Human, Fiscal, & Physical Challenges

April 20, 2018

Good Morning! In this morning’s eBlog, we return to Flint, Michigan to assess its human and fiscal challenges in the wake of its exit from state receivership; then we return to Puerto Rico, a territory plunged once again into darkness and an exorbitant and costly set of fiscal overseers. 

Out Like Flint. Serious fiscal challenges remain for Flint, Michigan, after its exit from state financial receivership. Those challenges include employee retirement funding and the aging, corroded pipes that caused its drinking water crisis, according to Mary Schulz, associate director for Michigan State University’s Extension Center for Local Government Finance and Policy. In the public pension challenge, Michigan’s statute enacted last year mandates that the state’s municipalities report underfunded retirement benefits. That meant, in the wake of Flint’s reporting that it had only funded its pension at 37%–with nothing set aside for its other OPEB benefits, combined with the estimated $600 million to finance the infrastructure repair of its aging water infrastructure, Director Schulz added the small city is also confronted by a serious problem with its public schools—describing the city’s fiscal ills as “Michigan’s Puerto Rico,” adding it would “remain Michigan’s Puerto Rico until the state decides Flint is part of Michigan.”

Michigan Municipal League Director Dan Gilmartin notes that Flint is making better decisions financially, but still suffers from state funding cuts. He observed that Flint’s leaders are making better decisions fiscally—that they have put together a more realistic budget than before its elected leaders were preempted by state imposed emergency managers, noting: “The biggest problem Flint faces now is what all cities in Michigan face, and that is the state’s system of municipal financing, which simply doesn’t work.”

Perhaps in recognition of that, Michigan State Treasurer Nick Khouri, on April 10th announced the end of state-imposed receivership under Michigan’s Local Financial Stability and Choice Act, and he dissolved the Flint Receivership Transition Advisory Board. Treasurer Khouri also signed a resolution repealing all remaining emergency manager orders, noting: “Removing all emergency manager orders gives the City of Flint a fresh start without any lingering restrictions.” Concurrently, Michigan Governor Rick Snyder, in an email, wrote: “Under the state’s emergency manager law, emergency managers were put in place in a number of cities facing financial emergencies to ensure residents were protected and their local governments’ fiscal problems were addressed: This process has worked well for the state’s struggling cities, helping to restore financial stability and put them on a path toward long-term success. Flint’s recent exit from receivership marks the end of emergency management for cities in Michigan and a new chapter in the state’s continued comeback.” Indeed, the state action means that Detroit is the only Michigan municipality city still under a form of state oversight, albeit Benton Harbor Area Schools, Pontiac Public Schools, Highland Park School District, and the Muskegon Heights school district remain under state oversight.

The nation’s preeminent chapter 9 municipal bankruptcy expert Jim Spiotto notes that a financial emergency manager is supposed to get a struggling municipality back to a balanced budget, to find a means to increase revenue, to cut unnecessary expenses, and to keep essential services at an acceptable level:  “To the degree that they achieve that, then you want to continue with best practices: If they don’t accomplish that, then even if you return the city back to Mayor and City Council, then they have to do it: Someone has to come up with viable sustainable recovery plan, not just treading water.”

From his perspective, Director Gilmartin notes: “Flint has more realistic numbers in place, especially when it comes to revenues. I think that is the most important thing the city has accomplished from a nuts and bolts standpoint…The negative side of it is the system in which they are working under just doesn’t work for them or any communities in the state. In some cases making all the right decisions at the local level still doesn’t get to where you need to get to, and it will require a change in the state law.” Referencing last year’s Michigan Municipal League report which estimated the state’s municipalities had been shortchanged to the tune of $8 billion since 2002, Director Gilmartin noted: “A lot of the fiscal pressures that Flint and other cities in Michigan find themselves in are there by state actions.” No doubt, he was referencing the nearly $55 million in reduced state aid to Flint by 2014—as the state moved to pare revenue sharing—the state’s fiscal assistance program to provide assistance based upon population and fiscal need—funds which, had they been provided, would have sufficed to not only balance the city’s budget, but also cut sharply into its capital debts—enhancing its credit quality. Indeed, it was the state’s Emergency Manager program that voters repealed six years ago after devastating decisions had plunged Flint into not just dire fiscal straits, but also the fateful decision to change its public drinking water source—a decision poisoning children, and the city’s fisc by decimating its assessed property values. During those desperate human and fiscal times, local elected leaders were preempted—even as two of the gubernatorially named Emergency Managers were charged with criminal wrongdoing in relation to the city’s lead contamination crisis and ensuing Legionnaire’s disease outbreak which claimed 12 lives in the wake of the fateful decision to  change Flint’s water source to the Flint River in April of 2014. Now, as Director Schulz notes: “Until we come up with other solutions that aren’t really punitive in nature and leave communities like Flint vulnerable as repeat customer for emergency management law, these communities will remain in financial and service delivery purgatory indefinitely.”

Director Schulz notes a more profound threat to municipal fiscal equity: she has identified at least 93 Michigan municipalities with a taxable value per capita under $20,000, describing that as a “good indicator” for which municipalities in the state are prime candidates for finding themselves under a gubernatorially imposed Emergency Manager, in addition to 32 other municipalities in the state which  are either deemed service insolvent or on the verge of service insolvency. Flint’s taxable value per capita of $7575 comes in as the second lowest behind St. Louis, Michigan, which has a taxable value of $6733. Ms. Schulz defines such insolvency as the level below which a municipality is likely unable to fiscally provide “a basic level of services a city need to provide to its residents.” Indeed, a report released by Treasurer Khouri’s office has identified nearly 25% of the state’s local units of government as having an underfunded pension plan, retirement health care plan, or both—an issue which, as we have noted in the eGnus, comes after the State, last December enacted legislation creating thresholds on pensions and OPEB which all municipalities must meet in order to be considered funded at a viable level, meaning OPEB liabilities must be at least 40% funded, and pensions 60% funded. While the Treasurer may grant waivers, such granting is premised on plans approved to remedy the underfunding—failure to do so could trigger oversight by a three-member Michigan Stability Board appointed by the Governor. As Director Schulz notes: “The winds here are blowing such that the municipality stability board is going to be up and running soon, and there will be an effort to give that board emergency manager powers…That means they can break contacts, they can sell assets…whatever it needs to put money in the OPEB.” But in the face of such preemption—preemption which, after all, had caused such human and fiscal damage to Detroit, Detroit’s public schools, and to the City of Flint; Director Gilmartin notes: “Getting the community back to zero is the easy part and is just a function of budgeting, but having it function and provide services is harder: I would say that a lot of the support for emergency management by the state has dwindled based on the experience over the last several years.”

A Storm of Leaders. If the human health and safety, and fiscal challenges created by state oversight in Michigan give one pause; the multiplicity—and cost—of the many overseers of Puerto Rico and its future by the inequitable storm response by Congress and the Trump Administration—and by the costly “who’s on first…” sets of conflicting fiscal overseers could experience at least some level of greater clarity today, as the PROMESA Board releases its proposed fiscal plans it intends to certify, including the maintenance of its mandate to the federal court for an average public pension cut of 10 percent—after having kept under advisement the concerns of Governor Ricardo Rosselló the inclusion in the revised fiscal, quasi chapter 9 plan of debt adjustment immediate reductions in sick and vacation leave.

Thus, it appears U.S. Judge Laura Taylor Swain will consider a proposed adjustment plan to reduce public pensions later this year which would total savings of as much as nearly $1.45 billion over the next five years—a level below the PROMESA Board’s proposed $1.58 million—but massive when put in the context that the current average public pension on the island is roughly $1,100 a month, but more than 38,000 retired government employees receive only $500, because of the type of job they had and the number of years worked.

Thus, there are fiscal and human dilemmas—and governance challenges: even though the PROMESA law authorizes the restructuring of retirement systems, it is unclear whether the Congressionally-created Board has the authority to impose such a significant, unfunded federal mandate on the government of Puerto Rico, including labor reforms, and restrictions of vacation and sick leaves. Last year, Governor Rosselló agreed to a reduction in pensions for government retirees, but then his aim was to propose cuts of 6 percent.

At the moment, he is against it. A few weeks ago, after negotiations with the Board, Governor Rosselló proposed a labor reform similar to the one he negotiated with members of the Board, with differences on how to balance it with an increase in the minimum wage and when to put it in into effect—a proposal he subsequently withdrew after the PROMESA Board mandated that the labor reform be in full force in January 2019, instead of phasing it in over next three years, and conditioning the increase from $7.25 to $8.25 per hour in the minimum wage to the increase in labor participation rates—proposals which, in any event, made clear the “too many leaders” governance challenges—as these were proposals with little chance of approval by the Puerto Rican House. That is, for the Governor, there is not only a federal judge, and a PROMESA Board, but also his own legislature elected by Puerto Ricans—not appointed by non-Puerto Ricans. (Under the PROMESA Law, which also created the territorial judicial system to restructure the public debt of Puerto Rico, the PROMESA Board also has power over the local government until four consecutive balanced budgets and medium and long-term access to the financial markets are achieved. Thus, as the ever insightful Gregory Makoff of the Center for International Governance Innovation—and former U.S. Treasury Advisor put it: “While the lack of cooperation with the Board may be good in political terms in the short-term, it simply delays the return of confidence and extends the time it will take for the Oversight Board to leave the island.” Thus, he has recommended the Board and Gov. Rosselló propose to Judge Swain a cut from $45 billion to $6 billion of the public debt backed by taxes, with a payment of only 13.6 cents per each dollar owed, with the aim of equating it with the average that the states have. All of this has been complicated this week by the blackout Wednesday, before the Puerto Rico Electric Power Authority, PREPA, yesterday announced it had restored power to some 870,000 customers.

As in  Central Falls, Rhode Island, and in Detroit, in their respective chapter 9 bankruptcies, the issue and debate on pensions appears to be a matter which will be settled or resolved by the court—not the parties or Board. While the Board has the power to propose a reform in the retirement systems, it appears to lack the administrative or legislative mechanisms to implement a labor reform. The marvelous Puerto Rican daily newspaper, El Nuevo Día asked one of the PROMESA Board sources if it were possible for the Board to go to Court and demand the implementation of a labor reform in case the Governor does not propose such legislation—the response to which was such a probability was “low.” Concurrently, an advisor to House Natural Resources Committee Chairman Rob Bishop (R-Utah) with regard to proposing legislation to address the issue receive a doubtful response, albeit an official in the Chairman’s office said recently that if the Rosselló administration does not implement the labor reforms proposed by the PROMESA Board, the option for the Board would be to further reduce the expenses of the government of Puerto Rico. Put another way, Carlos Ramos González, Professor of Constitutional Law at the Interamerican University of Puerto Rico, is of the view that, notwithstanding the impasse, “in one way or another, the Board will end up imposing its criteria. How it will do it remains to be seen.”

Physical, Not Fiscal—But Fiscal Storms.  Amid the governance and fiscal storm, a physical storm in the form of am island-wide blackout hit Puerto Rico Wednesday after an excavator accidentally downed a transmission line, contributing to the ongoing physical and fiscal challenge to repair an increasingly unstable power grid nearly seven months after Hurricane Maria. More than 1.4 million homes and businesses lost power, marking the second major outage in less than a week, with the previous one affecting some 840,000 customers. PREPA estimated it would take 24 to 36 hours to restore power to all customers—it is focusing first on re-establishing service for hospitals, water pumping systems, the main airport in San Juan and other critical facilities. The physical blackout came as the PROMESA Board has placed PREPA, a public monopoly with $9 billion of debt, in the equivalent of its own quasi chapter 9 bankruptcy, in an effort to help advance plans to modernize the utility and transform it into a regulated private utility—after, last January, Gov. Ricardo Rosselló announced plans to put the utility up for sale.

Several large power outages have hit Puerto Rico in recent months, but Wednesday was the first time since Hurricane Maria that the U.S. territory has experienced a full island-wide blackout. Officials said restoring power to hospitals, airports, banking centers and water pumping systems was their priority. Following that would be businesses and then homes. By late that day, power had returned to several hospitals and at least five of the island’s 78 municipalities. Federal officials who testified before Congress last week said they expect to have a plan by June on how to strengthen and stabilize Puerto Rico’s power grid, noting that up to 75% of distribution lines were damaged by high winds and flooding. Meanwhile, the U.S. Army Corps of Engineers, which is overseeing the federal power restoration efforts, said it hopes to have the entire island fully restored by next month: some 40,000 power customers still remain without normal electrical service as a result of the hurricane. The new blackout occurred as Puerto Rico legislators debate a bill that would privatize the island’s power company, which is $14 billion in debt and relies on infrastructure nearly three times older than the industry average.

 

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Exiting from State Receivership

April 9, 2018

Good Morning! In this morning’s eBlog, we return to Flint, Michigan, where, in the wake of last week’s release by Gov. Rick Snyder of the city from receivership and state oversight—the city will have to make its own way to full fiscal and physical recovery from the many years’ of state-imposed choices—but recovery too after the former Michigan Revenue Sharing program has ceased, making the physical and fiscal challenge ever so steep.  

Setting the Path for a Strategic Recovery & a Return to Home Rule. After Gov. Rick Snyder, at the end of last week, announced he was releasing the City of Flint from receivership and state oversight, he has now announced that the State of Michigan will stop providing Flint residents with free bottled water when current supplies run out, citing nearly two years of test results showing falling lead levels in city tap water. Indeed, preliminary data from early this calendar year showed 90 percent of high-risk Flint water sites at or below 4 part per billion of lead, according to the Michigan Department of Environmental Quality. Thus, if these results hold through end of June, it would be the fourth consecutive six-month period levels have tested below the federal action level of 15 parts per billion. In the wake of the Governor’s announcement, the state plans to close four remaining water bottle distribution centers when supplies are exhausted—something that could happen within the next week, albeit water filters and cartridges will remain available at Flint City Hall.

In his announcement, the Governor said: “I have said all along that ensuring the quality of the water in Flint and helping the people and the city move forward were a top priority for me and my team…We have worked diligently to restore the water quality and the scientific data now proves the water system is stable and the need for bottled water has ended.”  The Governor did not discuss the state’s role in unbalancing and aggravating Flint’s fiscal misery—one to which the State contributed both through its former imposition of Emergency managers to preempt the city’s elected leaders—and through its elimination of state revenue sharing. By 2014, Flint had lost $54.9 million dollars in state aid—funds which would have been sufficient then to have fully paid off its annual deficit, as well as all $30 million of its municipal bond indebtedness, and still have had over $5 million in surplus

One of the hard questions now will be with regard to the potential impact of assessed property values and tax revenues in a city where those values were so harshly impacted by the fear of poisoned water: property tax assessments are mailed out every March: In 2016, those revenues, $19.7 million, made up about 23% of the city’s $81 million in general revenue. Unsurprisingly, that led to appeals to the Michigan Tax Tribunal for a poverty exemption to property taxes, with residents citing the costs associated with the water problems as one reason. Those lower assessed values added to the challenge to Genesee County to sell tax-foreclosed properties.

Mayor Karen Weaver, who has played a key role in the efforts to replace underground lead service lines at homes across the city, wrote to the Gov. last Friday to advise him that residents had “great anxiety” over the prospect of closing water distribution sites., noting: “As I have stated before and will continue to say, this is not what I want for our city, and I stand by my position that free bottled water should be provided to the people of Flint until the last known lead-tainted pipe has been replaced…We know that the water in Flint is much better than when I made the Emergency Declaration in December 2015, and that is a good thing. However, we also know that trust has to be restored before residents are ready to rely only on filtered residents.”

In response, Gov. Snyder replied that Michigan taxpayers were not legally obligated to fund bottled water or Flint distribution sites after last September; however, “in the spirit of good faith and our continued partnership, the state has continued to provide funding for hundreds of thousands of cases of bottled water for the daily use of residents.” Noting that he had provided the Mayor with Weaver recent water testing data and methodology, he added: “Since Flint’s water system has been and continues to be well within the standards set by the federal government, we will now focus even more of our efforts on continuing with the health, education and economic development assistance needed to help move Flint forward,” adding: “I remain steadfast in that commitment.

Nevertheless, with lead service line replacement set to resume this spring, there remain not just physical and fiscal fears, but also lingering apprehensions that underground work could dislodge lead flakes from existing pipes and again contaminate home tap water. That is, parents are scared—hardly a message which would enhance assessed property values.

Thus, it might seem ironic that Gov. Snyder’s decision to end bottled water service came two days after his administration had, last Wednesday, announced it was releasing Flint from receivership—a receivership under which the fateful, devastating decision to begin drawing drinking water from the Flint River until construction of the new regional Karegnondi Water Authority pipeline to Lake Huron was completed. (The City of Flint has been getting its treated water from the Great Lakes Water Authority since October of 2015. Last November, Flint inked a 30-year agreement to stay on the Detroit area system in November 2017 in the wake of a federal court order mandating the City Council to quit delaying a decision about its permanent water source.)

A Silver Lining? Flint lead levels have dropped below 4 parts per billion so far this year, according to the Michigan environmental department; for the second half of 2017, 90 percent of high-risk sites had tested below 6 ppb. Officials also said the state has conducted “extensive flushing and testing” of unfiltered water at schools, day cares and senior homes in Flint—meaning the updated test results are finding lower levels than the statewide 10 parts per billion which Gov. Snyder would like to enforce statewide. Keith Creagh, Director of the Michigan Department of Natural Resources, noted: “Flint’s water is undoubtedly one of the most monitored systems in the country, and for the last 22 months several types of extensive testing data points have consistently supported that Flint’s water system has stabilized.”

Nevertheless, the action to stop providing bottled water to the beleaguered city led Michigan Senate Minority Leader Jim Ananich (D-Flint) to state: “It’s beyond belief that the Governor expects the folks in Flint to trust the government now, when they lied to our faces about lead in our water just a few years ago…That trust was broken, and families in Flint still don’t feel that the water in their homes is safe to drink.” Similarly, Rep. Sheldon Neeley (D-Flint) stated he was requesting the Governor to continue providing bottled water until the state has successfully addressed the “crisis of confidence” among Flint residents, noting: “From the perspective of Flint residents, it was the same data, personnel and science that failed them. They don’t trust them still.” Rep Neeley added that if the State fails to continue providing services to Flint residents, he would support any legal action the city may take “to compel the state to do its job and continue water service to its citizens.” (The State of Michigan has sent more than $350 million in state funds to Flint since late 2015, in addition to $100 million from the federal government, that has paid for bottled water, water system upgrades, and local health initiatives—with a portion of the funding mandated under a four-year, $97 million settlement reached last year between the state and a coalition which had sued in an attempt to secure safe drinking water. Under the agreement, the state agreed to spend an additional $47 million on top of already budgeted funds to replace lead pipes and provide free bottled water.) Now, an Environmental Department spokeswoman reports she expects the state’s current supply of bottled water will run out within four to seven days.

Mayor Karen Weaver, whose administration is working to replace underground lead service lines at homes across the city, published a letter to Gov. Snyder earlier Friday telling him residents had “great anxiety” over the prospect of closing water distribution sites: “As I have stated before and will continue to say, this is not what I want for our city and I stand by my position that free bottled water should be provided to the people of Flint until the last known lead-tainted pipe has been replaced…We know that the water in Flint is much better than when I made the Emergency Declaration in December 2015, and that is a good thing. However, we also know that trust has to be restored before residents are ready to rely only on filtered residents.”

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.”

What Are the Fiscal Conditions & Promises of Recovery?

March 30, 2018

Good Morning! In this morning’s eBlog, we consider the potential impact of urban school leadership; then we try to assess the equity of federal responses to hurricanes, before trying to understand and assess the status of the ongoing quasi chapter 9 municipal bankruptcy PROMESA deliberations in the U.S. territory of Puerto Rico.

Schooled in Municipal Finance? As we wrote, years ago, in our studies on Central Falls, Detroit, San Bernardino, and Chicago; schools matter: they determine whether families with kids will want to live in a central city—raising the issue, who ought to be setting the policies for such schools. In its report, five years ago, the Center for American Progress report cited several school districts like Chicago, Philadelphia, Baltimore—but not Detroit, were examples of municipalities where mayoral governance of public schools has had some measure of success in improving the achievement gap for students, or, as the Center noted: “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.” In the case of Detroit, of course, the issue was further addled by the largest municipal bankruptcy in the nation’s history and the state takeover of the Motor City’s schools.

Thus, interestingly, the report stated “mayoral accountability aims to address the governing challenges in urban districts by making a single office responsible for the performance of the city’s public schools. Citywide priorities such as reducing the achievement gap receive more focused attention.” In fact, many cities and counties have independent school boards—and there was certainly little shining evidence that the state takeover in Detroit was a paradigm; rather it appeared to lead to the creation of a quasi apartheid system under which charter schools competed with public schools to the detriment of the latter.

In its report, the Center finds: “[T]he 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 has 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 that 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.” Because of the critical importance to Detroit of income taxes, Mayor Duggan has always had a high priority of sending a message to families about the quality of the Motor City’s schools.  Superintendent Vitti noted that previous policies had “favored charter schools over traditional public schools.” Superintendent Vitti said he believes this issue is less about mayoral control than the Mayor Duggan’s leadership efforts to entice families with children back to the city, adding that he is not really concerned about mayoral control of the schools, noting: “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.”

Double Standards? The Capitol Hill newspaper, Politico, this week published an in-depth analysis of the seeming discriminatory responses to the federal responses to the savage hurricanes which struck Houston and Puerto Rico., reporting that while no two hurricanes are exactly alike, here, nine days after the respective hurricanes struck, “FEMA had approved $141.8 million in individual assistance to Hurricane Harvey victims, versus just $6.2 million for Hurricane Maria victims,” adding that the difference in response personnel mirrored the discriminatory responses, reporting there were 30,000 responders in Houston versus 10,000 in Puerto Rico, adding: “No two hurricanes are alike, and Harvey and Maria were vastly different storms that struck areas with vastly different financial, geographic and political situations. But a comparison of government statistics relating to the two recovery efforts strongly supports the views of disaster-recovery experts that FEMA and the Trump administration exerted a faster, and initially greater, effort in Texas, even though the damage in Puerto Rico exceeded that in Houston: Within six days of Hurricane Harvey, U.S. Northern Command had deployed 73 helicopters over Houston, which are critical for saving victims and delivering emergency supplies. It took at least three weeks after Maria before it had more than 70 helicopters flying above Puerto Rico; nine days after the respective hurricanes, FEMA had approved $141.8 million in individual assistance to Harvey victims, versus just $6.2 million for Maria victims. The periodical reported that it took just 10 days for FEMA to approve permanent disaster work for Texas, but 43 days for the Commonwealth of Puerto Rico.  Politico, in an ominous portion of its reporting, notes: “[P]residential leadership plays a larger role. But as the administration moves to rebuild Texas and Puerto Rico, the contrast in the Trump administration’s responses to Harvey and Maria is taking on new dimensions. The federal government has already begun funding projects to help make permanent repairs to Texas infrastructure. But, in Puerto Rico, that funding has yet to start, as local officials continue to negotiate the details of an experimental funding system that the island agreed to adopt after a long, contentious discussion with Trump’s Office of Management and Budget. The report also notes: “Seventy-eight days after the two hurricanes, FEMA had received 18 percent more applications from victims of Maria than from victims of Harvey, but had approved 13 percent more applicants from Harvey than from Maria. At the time, 39 percent of applicants from Harvey had been approved compared with just 28 percent of applicants from Maria.”

Finally, the report notes that, as of last week,  six months after Hurricane Harvey, Texas was already receiving federal dollars from FEMA for more than a dozen permanent projects to repair schools, roads, and other public infrastructure which were damaged by the storm, while in Puerto Rico, FEMA has, so far, “not funded a single dollar for similar permanent work projects.”

Elected versus Unelected Governance. Puerto Rico Gov. Ricardo Rosselló yesterday reported he was rejecting the PROMESA Oversight Board’s “illegal” demands for labor law reforms and a 10% cut in pension outlays, stating: “The Board pretends to dictate the public policy of the government, and that, aside from being illegal, is unacceptable.” Gov. Rosselló was responding to demand letters from the Board for changes to the fiscal plans he had submitted, along with the Puerto Rico Electric Power Authority, and the Puerto Rico Aqueduct and Sewer Authority earlier this month. Gov. Rosselló noted that §205 of the PROMESA statute allows the Board to make public policy recommendations, but not to set policy, adding that the PROMESA Board’s proposed mandates would make it “practically impossible” to increase Puerto Rico’s minimum wage, as he contemplated the Board’s demand of a $1.58 billion cut in government expenditures, nearly 10% more than he had proposed, and adding he would be “tenaz” (tenacious) in opposing the proposed 10% cut in public pension outlays demanded by the PROMESA Board—with the political friction reflecting governing apprehension about the potential impact on employment at a time when Puerto Rico’s unemployment rate is more than 300% higher than on the mainland—and, because of perceptions that such decisions ought to be reflective of the will of the island’s voters and taxpayers, rather than an outside board.

Who’s on First? The governance challenge in Puerto Rico involves federalism: yesterday, House Natural Resources Committee Chair Rob Bishop (R-Utah), criticized the Puerto Rico Oversight Board and the Governor over their failure to engage with bondholders in restructuring the Commonwealth’s debt, writing to PROMESA Board Chairman José Carrión: “The Committee has been unsatisfied with the implementation of PROMESA and the lack of respect for Congressional requirements of the fiscal plan…And now, due to intentional misinterpretations of the statute, the promise we made to Puerto Rico may take decades to fulfill,” adding he had become “frustrated” with the Board’s unwillingness to engage in dialogue and reach consensual restructuring agreements with creditors: he noted that both the Rosselló administration and the PROMESA Board must show “much greater degrees of transparency, accountability, goodwill and cooperation,”  amid seemingly growing apprehensions on his part that Puerto Rico government costs will increase, even as its population is projected to decline, and that he was becoming increasingly concerned with the “extreme amount” being spent on Title III bankruptcy litigation. He said that Board should make sure it is the sole legal representative of Puerto Rico in these cases—and asked that the PROMESA Board define what constitutes “essential public services” in Puerto Rico: “I ask that you adhere to the mandates of PROMESA and work closely with creditors and the Puerto Rican government as you finalize and certify the fiscal plans…“My committee will be monitoring your actions closely; and as we near the two-year anniversary of the passage of PROMESA, an oversight hearing on the status of achieving PROMESA’s goals will likely be merited.”

For its part, the PROMESA Oversight Board has rejected fiscal plans presented by Gov. Ricardo Rosselló and the island’s two public authorities and has demanded the territory reduce public pensions by 10% , writing, this week, three letters outlining its demands for changes in fiscal plans submitted this month by the central government, Puerto Rico Electric Power Authority, and Puerto Rico Aqueduct and Sewer Authority. Under the PROMESA statute, the federal court overseeing the quasi-chapter 9 municipal bankruptcy is mandated to accept the fiscal plans, including their allotments for debt—plans which the PROMESA Board has demanded, as revised, be submitted by 5 p.m. next Thursday. The Board is directed there should be no benefit reductions for those making less than $1,000 per month from a combination of their Social Security benefits and retirement plans and that employees should be shifted from a defined-benefit plan to a defined-contribution plan by July 1st of next year; it directed that police, teachers, and judges under age 40 should be enrolled in Social Security and their pension contributions be lowered by the amount of their Social Security contribution, directing this for the PREPA, PRASA, Teachers, Employees, and Judiciary retirement systems. In its letter concerning the central government, the PROMESA Board directed Gov. Rosselló to make many changes: some require more information; some are “structural” changes focused on reforming laws to make the economy more vibrant; at least one adds revenues without requiring a greater burden; and many of them require greater tax burdens, or assume lower tax revenues or higher expenditures—noting that any final plan, to be approved, should aim at achieving a total $5.66 billion in agency efficiency savings through FY2023, but that Puerto Rico’s oil taxes should be kept constant rather than adjusted each year.

The Board directed that a single Office of the CFO should be created to oversee the Department of the Treasury, Office of Management and Budget, Office of Administration and Transformation of Human Resources, General Services Administration, and Fiscal Agency and Financial Advisory Authority—adding that Puerto Rico will be mandated to convert to legally at-will employment by the end of this year, reduce mandatory vacation and sick leave to a total of 14 days immediately, and add a work requirement for the Nutritional Assistance Program by no later than Jan. 1st, 2021—and that any increase in the minimum wage to $8.25 must be linked to conditions—and, for Puerto Ricans 25 or younger, such an increase would only be permitted if and when Puerto Rico eliminated the current mandatory Christmas bonus for employers.

The Fiscal & Legal Challenges of Smaller Municipalities

eBlog

March 28, 2018

Good Morning! In this morning’s eBlog, we consider the ongoing fiscal, physical, intergovernmental, and legal challenges to Flint, Michigan—as too many parties seek to plead innocent to state actions, which have wreaked such devastating fiscal and physical costs. Then we head east to one of the nation’s oldest municipalities, Bristol, Virginia, which appears to be on the precipice of chapter 9 municipal bankruptcy.

Fiscal Fraud & Unfiscal Federalism? Andy Arena, the FBI Detroit office’s former director, and lead investigator into the City of Flint’s water crisis, this week testified before the Michigan Senate Appropriations Subcommittee on General Government that he has launched a new probe amid allegations of “financial fraud” and “greed” as critical factor behind the fateful decision years ago to switch the city’s water source, stating: “Without getting too far into depth, we believe there was a significant financial fraud that drove this,” adding that the alleged scheme benefited “individuals.” Or, as he testified: “I believe greed drove this.”

His testimony came as Michigan Attorney General Bill Schuette continued the investigation he started in the wake of Gov. Rick Snyder’s declaration, two years ago, of a state of emergency in the wake of the severe and life threatening lead water contamination, as the criminal probe, which has already led to charges against 15 local and state officials—charges resulting in four plea deals and preliminary exams involving six defendants, including state Health and Human Services Director Nick Lyon and Chief Medical Executive Eden Wells continue. Now, the investigation is focusing on the potential motivation behind the decision to switch the City of Flint from the Detroit area water system to the new Karegnondi Water Authority—a decision which, when Flint opted to join the regional authority, had terminated its arrangement with the Detroit water system and opened the fateful portals to drawing water from the Flint River as an interim source, e.g. the dreadful step which resulted in contaminated drinking water and calamitous drops in assessed property values—not to mention grave governing questions with regard to the culpability of state appointed emergency managers preempting local elected leaders. (Within 17 months, the decision, made while the city was run by state-appointed emergency managers, was reversed after outbreaks of Legionnaires’ and increased levels of bacteria, total trihalomethanes and lead were found in water. Five years ago, in March, Flint’s City Council members voted 7-1 to join a new regional provider, rather than remain a customer with the Detroit system—as it had for decades. Three days earlier, Flint Emergency Manager Ed Kurtz had approved the agreement, notwithstanding then-State Treasurer Andy Dillon’s skepticism with regard to whether the new regional authority made financial sense.).

Last week, when Sen. Mike Nofs (R-Battle Creek) asked whether the probe involved local, state, and federal entities, Mr. Arena responded: “It kind of cuts across all lines right now…I don’t know that they were working so much in concert, but the end game was people were trying to make money in different ways.” He reiterated that his FBI team has been heading the Flint criminal investigation for more than two years; however, he testified he was uncertain when it might end, adding: “We’re moving at lightning speed…I can assure everyone here that we are working as quickly as we possibly can: Our bottom line is we want justice for the people of Flint, and we have to do that methodically.” Unsurprisingly, he did not detail what “justice” might mean: would it mean reparations for the fiscally and physically devastated city and its taxpayers?

The case, as we have previously written, commenced after the Governor, five years’ ago, preempted all municipal authority via the appointment of Ed Kurtz as the city’s Emergency Manager, effectively preempting any municipal authority for the brewing fiscal, physical, and health catastrophe; Mr. Kurtz, in this preemptive capacity then signed off on the fateful order in June of 2013 to allow the “upgrading of the Flint Water Plant to ready it to treat water from the Flint River to serve as the primary drinking water source for approximately two years and then converting to KWA delivered lake water,” a source which the city used from April of 2014 until October 2015, when the city was reverted to the Detroit system in the wake of an outbreak of Legionnaires’ cases and evidence of elevated levels of lead in the city’s children—a most ill omen, as it signaled to parents the prohibitive cost of health and safety to continue to reside in the city—and the unlikelihood of any ability to sell their homes at any kind of a reasonable price. Mayhap worse, last October, a federal judge dismissed objections by Flint’s City Council and paved the way for Flint officials to move forward with a long-term contract with the Detroit area Great Lakes Water Authority—a position supported by Mayor Karen Weaver as vital to avert chapter 9 municipal bankruptcy. Thus, Mayor Weaver, Gov. Snyder, and the EPA supported a proposed 30-year agreement with the Great Lakes Water Authority—a position on which the Flint City Council did not agree—leading to a successful suit by the Michigan Department of Environmental Quality to compel approval of the agreement.

Concurrently, in a related trial on these physical and fiscal event, before a Genesee District Court Judge in a trial where the state’s Chief Medical Officer has been charged with crimes related to the Flint water crisis, a researcher, Virginia Tech Professor Marc Edwards, testified before Genesee District Court Judge William Crawford yesterday that Dr. Eden Wells had sought to “get to the truth of the matter,” and that had seen no evidence of Dr. Wells having committed crimes during her preliminary examination on potential charges including involuntary manslaughter.(Prosecutors charge that Dr. Wells, a member of Gov. Snyder’s cabinet, failed to protect the health and welfare of Flint area residents, including victims of Legionnaires’ disease outbreaks in the Flint area while the city used the Flint River as its water source in parts of 2014 and 2015: Dr, Wells is charged with attempting to withhold funding for programs designed to help the victims of the water crisis and with lying to an investigator about material facts related to a Flint investigation by the Michigan Attorney General’s Office.) 

Professor Edwards is among those who believe that Flint’s switch to river water without proper treatment to make it less corrosive triggered both elevated lead and increased Legionella bacteria in large buildings in Flint at the time, adding that he disagreed with the approach taken by the Flint Area Community Health and Environment Partnership, which contracted with the state to find the root cause of the Legionella outbreaks, which officials have reported lead to the deaths of at least a dozen people in Genesee County while the river was in use. Thus, Professor Edwards notes, instead of focusing on the potential for the bacteria in water filters, state fiscal resources would have been put to better use if directed to investigate cases tied to large buildings, particularly hospitals, where his own testing showed very high levels were present. Moreover, in response to the query whether Dr. Wells did anything to discourage his research, Prof. Edwards responded: “To the contrary. She seemed interested, and she encouraged it.”

The Fiscally Desperate State of a Small Municipality. Far to the east of Flint, in one of the nation’s oldest municipalities, Bristol, Virginia, a municipality which, in 1880, had a population of 1,562—a population which gradually grew to 19,042 in 1980, before waning to 16,060 by 2016. The area of what is, today, Bristol, was once inhabited by early Americans, Cherokee Indians, with the name, according to legend, because numerous deer and buffalo met there to feast in the canebrakes; it was subsequently renamed the site Sapling Grove, and then, in 1890, finally settled upon as Bristol. It used to have a fort on a hill overlooking what is now downtown Bristol: it marked an important stopping-off place for notables, including Daniel Boone and George Rogers Clark, as well as hundreds of pioneers, who found Bristol, a former trading post, way station, and stockade, to be a cornerstone to opening up a young nation to the West.  Now, a Virginia Auditor of Public Accounts (APA) new report has found the municipality may require state fiscal assistance to address its significant debt tied to The Falls development and landfill operations—having, at the end of last week, in its fiscal distress monitoring report of local governments, assessed the small city as scoring poorly on a set of financial metrics, including debt overload, cash flow issues, revenue shortfalls, deficit spending, billing issues, and a lack of qualified staff. The small municipality today has a median household income of $27,389. Approximately 13.2% of families and 16.2% of the population fall below federal poverty levels–including 25.8% of those under age 18. The Auditor’s report notes: “During follow-up with the City of Bristol, we observed two primary issues that we concluded are contributing to a situation of fiscal distress at the city: issues specific to the operational sustainability of its solid waste disposal fund and the debt and future revenues related to The Falls commercial development project,” positions which Bristol City Manager Randy Eads noted “exactly” portrayed the city’s financial problems, as opposed to preliminary findings released last year which included some incorrect information. Specific findings found that the city does not have unrestricted reserves to use for a revenue shortfall or unforeseen situations, and that the city is not in the “most desirable” position to meet its fiscal obligations without obtaining additional revenues.

As part of the report, the APA issued written notification to Gov. Ralph Northam, the General Assembly’s money committees, the Secretary of Finance, and city officials detailing these specific issues and recommending that Bristol may warrant further assistance from the state to help assess and stabilize areas of concern—with such potential state assistance including an independent consultant reviewing the viability of landfill operations and developing long-range financial forecasts for revenue—each items sought by the city. Or, as Manager Eads noted: “That’s something we requested from the APA. It’s our understanding there’s $500,000 the state has set aside to help low-scoring localities with some of their financial issues…We requested funds for a detailed financial analysis of the landfill and requested funds for a financial planning firm to help us with a three-, five- and 10-year financial forecast.” Manager Eads reports he plans to meet with Virginia legislators to seek support. Bristol’s solid waste fund has $33.5 million in long-term bond debt; the municipality’s general fund continues to transfer funds to pay bills, according to the report. The report notes that city officials completed a significant refinancing of all short-term debt earlier this year; however, debt remains a challenge: “However, the city’s increasing debt service costs continue to be a concerning factor, as Bristol’s ability to pay the debt service will be contingent upon sufficient future revenues received from The Falls project,” according to the report. The auditor’s office notes the city is entitled to additional sales tax revenues under provision of a state law, but notes “Bristol continues to experience some uncertainty with its long-term revenue stream and future growth after all phases of The Falls project are implemented.”

Intergovernmental Federalism Fiscal Recovery Challenges

March 26, 2018

Good Morning! In this morning’s eBlog, we consider the ongoing fiscal challenges to Connecticut’s capitol city of Hartford, and the fiscal challenges bequeathed to the Garden State by the previous gubernatorial administration, before wondering about the level of physical and fiscal commitment of the U.S. to its U.S. territory of Puerto Rico.

Capitol & Capital Debts. The Hartford City Council is scheduled to vote today on whether to approve an agreement between the city and the state on a fiscal arrangement under which the state would pay off Hartford’s general obligation debt of approximately $550 million over the next two decades as part of the consensus seemingly settled as part of the Connecticut state budget—an agreement under which the state would assume responsibility to finance Hartford’s annual debt payments, payments projected to be in excess of $56 million by 2021, while the city would continue to make payments on its new minor league ballpark, about $5 million per year—a fiscal pact described by Hartford Mayor Luke Bronin as the :”[K]ind of long-term partnership we’ve been working for, and I’m proud that we got it done.” Mayor Bronin is pressing Council to vote before April Fool’s Day, which happens to be the city’s deadline for its next debt payment: if executed by then, the state would pay the $12 million which Hartford currently owes, under the provisions in the current state fiscal budget which, when adopted, had pledged tens of millions of dollars in additional fiscal assistance to the state capitol, fiscal assistance regarded as vital to avert a looming chapter 9 municipal bankruptcy—and, under which, similar in a sense to New Jersey’s Atlantic City, the aid provided included the imposition of state oversight. The effect of the state fiscal assistance meant that in the  current fiscal year, Connecticut would assume responsibility for Hartford’s remaining debt of $12 million; in addition, the state is to provide Hartford another $24 million to help close the city’s current budget deficit—and, in future years, assume the city’s full debt payment. The agreement provides that the state could go further and potentially finance additional subsidies to the city. Mayor Bronin had sought approximately $40 million in extra aid each year, in addition to the $270 million the city already receives—albeit, the additional state aid comes with some fiscal strings attached: a state oversight board, as in Michigan and New Jersey, is authorized to restrict how the municipality may budget, and finance: contracts and other documents must be run by the panel, and the board will have final say over new labor agreements and any issuance of capital debt. Going further, under the provisions, even if the oversight board were to go out of existence, Hartford’s fiscal authority would still be subject to state oversight: e.g. if the city wished to make its required payment to the pension fund, such payment(s) would be subject to oversight by both the Connecticut Treasurer and the Secretary of Connecticut’s Office of Policy and Management—where a spokesperson noted: “Connecticut cannot allow a city to default on its bond obligations or financially imperil itself for the foreseeable future: This action will ultimately best position Hartford to move into a better financial future.”

Mayor Bronin, in reflecting on the imposition of state fiscal oversight, noted that while the state assistance would help offset Hartford’s escalating deficits, deficits now projected to reach $94 million by 2023, noted: “This debt transaction does not leave us with big surpluses: “We’re looking to achieve sufficient stability over the next five years, and we can use that period to focus on growth.” Hartford Council President Glendowlyn Thames likewise expressed confidence, noting: “This plan is really tight, and it’s just surviving: We have to focus on an economic development strategy that gets us to the point where we’re thriving.”

State Fiscal Stress. For its part, with less than a week before the state enters its final fiscal quarter, the Connecticut legislature still has its own significant state debt issue to resolve—with Gov. Dannel P. Malloy warning he still expects the state legislature will honor a new budget control it enacted last fall to help rebuild the state’s modest emergency reserves, stating: “I don’t think I have given up any hope, or all hope” that legislators will close the $192 million projected shortfall in the fiscal year which ends June 30th; however, the Governor also said legislative leaders professed commitment to both write and commit to a new, bipartisan budget may be waning, stating: “The grand coalition seems to be fraying, and I think that’s what gives rise to the inability to respond to the budget being out of balance,” he said, referencing last October’s grand bargain under which there was bipartisan agreement on a new, two-year plan to balance state finances—an agreement achieved in a process excluding the Governor, who, nevertheless, signed the budget to end the stalemate, despite what he had described as significant flaws, including a reliance on too many rosy assumptions, hundreds of millions of dollars swept from off-budget and one-time sources, as well as unprecedented savings targets the administration had to achieve after the budget was in force. Indeed, meeting that exacting target is proving elusive: the fiscal gap in January exceeded $240 million in January, before declining to the current $192 million: it has yet to meet the critical 1% of the General Fund threshold—a threshold which, if exceeded, mandates the Comptroller to confirm, and triggers a requirement for the Governor to issue a deficit-mitigation plan to the legislature within one month.

The new state local fiscal oversight arrangement provides that, even if the state oversight board goes away, the city’s fiscal practices would remain subject to state oversight—where any perceived failures would subject the city fiscal scrutiny by the Connecticut Treasurer and the Secretary of Connecticut’s Office of Policy and Management, a spokesperson for which noted: “Connecticut cannot allow a city to default on its bond obligations or financially imperil itself for the foreseeable future: This action will ultimately best position Hartford to move into a better financial future.” Hartford City Council President Glendowlyn Thames asserted her confidence with regard to the contract, but noted more work needed to be done: “This plan is really tight, and it’s just surviving: We have to focus on an economic development strategy that gets us to the point where we’re thriving.”

Post Christie Garden State? New Jersey Gov. Phil Murphy, in his first post Chris Christie fiscal challenge is targeting state tax incentives as a potential source of revenue for the cash-starved state, noting, in his first fiscal address earlier this month that $8 billion in corporate state tax credits approved by the New Jersey Economic Development Authority under former Gov. Chris Christie had made the state’s fiscal cliff even steeper to scale, noting that one of his first fiscal actions was to sign an executive order directing the state Comptroller’s office to audit the New Jersey Economic Development Authority’s tax incentive programs, dating back to 2010 (the current program is set to expire in 2019), describing the programs as “massive giveaways, in many cases imprecisely directed, [which] will ultimately deprive us of the full revenues we desperately need: “These massive giveaways, in many cases imprecisely directed, will ultimately deprive us of the full revenues we desperately need to build a stronger and fairer economic future,” as the new Governor was presenting his $37.4 billion budget to the Garden State state legislature, noting: “We were told these tax breaks would nurse New Jersey back to health and yet our economy still lags.” Under his Executive Order the Gov., in January, had directed Comptroller Philip James Degnan to examine the Grow New Jersey Assistance Program, the Economic Redevelopment and Growth Grant Program, and other programs which have existed under the NJEDA since 2010 when former Gov. Christie assumed office: the audit is aimed at comparing the economic impact from projects that received the tax breaks with the jobs and salaries they created: it is, as a spokesperson explained: “[A]n important opportunity to evaluate the effectiveness of the State’s existing incentive programs.” New Jersey Policy Perspective, in its perspective, notes that the $8.4 billion of tax breaks NJEDA approved under former Gov. Christie compared to $1.2 billion of subsidies awarded during the previous decade, subsidies which the organization frets have hampered New Jersey’s fiscal flexibility to fund vital investments such as transportation and schools. Indeed, a key fiscal challenge for the new Governor of a state with the second lowest state bond rating—in the wake of 11 downgrades under former Gov. Christie, downgradings caused by rising public pension obligations and increasing fiscal deficits—will be how to fiscally engineer a turnaround—or, as Fitch’s Marcy Block advises: “It’s always a good idea for a new administration to see what the tax incentives program is like and what potential revenue they are missing out on,” after Fitch, last week, noted that the new Governor’s budget proposes $2 billion in revenue growth, including $1.5 billion from tax increases,” adding that the Governor’s proposed plan to readjust the Garden State’s sales and use tax back up to 7% from the 6.625% level it dropped to under former Gov. Christie was a “positive step” which would provide $581 million in additional revenue, even though it would impose strict fiscal restraints: “These increased revenues would go to new spending and leave the state with still slim reserves and reduced flexibility to respond to future economic downturns through revenue raising: The state has significant spending pressures, not only due to the demands of underfunded retiree benefit liabilities, but also because natural revenue increases resulting from modest economic growth in recent years have gone primarily towards the phased-in growth in annual pension contributions.”

For his part, Gov. Murphy has emphasized that while he opposes many of the state tax expenditures doled out by the former Christie administration, a $5 billion incentives program that the NJEDA’s Grow New Jersey Program is offering Amazon to build its planned second headquarters in Newark would be a positive for the state. (Newark is on Amazon’s short list of 20 municipalities it is considering for a new facility that could house up to 50,000 employees: the city is offering $2 billion in tax breaks of its own to create $7 billion in total subsidies.) The Governor noted a win here would be “a transformative moment for our state: It could literally spur billions of dollars in new investments, in infrastructure, in communities and in people,” as he noted that the Commonwealth of Massachusetts has grown jobs at a rate seven times greater than New Jersey in recent years, despite only spending $22,000 in economic incentives per job compared to $160,000 for each job in New Jersey, noting that other priorities beyond taxes are important to lure businesses, such as investments in education, workforce housing, and infrastructure: “Even with these heralded gifts, our economic growth has trailed almost every other competitor state in the nation in literally almost every category: “Massachusetts and our other competitor states are providing businesses a greater value for money and with that value in hand they are cleaning our clocks.”

Free, Free at Last? Announcing that “We’ve reached an agreement that is beneficial both for the taxpayer and for the people of Puerto Rico,” referring to a pact that is to lead to the release of some held up $4.7 billion in federal disaster recovery assistance reached between Puerto Rico Gov. Ricardo Rossello and U.S. Treasury Secretary Steven Mnuchin, the pair has announced at the end of last week agreement on the release of some $4.7 billion in disaster recovery loans which Congress had signed off on six months ago—but funds which Sec. Mnuchin had delayed releasing on account of disagreement over the terms of repayment, describing it as a “super-lien” Community Disaster Loan. After a meeting between the two, the new, tentative agreement would allow Puerto Rico access to the fiscal assistance once the cash balance in its treasury falls below $1.1 billion—a level more than the Secretary’s initial request of $800 million. (As of March 9th, U.S. territory had about $1.45 billion in cash.) The agreement ended half a year of tense negotiations over what were perceived as discriminatory loan conditions compared to the terms under which federal assistance had been provided to Houston and Florida in the wake of the hurricanes. Indeed, Gov. Rossello had written to Congress that the Treasury was demanding that repayment of those loans be given the highest priority, even over the provision of essential emergency services in Puerto Rico—even as the Treasury was proposing to bar Puerto Rico’s eligibility for future loan forgiveness. Under the new agreement, the odd couple have announced that the revised agreement would grant high priority to repayment of the federal loans—not above the funding of essential services, but presumably above the more than $70 billion Puerto Rico owes to its municipal bondholders. From his perspective, Sec. Mnuchin noted: “We want to make sure that the taxpayers are protected: It’s not something we’re going to do for the benefit of the bondholders, but it is something we would consider down the road for the benefit of the people if it’s needed,” opening the previously slammed door for access by Puerto Rico to the full amount approved by Congress, more than double the amount the Trump Administration had sought to impose. Nevertheless, notwithstanding the agreement, the terms must still be agreed to by Puerto Rico’s legislature, the PROMESA oversight board, and the federal court overseeing the quasi-chapter 9 bankruptcy proceedings. Under the terms of the agreement, Puerto Rico may borrow up to $4.7 billion if its cash balances fall below $1.1 billion. (Puerto Rico’s central bank account had $1.45 billion as of March 9th.) Governor Rosselló described the federal loan as one which will have a “super lien: There will be a lien within the Commonwealth, but it won’t be a lien over the essential services…I think both of our visions are aligned. We both want the taxpayer to be protected, but we also want the U.S. citizen who lives in Puerto Rico to have guaranteed essential services. And both of those objectives were agreed upon,”  noting that the U.S. government frequently forgives these types of loans. For his part, Secretary Mnuchin said the topic of loan forgiveness would be dealt with later “based on the facts and circumstances at the time,” and that, if and when the topic came up, the Treasury would consult with FEMA, the Congressional leadership and the administration, noting: “It’s not something we’re going to do for the benefit of bondholders, but it is something we would consider down the road for the benefit of the people of Puerto Rico.” The discussions come as the Commonwealth continues in the midst of its Title III municipal-like bankruptcy process affecting more than $50 billion of Puerto Rico’s $72 billion of public sector debt—with a multiplicity of actors, including: Puerto Rico’s legislature, the PROMESA Oversight Board, and Title III Judge Laura Taylor Swain. Under the terms, Puerto Rico would be allowed to draw upon the money repeatedly, as needed, according to Gov. Rossello, who noted that the U.S. Virgin Islands has already taken four draws totaling $200 million. The access here would be to fiscal resources available until March 2020.

Municipio Assistencia. In addition to the federal terms worked out for the territory, the new terms also provide that the U.S. Treasury will be making loans available for up to $5 million to every Puerto Rico municipality. FEMA is planning to make more than $30 billion available for rebuilding, while HUD is considering grants of more than $10 billion—leading Sec. Mnuchin to add: “There’s a lot of money to be allocated here, and I think it is going to have an enormous impact on the economy here: I think we are well on the path to a recovery of the economy here.” The Secretary added he would be returning to Puerto Rico on a quarterly basis to meet with the Governor, assess progress, and examine the island’s economy. His announcement came as the federal government is scaling back the number of contractors working on Puerto Rico’s electrical grid—critical work on an island where, still today, an estimated 100,000 island residents still lack power, with, last week, the U.S. House Oversight and Government Reform Committee hearing testimony from U.S. officials about bureaucratic challenges to power-restoration efforts, leading to bipartisan questioning about the drawdown of personnel there by the U.S. Army Corps of Engineers. The Corps, which brought in Fluor and PowerSecure as contractors to spearhead reconstruction of damaged transmission and distribution lines, has already reduced the number of contract workers by nearly 75%, according to tweets from the official Army Corps Twitter account, even as nearly 100,000 customers still lack service. Worse, of the restoration challenge remaining, the bulk is projected to fall mostly on Puerto Rico’s bankrupt public power utility, PREPA, especially after, last week, Fluor halted its subcontract efforts. Despite the Corps pledge to “do all possible work with the funds available” before the contractors leave Puerto Rico, access to vital construction materials, such as concrete poles, transformers and conductors were in short supply, and the Army Corps struggled to purchase and transport materials quickly enough, hindered, no doubt, in part by the discriminatory shipping rules (the Jones Act), increasingly forcing linemen to scrounge for replacement parts. The Corps has acknowledged the supply shortages, noting that natural disasters last year in Texas, Florida, and California strained supplies of construction materials across the U.S. Twelve Democratic Senators have written to Army Corps officials to inquire whether keeping its contractors in place would accelerate the timetable for power restoration—PREPA, last week, reported last week that 32% of the 755 towers and poles that were downed by Hurricane Maria still have not been repaired, and that, of 1,238 damaged conductors and insulators, 28% have not. Rep. Jenniffer González-Colón, Puerto Rico’s Republican delegate to Congress, in a letter to Army Corps officials last week, wrote: “The average citizen on the street in those communities cannot tolerate even the perception that at this point we will begin to wind down the urgent relief mission and that the process of finishing the job will slow down.”

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.