Is There Shelter from the Storm?

November 20, 2017

Good Morning! In today’s Blog, we consider the deepening Medicaid crisis and Hurricane Maria recovery in the U.S. territory of Puerto Rico.

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Well I’m living in a foreign country, but I’d bound to cross the line
Beauty walks a razor’s edge, someday I’ll make it mine
If I could only turn back the clock to when God and her were born
“Come in” she said
“I’ll give you shelter from the storm”.

Bob Dylan

Shelter from the Storm & Governing Competency? With this session of Congress entering its final two weeks of the calendar year, Puerto Rico’s Medicaid funding crisis is deepening: Hurricane Maria wrought serious physical and fiscal damage to Puerto Rico’s health-care system; yet, not a dime of the federal disaster relief money has, to date, been earmarked for the island’s Medicaid program. The White House, Friday, belatedly submitted a $44 billion supplemental payment request, noting that the administration was “aware” that Puerto Rico needed Medicaid assistance; however, the Trump Administration put the onus on Congress to act—leaving the annual catchall omnibus appropriations bill as the likely last chance: this Congress is scheduled to adjourn on December 14th.  But with a growing list of “must do” legislation, including the pending tax bill and expiring S-CHIP authorizations, time is short—and the administration’s request is short: In a joint statement, House Energy and Commerce Committee ranking members Frank Pallone Jr. (D-N.J) and Senate Finance Committee ranking member Ron Wyden (D-Or.) called on the Trump Administration to “immediately provide additional funding and extend a one-hundred percent funding match for Medicaid in Puerto Rico and the U.S. Virgin Islands, just as we did in the aftermath of Hurricane Katrina,” with the request coming amid apprehensions that unless Congress acts, federal funds will be exhausted in a matter of months—potentially threating Puerto Rico’s ability to meet its Medicaid obligations: the Puerto Rican government has requested $1.6 billion from Congress and the Trump administration in the wake of the devastating physical and fiscal storm, with Gov. Ricardo Rosselló having, last month, requested $1.6 billion a year over the next five years, writing to Congressional leaders that the “total devastation brought on by these natural disasters has vastly exacerbated the situation and effectively brought the island’s healthcare system to the brink of collapse.” Puerto Rico in 2016 devoted almost $2.5 billion to meet its Medicaid demands—so even the proposed reimbursement would only cover about 60 percent of the projected cost. The urgency comes as the House, earlier this month, passed legislation reauthorizing the CHIP program, including $1 billion annually for Puerto Rico for the next two years, specifically aimed at shoring up the island’s Medicaid program. Nevertheless, despite the progress in the House on CHIP funding, the Senate has yet to moved forward with its version of the legislation—and the version reported by the Senate Finance Committee does not include any funds for Puerto Rico. Should Congress not act, up to 900,000 Puerto Ricans would likely be cut from Medicaid—more than half of total enrollment, according to federal estimates.

Rep. Bruce Westerman, Chair of the House Subcommittee on Oversight & Investigations of the House Natural Resources Committee, last month, had noted, it was “obvious PREPA did not know how to draft a FEMA-compliant contract, nor did PREPA officials adhere to the advice of their own counsel on how to comply: I believe this is precisely why the Oversight Board should be granted more authority. While we understand the sense of urgency for the people of Puerto Rico, oversight and transparency are vital to this recovery process.” House Committee on Natural Resources Chairman Rob Bishop added: “A legacy of dysfunction (at PREPA) has created a competence deficit that threatens the island’s ability to improve conditions for its citizens. Confidence in the utility’s ability to manage contracts and time-sensitive disaster related infrastructure work is long gone.” The Oversight Board announced its plan to appoint Noel Zamot to replace current PREPA leader Ricardo Ramos just a day or two after board members met with Chairman Bishop, according to a Bishop spokesperson. At a Committee on Natural Resources hearing last Wednesday, Chairman Bishop continued to call for more outside control over Gov. Ricardo Rosselló’s government, stating: “The lack of institutional controls…raises grave concerns about the government of Puerto Rico’s ability to competently negotiate, manage, and implement infrastructure projects without significant independent oversight: One of the things that I think we’re walking into here is a tremendous credibility gap, based on Whitefish and other subsequent decisions that are going on here.” (The “Whitefish” to which Chair Bishop was referring was Whitefish Energy, which had been retained by PREPA to help fix Puerto Rico’s electrical grid: observers have questioned the adequacy of the company’s experience, the fact that it is based in the same Montana town as the U.S. Secretary of the Interior, and the rates it is charging to Puerto Rico.)

Prior to the hearing, Gov. Rosselló had released a request to the federal government for $94 billion in medium- and long-term aid for recovery from hurricanes Irma and Maria—a request unlikely to be met—or, as Chairman Rob Bishop “You’re asking for an unprecedented $94 billion: “That’s a lot of money. That’s not going to happen unless people are going to see some changes in the way cooperation is made, and the way that money’s going to be spent.” The Governor’s responses came as—on the other side of the Hill, PREPA Executive Director Ricardo Ramos explained to the U.S. Senate Energy and Natural Resources Committee the process PREPA used to hire Whitefish Energy to repair Puerto Rico’s energy grid. He testified that in the wake of Hurricane Irma (which struck Puerto Rico on September 6th), six private companies submitted offers to PREPA to aid with restoring the grid. All six companies offered similar hourly rates. While only 25% of the island had electrical service immediately after Irma, this service had since improved to 96%.  Immediately after Hurricane Maria hit, Director Ramos testified he had limited communications ability and did not become fully aware of the extent of Maria’s damage to the electrical system for a week. Use of state mutual aid for restoring the grid, he testified, would have required PREPA to provide accommodations, food, communications, and other logistics to the incoming crews, because this was part of the mutual aid policies. Thus, Mr. Ramos noted that in the immediate aftermath of the hurricane, the utility was unable to make such provisions—meaning, ultimately, that he had to choose between using another company that was asking for $25 million up front versus Whitefish, which was willing to be paid when the work was completed. Ergo, Mr. Ramos authorized the use of Whitefish and chose to continue to look for other options. At the start of Wednesday’s Senate Energy and Natural Resources Committee meeting on the hurricanes’ impact on Puerto Rico and the U.S. Virgin Islands, Chairwoman Lisa Murkowski (R.-Alaska), said she thought it made little sense to spend hundreds of millions of dollars of Stafford Act funds to rebuild the electric grid as it had been in Puerto Rico and the Virgin Islands prior to the hurricanes. She said this would only re-erect it only to be later blown down again.

Governance in Puerto Rico. As U.S. Judge Laura Taylor Swain presides over Puerto Rico’s quasi-chapter 9 municipal bankruptcy trial in Puerto Rico, House Natural Resources Committee Chair Rob Bishop (R-Utah) and Rep. Bruce Westerman (R-Ark.) last week issued a statement that the Puerto Rico PROMESA Oversight Board ought to be granted additional legal authority over the Puerto Rico Power Authority (PREPA), with their statement coming just hours after Judge Swain had ruled that the PROMESA Board lacked authority to replace PREPA’s current director. The power authority issue came as Gov. Ricardo Rosselló sought some $17 billion in recovery assistance from the U.S. Senate for Puerto Rico’s beleaguered electric utility system—with his request coming engineer Ricardo Ramos resigned yesterday as PREPA’s Executive Director resigned—a resignation which PREPA’s governing board promptly accepted, voting unanimously to ratify the appointment of engineer Justo González as interim executive director. Mr. González, who has 28 years of service at PREPA and was the director of Generation, was recommended by Governor Rosselló, who noted: “The truth is that there was a series of distractions and there was a decision to go in another direction. This is going to happen and happens in every government,” referencing, in the wake of the devastating Hurricane María, that such challenges include technical failures, selective blackouts, lack of equipment, and hiring of companies with few employees and experience to carry out support tasks. He noted that Mr. Ramos “is a professional who has worked hard, but understands that this is a context that has greatly distracted from what recovery is.”

Failures and Blackouts. Until early yesterday, PREPA had reached 44.7 % of its pre-Maria generation—a level leaving Governor Rossello still frustrated, but stressing that failures also occur because: “it is an old system, which suffered previous damage….I know that it has been questioned why these failures happened, and if there was intervention…When you are lifting a collapsed power system, there will be ups and downs. There is progress; progress is inevitable; and it is being seen very clearly.”

The Electric Challenge Ahead. In the wake of the appointment of Mr. Gonzalez as interim executive director of PREPA, the Governor has commenced a search for a new head, noting: “With this appointment begins a process of evaluating the best available talent, inside and outside  of Puerto Rico, to proceed with an appointment in property of the position of executive director of PREPA: I hope that this process will be completed as quickly as possible, so that the work leading to the rehabilitation of the electrical system throughout the island is not affected, according to the guidelines we have given.” PREPA governing board President Ernesto Sgroi advised the Talent Search Committee of the governing body will be in charge of identifying the new executive director of the public corporation.

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Stormy Governance & Federalism Challenges in the Wake of a Storm

eBlog

November 14, 2017

Good Morning! In today’s eBlog, we consider the governance and federalism challenges in the wake of the devastating Hurricane Maria impact on the U.S. territory of Puerto Rico, where questions in a federal courtroom about the balance between Puerto Rico’s government and the federally appointed oversight board for Puerto Rico consider not just the Puerto Rican government’s authority—but also that of the Congress.  

Visit the project blog: The Municipal Sustainability Project 

U.S. District Judge Laura Taylor Swain has denied the PROMESA Oversight Board’s request to deny the request to appoint Noel Zamot as the Transformation Officer (CTO), noting that the powers granted to the special panel by Congress are insufficiently broad to limit the actions of the government of Puerto Rico, holding that the Puerto Rico Oversight Board lacked authority to replace the leader of the Puerto Rico Electric Power Authority (PREPA). The Board had requested the Judge to confirm its appointment of Noel Zamot as PREPA’s Chief Transformation Office—a position comparable to CEO. Instead, Judge Swain called on the Board and Gov. Ricardo Rosselló to work collaboratively to address the U.S. territory’s problems—a call, in response to which, Gov. Rosselló responded by noting: “We are very pleased with the decision issued today by Judge Laura Taylor Swain, since it reiterates our position regarding the limit of power of the Financial Oversight and Management Board.…It is clear that the Financial Oversight and Management Board does not have the power to take full control of the government or its instrumentalities…We recognize that the reconstruction and recovery of the island requires a union of wills; therefore, we welcome any collaboration or technical support that the Board wishes to offer to the government elected by Puerto Ricans to ensure the best interests of the people of Puerto Rico.” Judge Swain noted that Congress could have eased the governance role of the oversight board if it had given the Board direct authority over Puerto Rico’s government and public entities; however, as she noted: it had not—instead it deliberately split power between the federally appointed oversight board and the government, adding: “I urge you to work together,” in regard to the PROMESA Board and the Rosselló administration, noting that every moment spent on complicated and expensive litigation was time lost for the Puerto Rico people. Judge Swain noted that the Board has multiple mechanisms to discharge its functions without requiring its direct intervention after the Congressionally created public corporation, its governing board and its executive director, Ricardo Ramos, were unable to articulate and effectively implement a plan to restore the electricity grid after its collapse in the wake of Hurricane Maria. Nevertheless, Judge Swain also called on the government of Puerto Rico to address the situation of the island, noting that millions of American citizens remain in the dark and in a dangerous situation, while every controversy aired in court is “a minute lost” for the future of Puerto Rico.

Unsurprisingly, Governor Ricardo Rosselló Nevares responded he was pleased with Judge Swain’s decision, noting in written statements that the decision issued today by Judge Swain “reiterates our position on the power limit of the JSF: We have been clear from day one about the powers the [PROMESA] Board has, and those it does not have. It is clear that the (Board) does not have the power to take control of the government as a whole or its instrumentalities,” adding: “Our position is validated and it is recognized that the administration and public management of Puerto Rico remains with the democratically elected government…As Governor of Puerto Rico, I will defend the democratic rights of my people over any challenge and in any forum. We recognize that the reconstruction and recovery of the Island requires a union of wills, therefore, we welcome any collaboration or technical support that the Board wishes to offer to the Government elected by the Puerto Ricans to ensure the best interests of the People of Puerto Rico.”

The U.S. government yesterday filed notice it would defend the court supervised restructuring of Puerto Rico’s debt against a constitutional challenge by an investor—with the filing coming in response to the Title III bankruptcy case related to Puerto Rico’s government debt to an adversary proceeding filed last August by the Aurelius Capital hedge fund. (Aurelius owned $473 million of Puerto Rico municipal bonds as of July.) The government argued that the Title III bankruptcy petition should be dismissed, because its filing had not been authorized by a validly constituted oversight board, whilst the fund asserted that the appointments clause of the U.S. Constitution, Article II, Section 2, Clause 2 of the United States Constitution, which empowers the President to appoint certain public officials with the “advice and consent” of the U.S. Senate was breached in appointing the board’s members: the Board was appointed under the Puerto Rico Oversight Management and Economic Stability Act to oversee fiscal and economic management in the territory and the restructuring of more than $70 billion of debt that the Puerto Rico government said could not be repaid under current economic conditions.

Aurelius claimed that the PROMESA Board is “unconstitutional,” and, because it is, its actions are “are void,” pressing Judge Swain to dismiss the case. In response, the Justice Department notified the court it would file a memorandum supporting PROMESA’s constitutionality on or before December 6th. Part of the dispute will relate to the process itself: the Board, as we noted initially, was named by the U.S. House and Senate Majority and Minority leaders, the Speaker and House Minority Leader, and former President Obama: neither U.S. Senate committees nor the Senate as a whole voted on the confirmations. Last Friday, the government of Puerto Rico, the COFINA Seniors Bondholders Coalition, the Unsecured Creditors Committee, and the Official Committee of Retired Employees of the Commonwealth of Puerto Rico submitted memoranda against the Aurelius position, with the U.S. territory of Puerto Rico pressing the federal court to lift the stay on litigation outside of the bankruptcy process, arguing that Aurelius is seeking actions against the debtor and the Oversight Board outside the Title III process—something it asserts is barred by the PROMESA statute. In contrast, the COFINA Seniors argue that the Oversight Board’s membership is constitutional, because Congress’s power over the territories is plenary and not subject to the structural limitations of the United States Constitution, while the Unsecured Creditors argued that the “U.S. Constitution gives Congress virtually unlimited authority to govern unincorporated territories directly, or to delegate that power to such agencies as it” deems fit. This group said that there is precedent for the Board members’ appointment procedures, asserting the Board members are territorial officials and not U.S. government officials, as Aurelius claims.

Power to Puerto Rico. On a separate front, the Commonwealth of Puerto Rico notched a significant win in court yesterday when Judge Swain rejected the appointment of a former military officer to oversee the Puerto Rico Electric Power Authority (PREPA), after the PROMESA Board had sought to appoint retired Air Force Col. Noel Zamot to supervise the reconstruction and operations of PREPA in the wake of Hurricane Maria’s devastation of the U.S. territory’s utility and the subsequent territory-wide blackout on September 20th—an inability to restore service since has led to accusations of mismanagement, especially as, PREPA, two months after the hurricane, is generating only 48 percent of its normal output. Thus it was that Judge Swain ruled that the PROMESA Board may not unilaterally seize control of the U.S. territory’s government agencies—a signal legal victory for the administration of Gov. Ricardo Rosselló and others who have argued that no independent official should oversee a local government agency—or, as the Governor noted: “Our position has been validated and it has been recognized that the administration and public management of Puerto Rico remains with the democratically elected government.” PREPA is $9 billion in debt and continues to face scrutiny after signing a $300 million contract with Montana-based Whitefish Energy Holdings—a contract cancelled at the end of last month at the Governor’s request, but which is now undergoing federal and local audits. Both Gov. Rosselló and PREPA Director Ricardo Ramos are scheduled to testify this morning in Washington, D.C. before the Senate Energy and Natural Resources Committee.

Can Congress Uninflict Federally Caused Fiscal & Economic Disparities & Distress?

October 13, 2017

Good Morning! In today’s Blog, we consider the ongoing fiscal, legal, physical, and human challenges to Puerto Rico, before heading north to New Jersey where the fiscal and governing strains between Atlantic City and the Garden State continue to fester.

Visit the project blog: The Municipal Sustainability Project 

Physical, Oratorical, & Fiscal Storms. President Trump served notice yesterday that he may pull back federal relief workers from Puerto Rico, effectively threatening to abandon the U.S. territory amid a staggering humanitarian crisis in the aftermath of Hurricane Maria–even as House Speaker Paul Ryan (R-Wis.) goes to Puerto Rico this morning to assess not only the damage, but also how to more effectively respond to a staggering humanitarian crisis in the aftermath of Hurricane Maria. The Speaker will also bear some good news: the House yesterday approved 353-69, a $36.5 billion disaster aid package to help victims struggling to recover from a string of devastating hurricanes and wildfires, sending the aid package to the Senate, which returns from a weeklong recess next week. While the Trump administration requested $29 billion in supplemental spending last week, it asked for additional resources Tuesday night, including $4.9 billion to fund a loan program that Puerto Rico can use to address basic functions such as infrastructure needs. Speaker Ryan noted: “‎We think it’s critical that we pass this legislation this week to get the people the help they need, to support the victims, and also to help the communities still recovering and dealing with the problems with the hurricanes Harvey, Irma, and Maria.” Puerto Rico Governor Ricardo Rosselló had warned Congressional leaders that the U.S. territory is “on the brink of a massive liquidity crisis that will intensify in the immediate future.”

President Trump yesterday claimed that it will be up to Congress how much federal money to appropriate for Puerto Rico, but that relief workers will not stay “forever,” even as, three weeks after Hurricane Maria struck, much of Puerto Rico remains without power, with limited access to clean water, hospitals are running short on medicine, and many businesses remain  closed. The President added:  “We cannot keep FEMA, the Military & the First Responders, who have been amazing (under the most difficult circumstances) in P.R. forever!”

The White House late yesterday issued a statement committing for now “the full force of the U.S. government” to the Puerto Rico recovery, seemingly contradicting the President, who has sought to portray Puerto Rico as in full recovery mode and has voiced frustration with what he considers mismanagement by local leaders. The Governor had warned earlier in the week that the U.S. territory is “on the brink of a massive liquidity crisis that will intensify in the immediate future.” The legislation the House adopted last night allows up to $4.9 billion in direct loans to local governments in a bid to ease Puerto Rico’s fiscal crunch—a vital lifeline, as, absent Congressional action, the territory may not be able to make its payroll or pay vendors by the end of this month.

In contrast, Speaker Ryan said that Puerto Rico must eventually “stand on its own two feet,” but that the federal government needs to continue to respond to the humanitarian crisis: “We’re in the midst of a humanitarian crisis…Yes, we need to make sure that Puerto Rico can begin to stand on its own two feet…But at the moment, there is a humanitarian crisis which has to be attended to, and this is an area where the federal government has a responsibility, and we’re acting on it.”

Rep. Nydia M. Velázquez (D-NY), who was born in Puerto Rico, said in a statement that the President’s “most solemn duty is to protect the safety and the security of the American people. By suggesting he might abdicate this responsibility for our fellow citizens in Puerto Rico, Mr. Trump has called into question his ability to lead. We will not allow the federal government to abandon Puerto Rico in its time of need.” Similarly, Jennifer Hing, a spokeswoman for House Appropriations Committee Chairman Rodney Frelinghuysen (R-N.J.), who will accompany Speaker Ryan today, said that those who live on the island “are American citizens and they deserve the federal assistance they need to recover and rebuild. The Chairman and the Committee fully stand by them in these efforts, and will continue to be at the ready to provide the victims of these devastating hurricanes with the necessary federal resources both now and in the future.” Without Congressional action, the territory may not be able to make its payroll or pay vendors by the end of the month. Unmentioned is whether such contemplated assistance might entail repealing the Jones Act—an act which means the price of goods in Puerto Rico is at least double that in neighboring islands—including the U.S. Virgin Islands. The New York Federal Reserve  found that the Act hurts the Puerto Rican economy—Sen. John McCain (R-Az.) and Rep. Gary Palmer (R-Ala.) have offered legislation to repeal or suspend the law.

President Trump yesterday warned that his administration’s response to hurricane-ravaged Puerto Rico cannot last “forever,” tweeting: “We cannot keep FEMA, the Military & the First Responders, who have been amazing (under the most difficult circumstances) in P.R. forever!” He added that the U.S. territory’s existing debt and infrastructure issues compounded problems. His tweeting came as the House is preparing to consider legislation under which Puerto Rico would receive a $4.9 billion low-interest federal loan to pay its bills through the end of October, as part of a $36.5 billion package. The temporary assistance comes as Moody’s Investors Service has downgraded the Commonwealth of Puerto Rico’s general obligation bonds to Ca from Caa3, in view of the protracted economic and revenue disruptions caused by Hurricane Maria. The President also threatened he may pull back federal relief workers from Puerto Rico, effectively threatening to abandon the U.S. territory amid a staggering humanitarian crisis in the aftermath of Hurricane Maria: he said that relief workers will not stay “forever.” Three weeks after Hurricane Maria made landfall, much of Puerto Rico, an island of 3.4 million Americans, remains without power. Residents struggle to find clean water, hospitals are running short on medicine, and commerce is slow, with many businesses closed.

The lower ratings are aligned with estimates of Puerto Rico’s reduced debt servicing capacity given extensive damage from Hurricane Maria. Puerto Rico faces almost total economic and revenue disruption in the near term and diminished output and revenue probably through the end of the current fiscal year and maybe well into the next. The weaker trajectory will undercut the government’s ability to repay its debt, a matter now being weighed in a bankruptcy-like proceeding authorized by the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA). For the University of Puerto Rico, the downgrade factors in expected pressure on enrollment-linked revenue and on funding from the Puerto Rican government.

With 155 mile-an-hour winds and a path that cut diagonally across the island, Hurricane Maria was the most destructive storm to hit Puerto Rico in almost 90 years. It knocked out all electric power, destroyed more than 100,000 homes, and ruptured bridges and other public infrastructure. Beyond the disruption of the immediate aftermath, the potential long-term repercussions may be somewhat mixed, however. On one hand, a massive exodus of residents relocating to the mainland, rather than rebuilding on the island, could further erode Puerto Rico’s economic base. Moody’s opined that an infusion of federal relief and rebuilding funds could spur the economic growth and infrastructure replacement that, under normal conditions, has eluded Puerto Rico: “We, nevertheless ,view the economic impact overall as a substantial negative that has weakened the commonwealth’s ability to repay creditors: The negative outlook is consistent with ongoing economic pressures, which will weigh on the commonwealth’s capacity to meet debt and other funding obligations, potentially driving bondholder recovery rates lower as restructuring of the commonwealth’s debt burden unfolds.”

Tens of thousands of islanders left for the U.S. mainland to escape the immediate aftermath of the storm. With conditions back home still grim—approximately 85 percent of residents still lack electricity and 40 percent are without running water, and neither is expected to be fully restored for months—many find themselves scrambling to build new lives away from the island. Particularly in states with large Puerto Rican populations, such as New York, Illinois, Florida, and Connecticut, people are bunking with relatives while trying to find longer-term housing, jobs and schools for their kids.

There have been several major migratory exoduses from Puerto Rico to the mainland over the years, most recently during the past decade when the island’s population shrank by about 10 percent because of a long economic slide that shows no sign of easing anytime soon. Hurricane Maria struck Sept. 20th, and, according to the latest figures from the Puerto Rican government, killed at least 45 people. It also created a new surge that could have lasting demographic effects on Puerto Rico and on the mainland. “I think that we could expect that people who did not plan to stay permanently might do so now,” said Jorge Duany, a professor of anthropology at Florida International University who has long studied migration from the island. Many of those who left are elderly or sick people who fled or were evacuated because of the dangers posed by living on a tropical island with no power or air conditioning and limited water for an indefinite period of time.  It is too early to know exactly how many have departed Puerto Rico for the mainland, but Florida reports more than 20,000 have come to the Seminole state since Oct. 3rd. There were already about 1 million Puerto Ricans in the Sunshine State, second only to New York.

Addressing the urgency of fiscal assistance, House Appropriations Committee Chairman Rodney Frelinghuysen (R-N.J.) stated: “These funds are vital right now, in the near term, to get the aid where it is needed most.” Puerto Rico faces a government shutdown at the end of the month without an infusion of cash, according to Puerto Rico Treasury Secretary Raul Maldonado: the proposed loan provides flexibility for repayment: it allows the Secretary of Homeland Security, in consultation with Treasury Secretary Mnuchin to “determine the terms, conditions, eligible uses, and timing and amount of federal disbursements of loans issued to a territory or possession, and instrumentalities and local governments.”

Gov. Ricardo Rossello Nevares, in his letter at the end of last week to the President, cited “independent damage assessments in the range of $95 billion–approximately 150% of Puerto Rico’s” economy, writing that “financial damages of this magnitude will subject Puerto Rico’s central government, its instrumentalities, and municipal governments to unsustainable cash shortfalls: As a result, in addition to the immediate humanitarian crisis, Puerto Rico is on the brink of a massive liquidity crisis that will intensify in the immediate future.”

Saving Atlantic City. New Jersey Superior Court Judge Julio Mendez has ruled that Atlantic City can cut its Fire Department by 15 members early next year as a cost-saving measure under the Garden State’s Municipal Stabilization and Recovery Act, with his ruling lifting the restriction that any reduction in force must occur through retirements or attrition. Judge Mendez, who in late August had ruled against a state proposal for 50 layoffs, ruled no cuts may take place before February 1st—marking the first legal showdown under New Jersey’s Recovery Act takeover powers under designee Jeffrey Chiesa, which enables the state to alter outstanding municipal contracts. In his decision, Judge Mendez wrote: “Upon careful consideration of the facts and legal arguments, the court is of the view that the plan and timeline for immediate reductions is problematic but it’s not impermissible by the Recovery Act…The court will not restrict the Designee from establishing a plan to reduce the size of the ACFD from the current level of 195 to 180.”  Judge  Mendez ruled the state may exercise its authority; however, the cuts are not allowed until after Feb. 1, according to the ruling: “Upon careful consideration of the facts and legal arguments, the court is of the view that the plan and timeline for immediate reductions is problematic, but it’s not impermissible by the Recovery Act…The court will not restrict the Designee from establishing a plan to reduce the size of the ACFD from the current level of 195 to 180.” In his August ruling, the Judge had written that any reduction in force below 180 members would compromise public safety, and any further reduction would have to come through attrition and retirements. Under this week’s ruling, before the state makes cuts, however, officials must explore other funding to cover lost SAFER Grant funding, allow for additional attrition to take place, and provide fair notice to those who may lose their jobs.

Atlantic City Mayor Don Guardian said he had hoped the state would offer an early retirement incentive—especially after, last August, Gov. Chris Christie had signed a bill allowing the state to offer such an incentive to the city’s police officers, firefighters, and first responders facing layoffs. However, the state has said the offer would not be financially beneficial, leading Mayor Guardian to note: “I am disappointed that the state has pushed forward this motion knowing that the state Senate, Assembly, and the Governor all passed an early retirement bill for just this reason: We could have easily gotten to 180 fighters through these incentives.”

New Jersey Community Affairs spokeswoman Lisa Ryan noted: “We remain disappointed by the court’s insistence on requiring an artificially and unnecessarily high number of firefighters…While the decision to allow a modest reduction in firefighters on Feb. 1, 2018, will provide some budget relief, the city will still be forced to make additional and significant reductions to fire salaries in order to afford paying for 180 firefighters.” (Last January, the Fire Department had 225 members; now there are 195, or, as Judge Mendez wrote: “The plans to reduce the size of the ACFD have evolved from a request to approve a force of 125, resulting in a loss of 100 positions, to the current request to reduce the force to 180, resulting in a loss of 15 positions.”