communities. His proposal, however, has gained little traction in the Republican-controlled Legislature, while U.S. Rep. Dan Kildee (D-Flint Township) said what Administrator Pruitt has described was not really a plan: “When it comes to Mr. Pruitt, nice words don’t replace pipes. It takes money. What they have proposed is really nothing when it comes to infrastructure,” Rep. Kildee said of the Trump administration proposal. Rep. Kildee added that what would make a meaningful difference would be for EPA to support amending the nation’s Clean Water Act to reduce the acceptable amount of lead in drinking water to 5 parts per billion. (The current federal action limit is 15 parts per billion.) Rep. Kildee noted: “Force federal and state governments to stare this in the face by adopting a level that is science-based that says there is no acceptable level of lead.” EPA has spent a decade trying to update the rule—a rule which Michigan Gov. Rick Snyder called “dumb and dangerous” after the Flint disaster. The state has proposed draft rules to drop the acceptable amount of lead in drinking water to 10 parts per billion by 2024.

Five years ago a Center for American Progress report cited several school districts like Chicago, Philadelphia, Baltimore—not Detroit—as examples of places where mayoral governance of public schools has had some measure of success improving the achievement gap for students. “Governance constitutes a structural barrier to academic and management improvement in too many large urban districts, where turf battles and political squabbles involving school leaders and an array of stakeholders have for too long taken energy and focus away from the core mission of education,” the report stated. Consequently, the report added, “Mayoral accountability aims to address the governing challenges in urban districts by making a single office responsible for the performance the city’s public schools. Citywide priorities such as reducing the achievement gap receive more focused attention.” But the only problem is this belief about mayoral control of schools has not worked well for Detroit. It has done just the opposite since the 1999 state takeover of the schools under former Gov. John Engler, which allowed for the Mayor of Detroit to make some appointments to the school board. Since the state took over governance of the schools, when it was in a surplus, the district had been on a downward spiral with each year returning ballooning deficits under rotating state-appointed emergency managers. The District lost thousands of students to suburban schools as corruption and graft also became a hallmark of a system that took away resources that were meant to educate the city’s kids.

Such history is what informs the resistance to outside involvement with the new Detroit Public Schools Community District which is now under an elected board with Superintendent Nikolai Vitti. His leadership is being received as a breath of fresh air as he implements needed reforms. That is what is now fueling skepticism and reservation about Mayor Mike Duggan’s bus loop initiative to help stem the tide of some 30,000 Detroit students he says attend schools in the suburbs. During his State of the City address, Mayor Duggan cited transportation as critical to connecting both Detroit district and charter school students and ensuring that students succeed in the city. Many believe the Mayor is right that losing students to suburban districts is impacting the district and the urgent need to reverse or tackle this trend. It is also reasonable to expect the Mayor to be supportive of the school district—there is widespread recognition that the city will not be able to succeed fiscally over the long-term without a functioning school system that will act as an incentive to draw families back into the city.

“The district is ready to support the initiative, but we need to review additional information to justify cost,” Superintendent Vitti said in an email response to questions about the Mayor’s plan. “The information is related to knowing how many school age students live near the schools and are not attending DPSCD? What percentage is already using our provided transportation lines that attend the schools? If they are not attending schools, where are they attending?” Under the proposal, it would cost between $90,000-$150,000 to embark on the project involving six Detroit schools, according to Superintendent Vitti. But he said concern about outside interference with the school system is not misplaced: “The district has not been respected by outsiders for decades and children have suffered. This includes policies that have favored charter schools over traditional public schools,” Superintendent Vitti said. “As a district, we need to listen and reflect on the concerns that have been raised. In the end, if we move forward with the initiative, we need to ensure that it is in the best interest of the district.” Superintendent Vitti also said this was not about mayoral control of the schools: “I have no evidence or belief that the Mayor is interested in running schools…I honestly believe the Mayor’s intent is to recruit students back to the city.”

Chris White, a community activist who has watched the district evolve over the years, remains skeptical about anything involving the school district and the Mayor, noting: “I strongly feel the Mayor’s priority should be crime reduction: His responsibility is managing the city, and when you examine the state of Detroit, he definitely has not been responsible.” Mr. White said the district can get back those students they are losing to outside schools by “keeping them safe and making sure the district is a partner to the community. People need stability when it comes to their child’s education.” Superintendent Vitti asserts he is doing just that. And he said the new bus initiative would not take away resources from the district: “As you know, competition with charter schools is not going away and we need to compete. I believe that through a bus loop we can recruit students who live in the area and are attending schools outside of the district and even charter schools…We would only support a one-year pilot before extending to future years. This would be a lot easier if fully funded outside of district resources.”

Fair Investment in the Motor City’s Future? Pending City Council approval, Detroit will purchase 142 acres of the historic Michigan State Fairgrounds—property which could become the home of a major employer, a regional transit hub, and provide amenities to area residents after state officials gave the City of Detroit and Earvin “Magic” Johnson’s development company the go ahead to buy the property. The Michigan Land Bank Fast Track Authority Board of Directors Wednesday approved proposals for the sale of the Detroit property where the Michigan State Fair was once held to the city and Magic Plus LLC. Mayor Mike Duggan noted: “A property of this size should be a major employment center for Detroiters,” speaking in front of the coliseum, which shuttered its doors when the Michigan State Fair ended its 104-year run on the site in 2009. Mayor Duggan said: “Detroiters need jobs. There is no reason we can’t have 1,000 to 2,000 people working here.”

Under the proposals, the City will buy about 142 acres of the property for $7 million. Magic Plus plans to purchase 16 acres: officials said the City will lead the redevelopment of the property with input from the community. Michigan Land Bank Fast Track Authority Director Josh Burgett noted: “The historic State Fairgrounds is an important site for residents, the City of Detroit, and the entire region: All parties involved have worked hard to bring redevelopment to the site, and this public/private agreement is marrying two visions for the State Fairgrounds to create jobs and provide commercial destinations for those new employees and current residents.”

The proposed purchase requires approval by the Detroit City Council—which, provided it is given, would pave the way for the city to take ownership of the land this summer, while Magic Plus will take ownership of its land in May. Joel Ferguson, principal of Magic Plus LLC, said his company will work with the city and area residents to determine the best use of the property, with possibilities including a movie theater and restaurants. Mr. Ferguson reports he has a list of businesses interested in the site, noting: “There’s not going to be any housing from us for sure…(Residents) want a number of different stores that would service that immediate area. We don’t know what that will be. We’re working with the city and community, and they’ll highlight what they want us to do.”

Mayor Duggan reported he was confident the City Council will approve the purchase, under which the city will pay an initial $3.5 million, and another $3.5 million when the development is near completion, adding that he has been approached every day by employers who want to return to the city. He added: “I don’t see us going out for a (request for proposal) for housing or strip malls or anything like that: I see us talking to the major employers, looking at designing the land around regional transit and a major employment center. That’s what we hope to do.”

The development could not only revitalize a key downtown area where I had been informed it was too dangerous to even walk alone outside on the day Detroit filed for chapter 9 municipal bankruptcy, but also, as Councilman Roy McAlister noted, become a metropolitan center due to the site’s proximity to Oakland and Macomb counties, so that, as the Councilmember put it: “We’re also bringing our region together to make sure that we’re prosperous.” The site was the locus for the Michigan State Fair from 1905 until 2009; then, six years ago, Gov. Rick Snyder signed legislation to permit the transfer of the site to the Michigan Land Bank to be returned to productive use. Since then, the Land Bank has been working with Detroit and Magic Plus LLC to redevelop the site.

Getting Back on Track. In a related development in the Motor City, there are reports that the Ford Motor Co. is pursuing a deal to purchase the abandoned Michigan Central Station, a massive, vacant structure located just outside downtown Detroit, which has been empty for about 30 years—an all too ominous emblem of the past decaying Motor City, with Crain’s reporting that the potential between Ford and the current owner, the Moroun family, could be announced as early as next month. If completed, this would mark Ford’s second recent investment in Detroit’s Corktown neighborhood: three months ago, Ford announced it would put 200 employees in The Factory, a building less than a half a mile from Michigan Central Station. A redeveloped train station could house 1,000 Ford workers; currently, Ford houses most of its employees in facilities around the Detroit suburb of Dearborn. Corktown is a neighborhood just outside the downtown core of Detroit–Amtrak last used the station 30 years ago; today it is owned by the Moroun family, which spent more than $8 million on the building, installing more than 1,100 windows and adding a freight elevator. This new development could result in still another remarkable change for downtown Detroit, where the downtown core is already experiencing a revival in business and culture, but where the surrounding neighborhoods have, to date, largely been left out. But, Corktown, with its ample room for new housing and businesses, combined with the redeveloping Michigan Central Station, could well result in pulling the neighborhood to a much brighter future. Such a proposed agreement between Ford and the current owner, the Moroun family, could be announced as soon as next month. It would mark Ford’s second recent investment in Detroit’s Corktown neighborhood, after, three months ago, Ford announced it would put 200 employees in The Factory, a building less than a half a mile from Michigan Central Station. A redeveloped train station could house 1,000 Ford workers. (Ford currently houses most of its employees in facilities around the Detroit suburb of Dearborn.) The possibility of the purchase of the long-vacant Michigan Central Station has reignited discussions about the future of Corktown, the consequences of having such a powerful company as an anchor in the community, and, most significantly, what possible bigger shifts are in store for property in the area. Currently, according to a search of available records, using Loveland Technologies mapping service, found that of the 86 properties closest to the depot, nearly 20%, or about 46 acres, are owned by the City of Detroit. Now, given the city’s history of working with developers to encourage construction, the surrounding area may undergo a range of infrastructure and aesthetic improvements. In addition to Roosevelt Park, which sits in front of the depot, the city owns four massive plots of land to the west of the train station, 10 small plots on 18th Street and one property on 17th Street. The Moroun family, which currently owns the train station, also owns two massive properties east and west of the old depot, and four smaller plots on 17th Street, next to the one owned by the city. Thus, unsurprisingly, Jed Howbert, a member of Mayor Mike Duggan’s Jobs and Economy Team told the Detroit Free Press: “To state the obvious, we love all corporate investment in the city that creates jobs. So we’d be as enthusiastic about Ford as any other tenant looking at major  investments.”

Out like Flint? Environmental Protection Agency Administrator Scott Pruitt this week said that eradicating lead from drinking water is one of his top priorities, three years after the Flint water crisis, adding that he is worried Americans are not “sufficiently aware” of the threat, and adding: “I really believe that we ought to set a goal as a country that, over the next 10 years, that we ought to work with respect to investments in our infrastructure to eradicate lead in our drinking water: It can be achieved. Some of the mental-acuity levels of our children are being impacted adversely as a result of this.” Administrator Pruitt is concerned that parents and citizens do not understand the threat of lead in drinking water or toys, noting the Administration is “looking at ways we can contribute to that dialogue: I do think that what happened in Flint is something that could happen elsewhere. We just simply need to take steps to do all that we can to address it prospectively and proactively,” adding that the White House proposal to bolster the nation’s infrastructure over the next decade would include investments in aging water infrastructure; however, that federally unfunded plan includes no provisions for replacing the thousands of lead service lines throughout the country – a cost estimated around $40 billion to $45 billion, even as it stresses the need for state and local governments to invest in such upgrades. Administrator Pruitt noted he would “love” to see local governments investing more in water infrastructure: “These water treatment facilities – they have authority to bond out, to raise fees, to invest in corrosion control, the replacement of service lines and the rest…And some of them just aren’t doing it.”

Meanwhile, Gov. Rick Snyder has proposed having water customers across Michigan pay a $5 annual fee to help upgrade aging public infrastructure and replace lead pipes in their local communities; however, his plan has, so far, failed to gain much momentum in the Republican-controlled Legislature. U.S. Rep. Dan Kildee (D-Flint Township) noted that what Administrator Pruitt had described was not really a plan. “When it comes to Mr. Pruitt, nice words don’t replace pipes. It takes money. What they have proposed is really nothing when it comes to infrastructure.” Rather, Rep Kildee said would help would be Administration support for his proposed bill to reduce the acceptable amount of lead in drinking water to 5 parts per billion. (The current federal action limit is 15 parts per billion.) The Congressman noted: “Force federal and state governments to stare this in the face by adopting a level that is science-based, that says there is no acceptable level of lead.” EPA has spent a decade trying to update the rule—a rule which Michigan Gov. Rick Snyder has called “dumb and dangerous” in the wake of the Flint disaster. The state has proposed draft rules to drop the acceptable amount of lead in drinking water to 10 parts per billion by 2024.

Fiscal Surgery to Restore Stability & Accountability

March 20, 2018

Good Morning! In this morning’s eBlog, we consider options for addressing serious fiscal challenges in Connecticut, before journeying to the U.S. territory of Puerto Rico, where we try to assess whether there might be too many fiscal cooks in the kitchen.

The State of the Constitution State. In the wake of the unveiling of a series of diverse and likely fiscally painful recommendations, the Connecticut Commission on Fiscal Stability and Economic Growth has challenged the state’s legislature to adopt the proposal. Moreover, the Connecticut Conference of Municipalities, notwithstanding that full adoption could jeopardize state aid to local governments in the state, endorsed the full report, finding it would offer more long-term benefits for the state and its municipalities. The Commission report recommendations focused on new long-term benefits for the state and its communities, with its recommendations focused on new revenue-raising options for cities and towns and collective bargaining changes which could prove to be vital reforms which could more than offset the steep reduction in the state budget. The Conference’s Executive Director Joe DeLong noted: “Connecticut has long been the land of steady habits, but the precarious fiscal condition that still plagues the state budget demands that Connecticut change key core public policies—now,” adding the Commission report echoes many of the recommendations the Conference proposed to state legislators just one year ago: “We can wait no longer for substantive change that will set the state on a sustainable economic path that will benefit hard-pressed residents and businesses.”

The 14-member Commission, which was created last October as part of the new state budget, was charged with the task of helping to navigate Connecticut through one of its worst fiscal crises in modern history: the state not only lagged the majority of states in recovering from the great Recession, but also is confronted by surging public retirement benefit costs tied to more than 70 years of inadequate contributions—creating a fiscal challenge projected to place unprecedented pressure on state finances for at least the next 15 years.

Unsurprisingly, the growing costs of financing retirement pensions of post-retirement health care benefits has acted like a python in squeezing aid to the state’s cities and towns. Thus, the Conference found some solace from the commission recommendations, which might grant greater fiscal flexibility to the state’s communities to manage their own budgets and programs. Among the key recommendations: 

  • Authorizing municipal coalitions to add one-half of 1 percentage point to the sales tax rate to fund regional services and diversify local budgets that rely excessively on property taxes.
  • Allowing regional coalitions of municipalities to raise supplemental taxes for capital projects by special referendum.
  • Allowing communities, through regional councils of government, to charge fees on nonprofit colleges and hospitals, which currently are exempt from local property taxation.
  • Permitting towns to increase fees for use of the public rights of way, storm water fees, hotels, car rentals, restaurants, and other services.
  • Urging the state to increase the grants it already provides to restore some of the funds communities lose because state property is exempt from local taxation.

The fiscal stability panel also proposed several changes to collective bargaining, which could help the state’s local governments, including:

  • Allowing communities to use non-union labor on rehabilitation projects costing less than $1 million;
  • Providing communities with a single, neutral arbitrator for labor negotiations;
  • And exempting a city or town’s emergency budget reserve from being used to pay for labor contract settlements.

The Commission’s recommendation that the Legislature reduce the state annual operating budget approximately 5%, or about $1 billion per year left unclear what areas would be targeted, albeit the co-Chairs said that recommendation is not intended to target the nearly $3 billion Connecticut spends annually on major statutory grants to cities and towns; rather, their intent appears to be that the Legislature could achieve these savings via privatizing more services, seeking other efficiencies, and trimming labor costs wherever possible. The Connecticut Business and Industry Association and other business leaders have been urging lawmakers to revisit six reports prepared in 2010 and 2011 by a business coalition known as The CT Institute for the 21st Century. The coalition outlined strategies to cut state spending by hundreds of millions of dollars in total spread across several areas, including reductions in public-sector benefits. These strategies, many of which would take several years, also involved prisons, long-term health care, public-sector benefits, and use of technology to deliver public services. Nevertheless, a number of state legislators questioned the reality of a $1 billion reduction, given that nearly two-thirds of the state budget involves retirement obligations, payments on bonded debt, Medicaid, and other largely fixed costs, without constraining aid to cities and towns.

A Consulting Estado de Emergencia? (State of Emergency) Puerto Rico’s Executive and Legislative branches, during the Hurricane Maria state of emergency, agreed to 1,408 consulting and professional contracts totaling $ 70.1 million, according to an analysis of El Nuevo Día. That effectively translates into approximately 16 contractual agreements for each of the 88 days in which 3.5 million Puerto Ricans were almost in survival mode in the wake of last September’s hurricane—all contracts which were subject to the scrutiny of the Chamber and the Senate of Puerto Rico, as well as the PROMESA Oversight Board with regard to any contract which exceeded $10 million. It appears that nearly half of the consulting and professional services agreements agreed upon during the emergency period registered with the Office of the Comptroller were given mainly to individuals and several dozen firms which provide services to the government under an “administrative consulting” agreement and services: agreements totaling $24 million, with the largest contracts provided via three amendments to agreements of the Department of Health and the Special Program of Supplementary Nutrition for Pregnant, Lactating, Postpartum, Infants and Children from 1 to 5 years old (WIC) with the company to ManPower for temporary employment services. In addition, there is a $ 3.1 million contract from the Office of Management and Budget (OGP) with Deloitte & Touche for financial consulting—which has subsequently signed another contract with the office which will be in charge of administering the federal funds Puerto Rico receives for recovery from Hurricane Maria. Meanwhile, the firm KPMG received an amendment to a contract with the Public-Private Partnerships Authority (AAPP) of $ 947,189. Based on data from the Comptroller, during the emergency, when it was known that the agencies and schools were not operating properly and the courts recessed their work substantially, the agencies also granted 123 contracts for “legal consulting” and “legal services” for $ 4.6 million—with another 31 contracts valued at $2.6 million to accounting firms.  The list of administrative consultants also includes several contracts with amounts close to $1 million, with some of the largest granted by the Bureau for Emergency Management and Disaster Management to the firms Consul-Tech Caribe and DCMC LLC for $ 900,000 each.