Catalysts to Fiscal Recoveries

November 10, 2017

Good Morning! In today’s Blog, we consider the ongoing challenges to Detroit’s recovery from the nation’s largest ever chapter 9 municipal bankruptcy; the State of Michigan’s winnowing down of municipalities under state oversight; and the ongoing physical and fiscal challenges to Puerto Rico.

Visit the project blog: The Municipal Sustainability Project 

Reframing the Motor City’s Post Chapter 9 Future. Nolan Finley, a wonderful contributor to the editorial page of the Detroit News, this week noted “elections are a wonderful catalyst for refocusing priorities, as evidenced by the just-completed Detroit mayoral campaign, which moved the city’s comeback conversation away from the downtown development boom and centered it on the uneven progress of the neighborhoods. Never before has such an intense spotlight shown on the places where most Detroit voters actually live.” He attributed some of the credit to the loser in this week’s mayoral election, challenger Coleman Young II, who forced Mayor Mike Duggan to defend his record on improving quality of life in the neighborhoods. He perceptively wrote that while candidate Young’s ugly “Take back the Motherland” rallying cry was dispiriting, it spoke to the governing challenge the newly, re-elected Mayor confronts, writing: “Detroit is not a city united. It must become one. There were too many skirmishes along the racial divide in this mayoral contest. The old city versus suburb story line was replaced by a neighborhood versus downtown narrative, but both are code for black versus white. Four years ago, Duggan’s election as Detroit’s first white mayor in 40 years suggested much of the city was ready to stop looking back at its dark and divisive past and begin focusing on a brighter future.” Now, he wrote, after Mayor Duggan focused his first term on meeting the city’s plan of debt adjustment, and trying to improve the quality of life for residents—and as developers are beginning to add community projects to their downtown portfolios, “too many in the neighborhoods feel as if their lives are not getting better, or at least not fast enough.” Thus, he noted, Mayor Duggan needs to redouble his efforts to restore the city’s residential communities, and push ahead the timetable: “Four years from now, Detroit cannot still be wearing the mantle of America’s most violent city.” He added that while Mayor Duggan has little—too little—authority to address education in Detroit; nevertheless—just as his colleague Rahm Emanuel, the Mayor of Chicago recognized, needs to strongly back Detroit Public School Superintendent Nikolai Vitti’s efforts to rapidly boost the performance of the Detroit Public Schools Community District: it is a key to bringing young families back into the city. And, Mr. Finley wrote, the mayor “must also find a way to connect the neighborhoods to downtown, to instill in all residents a sense of ownership and pride in the rejuvenation of the core city. That means getting way better at inclusion. Downtown’s comeback must be more diverse, and include many more of the people who have grown up and stayed in the city. Encouraging and supporting more African-American entrepreneurs is a great place to begin breaking down the perception that downtown is just for white people: Detroit needs more diversity everywhere in the city, both racial and economic,” referring especially to young millennials who are steeped in social justice and imbued with the obsession to give back that marks their generation. “They are committed Detroiters. And they deserve to be appreciated for their contributions, not made to feel guilty or viewed as a threat to hard-won gains.”

Free, Free at Last. Michigan State officials have released Royal Oak Township, a municipality of about 2,500 just north of Detroit, from its consent agreement: Michigan Treasurer Nick Khouri said the Oakland County municipality has resolved its financial emergency and is ready to emerge from the state oversight imposed since 2014, stating: “I am pleased to see the significant progress Royal Oak Charter Township has made under the consent agreement…Township officials went beyond the agreement and enacted policies that provide the community an opportunity to flourish. I am pleased to say the township is released from its agreement and look forward to working with them as a local partner in the future.” The township’s financial emergency resulted in an assets FY2012 deficit of nearly $541,000. Township Supervisor Donna Squalls noted: “Royal Oak Charter Township is in better shape than ever…The collaboration between state and township has provided an opportunity to enact reforms to ensure our long-term fiscal sustainability.” Treasurer Khouri also said the township was the last Michigan remaining municipality following a consent agreement: Over the last two years, Wayne County, Inkster, and River Rouge were released from consent agreements because of fiscal and financial improvements and operational reforms. The Treasurer noted that today only three communities, Ecorse, Flint, and Hamtramck, remain under state oversight through a Receivership Transition Advisory Board.

Preempting Authority. House Natural Resources Committee Chair Rob Bishop (R—Utah) this week said the PROMESA Oversight Board should be granted even more power to preempt the authority of the government of Puerto Rico, stating: “Today’s testimony will inform the work of Congress to ensure the Oversight Board and federal partners have the tools to coordinate an effective and sustained recovery,” in a written statement after a hearing of the House Committee on Natural Resources: “It is clear that a stronger mechanism will be necessary to align immediate recovery with long-term revitalization and rebuilding.” Chairman Bishop added: “This committee will work to ensure [the Puerto Rico Oversight Board] has the tools to effectively execute that mission and build a path forward for this island and its residents.” The Board was created last year to oversee fiscal management by the island government, which had said more than $70 billion of debt was unpayable under current economic conditions. Since the hurricane, the Board has clashed with the territorial government over leadership at the power utility. During the hearing the board’s Executive Director, Natalie Jaresko, said the ability of Puerto Rico’s government to repay its debt was “gravely worse” than it was before Hurricane Maria, which arrived Sept. 20. By the end of December, the Board plans to complete a 30 year debt sustainability analysis with Puerto Rico’s government, she said: “After the hurricane, it is even more critical that the Board be able to operate quickly and decisively…to avoid uncertainty and lengthy delays in litigation, Congressional reaffirmation of our exercise of our authority is welcome.” On Oct. 27, the board had filed a motion in the Title III bankruptcy case for the Puerto Rico Electric Power Authority (PREPA) seeking the court’s permission to appoint Noel Zamot as the authority’s new leader. The government of Gov. Ricardo Rosselló has made it clear that it intends to challenge this motion. The court is scheduled to hold a hearing on the matter on Monday, November 13th.

In calling for more board power, Chairs Bishop and Jaresko probably were at least partly referring to the struggle over PREPA’s leadership. They may also want the Board’s power augmented in other ways: the Board has already announced that it will be creating five-year fiscal plan for Puerto Rico’s government and for its public authorities this winter. Puerto Rico’s government will have substantial needs for federal aid in the coming years, Ms. Jaresko said. Congress plans to tie this aid to the government following the Board’s fiscal plan and this would be appropriate, she said. “Before the hurricanes, the board was determined that Puerto Rico and its instrumentalities could achieve balanced budgets, work its way through its debt problems, and develop a sustainable economy without federal aid,” Ms. Jaresko said in her written testimony. “That is simply no longer possible. Without unprecedented levels of help from the United States government, the recovery we were planning for will fail.” She also said that over the next 1.75 years Puerto Rico’s government will need federal help closing a gap of between $13 billion and $21 billion for basic services. She added the federal government should change tax laws to benefit the island: “The representatives of the Financial Oversight and Management Board (FOMB) who appeared before the House Committee on Natural Resources insist on jeopardizing the necessary resources for the payment of pensions and job stability,” Gov. Rosselló testified in his written statement, adding to that the testimony of Ms. Jaresko and Mr. Zamot “evidenced ignorance about the recovery process in Puerto Rico, presenting incorrect figures relating to the existing conditions on the island,” adding: “I again invite the FOMB to collaborate so that the government of Puerto Rico, together with the support of the federal government, facilitates the fastest possible recovery of our island.” He noted that such assistance should not depend on the Board “assuming the administrative role” which belongs to the elected government of Puerto Rico.

Sanctioned Discrimination. The endorsement that the House Ways and Means Committee effectively incorporated in its “tax reform” legislation reported out of Committee this week appears to discriminate against Puerto Rico, imposing a tariff on the products which Puerto Rico exports to the mainland—threatening to deal a devastating blow to Puerto Rico’s industrial base at the very moment in time the territory is striving to recover from the already disparate hurricane recovery blows. According to economists Joaquín Villamil: “None of these measures, nor the repatriation of profits, the corporate rate and the 20% tax on imports is positive for the island…The companies are not going to pay a 4% royalty to Puerto Rico and a 20% tax to bring their product to the United States. They will leave the island, especially if the tax rate is lowered there.” Mr. Villamil added: “If that happens, 21% of the income received by the Puerto Rican Treasury is eliminated,” he added, referencing P.L. 154, the statute which established a 4% tax on sales of an operation in Puerto Rico to its parent company in the mainland. In its markup, yesterday, the House Ways and Means Committee left almost intact §4303 which establishes a 20% tariff on all imported goods for resale by companies and businesses in the United States. Moreover, the disposition forces multinationals with operations in places such as the U.S. territory of Puerto Rico to repatriate their income to the U.S. What that means is that the production of drugs, medical devices, and many other goods in Puerto Rico is done on U.S. soil; however, for federal tax purposes, Puerto Rico is deemed an international jurisdiction—or, as economist Luis Benítez notes: “This (House Ways and Means bill) generates greater uncertainty about what the economic future of the island should be: with this, the figure of the controlled foreign corporation (CFC) loses the competitive advantage it had (under §936).” He noted that by reducing the corporate rate to multinationals operating in Puerto Rico, the benefit of giving them tax exemptions at the local level is also reduced, as is the case of Law 73 on Industrial Incentives: via the elimination of §936, Puerto Rico, as a place to do business, went from competing with the continental U.S. to competing with countries such as Singapore and Ireland, adding that now a reduction in the corporate rate would cause Puerto Rico not only to compete with the rest of the world, but with jurisdictions on the mainland: “I think that if I were the Secretary of the Treasury, I would tremble with this situation.”

In Puerto Rico, he estimates manufacturing employs approximately 75,000 people directly—a number which rises to 250,000 when indirect and induced jobs are calculated, adding that even though the manufacturing sector has shrunk in the past years, the productive and contributory base rests on that activity, adding that: “As much as it is said that they do not pay taxes, this sector contributes 33% of the revenues…As long as jobs are lost there, the treasury will erode,” noting that the industrial sector plays such a large role in Puerto Rico’s economy that no other sector of the service economy can counterbalance it. He worries that if Congress fails to address the apparent discrimination, the chances that the PROMESA Board and the government of Puerto Rico can put together an economic recovery plan is minimal: “These are implications for all of Puerto Rico: It is difficult to think about options, because if this is approved, it would be disastrous, because of everything that has happened after Hurricane Maria.”

Last night, the former president of the Association of Certified Public Accountants, Kenneth Rivera Robles, who has been part of several lobbying delegations to Washington, remained relatively optimistic that the project language will be amended.

President Woodrow Wilson signed the Jones-Shafroth Act into law on March 2, 1917, with the law providing U.S. citizenship to Puerto Rico’s citizens, granting civil rights to its people, and separating the Executive, Judicial, and Legislative branches of its government. The statute created a locally elected bicameral legislature with a House and Senate—but retained authority for the Governor and the President of the United States to have the authority to veto any law passed by the legislature. In addition, the statute granted Congress the authority to override any action taken by the Puerto Rico legislature, as well as maintain control over fiscal and economic matters, including mail services, immigration, defense, and other basic governmental matters. 

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The Human & Fiscal Challenges of Recovery

November 3, 2017

Good Morning! In today’s Blog, we consider the ongoing fiscal recovery of Michigan municipalities; the City of Detroit’s efforts to upgrade the quality of rental housing, and the ongoing fiscal and human plight of the U.S. territory of Puerto Rico.

Visit the project blog: The Municipal Sustainability Project 

Royal R-O-L-A-I-D-S. Michigan State officials Wednesday released Royal Oak Township, a suburb of Detroit and a charter township of Oakland County with a population as of the 2010 census of 2,419, from its consent agreement, with Michigan Treasurer Nick Khouri stating the Oakland County township is now free of the fiscal agreement under which the state placed it three years ago to resolve a financial emergency: “I am pleased to see the significant progress Royal Oak Charter Township has made under the consent agreement…Township officials went beyond the agreement and enacted policies that provide the community an opportunity to flourish. I am pleased to say the township is released from its agreement and look forward to working with them as a local partner in the future.” He added that progress has been made since 2014 to resolve issues that led to a financial emergency for the Oakland County community, for example, noting that today the township has a general fund balance of $920,000 instead of a deficit—and that police and fire services are improved. Township Supervisor Donna Squalls says the community has been able to work with the state and “enact reforms to ensure our long-term fiscal sustainability. Royal Oak Township’s financial emergency resulted in an assets deficit of nearly $541,000 for its 2012 budget year. Township Supervisor Donna Squalls noted: “Royal Oak Charter Township is in better shape than ever: The collaboration between state and township has provided an opportunity to enact reforms to ensure our long-term fiscal sustainability.” For his part, State Treasurer Khouri noted the township was the last remaining Michigan municipality operating under a fiscal consent agreement: over the last two years, Wayne County, Inkster, and River Rouge were released from consent agreements in response to fiscal and financial improvements and operational reforms. The Treasurer stated only three communities: Ecorse, Flint, and Hamtramck remain under state oversight through a Receivership Transition Advisory Board.

Protecting the Motor City’s Renters. The Detroit City Council this week voted unanimously to update its rental regulations, am update which included the enactment of rules to bar landlords from collecting rent on units which have not passed city inspections. Under the current ordinance, housing units are supposed to be registered and have passed city inspections by obtaining a certificate of compliance prior to being available for rental purposes; however, before they can be rented out. However, city officials admit they have permitted most landlords to ignore those rules for more than a decade—rules adopted to ensure compliance with safety regulations, especially lead poisoning prevention efforts, for which inspections are a part of obtaining a certificate of compliance. Or, as Councilman Andre Spivey put it: “We hope it will improve the quality of life in our neighborhoods and entire city.” However, some landlords have claimed that enforcing inspections with the threat of rent being withheld would discourage the incentive to provide rental housing opportunities in the city—already a challenge because of apprehensions about crime and the quality of public schools—with some even vowing to sue the city. Last year, just 4,174 addresses were registered and inspected—less than 3 percent of the Motor City’s estimated 140,000 rental units—and more than 20 percent below the number registered a decade ago. Indeed, last year, the Detroit News reported that only one of every 13 eviction cases was filed on an address legally registered with the city—with the paper reporting that families facing eviction in homes that were never inspected by the city and had numerous problems, including: lack of heat, hazardous electric systems, missing windows, and rodent infestation.

Under the updated regulations, to be phased in over the next six months, tenants who live in rentals which have not passed city inspections would be given the option to could put their rent in an escrow account for 90 days. If the landlord, by the end of such period, had failed to obtain a city certificate, the renter will be able to keep the money. Subsequently, a tenant would be permitted to continue to put rent in escrow if the landlord does not comply, while the city would hire a third-party company to manage the escrow fund. The new escrow provision will be phased in, and each neighborhood will have different deadlines. Renters who are escrowing their payments will also have the right to “retain possession of the rental property,” according to the updated regulations.

A Motor City of Dreams? Meanwhile, yesterday, Renu Zaretsky, writing for the Tax Policy Center, “Transformational Brownfield of Dreams in a Motor City,” about the role of fiscal tax policy in revitalizing two Michigan cities, noted that the city’s famed Renaissance Center had been constructed to revitalize Detroit in the wake of the 1967 riots—with Henry Ford II, in 1971, convincing dozens of businesses to invest in the $350 million project; however, she noted: the hoped-for transformation never took place, leading to the collapse of the Center’s assessed property value—and crushing hopes for the city’s fiscal revival. Yet, today, Detroit and the state of Michigan seem poised to invest half a trillion dollars to try once again to revitalize the recovering downtown—a downtown in which developer Dan Gilbert, the founder of Quicken Loans, is investing to transform via 3.2 million square feet of office, residential, and retail space, including a skyscraper and 900 apartments—albeit, Mr. Gilbert is seeking tax incentives to support the effort, claiming taxpayer subsidies are “essential,” for not only this project, but also other investment in the city. Under his proposal, he would to put up a total of $1.9 billion, with about $500 million up-front: in return, he is seeking the leverage of additional funding from a newly amended state tax incentive program—under which he anticipated some $557 million over the next three and a half decades, based on new state legislation Gov. Rick Snyder signed last summer to amend the state’s Brownfield Redevelopment Financing Act of 1996: under the state’s current statute, brownfield developers could recoup limited construction costs (such as demolition, site preparation, and infrastructure improvements) via tax increment financing; however, under his new proposal, the state would directly subsidize construction costs that directly benefit an eligible property—with the municipal bonds backed by Michigan state sales and income taxes generated during on-site construction, as well as 50 percent of state income and withholding taxes from those who will live and work on the sites in the future, as well as the added property tax revenue. The Detroit Brownfield Redevelopment Authority would issue municipal bonds to finance the project, with the bond payments secured by some $229.6 million in property tax revenues, $18.2 million from construction site state income taxes, $1.6 million from city income taxes, and $307.9 million from state income taxes paid by future workers and residents. She notes that Mr. Gilbert promises this project would attract 2,122 residents who would pay monthly rents ranging from $2,287 to $3,321 and create 8,500 direct permanent jobs, including 5,400 office jobs paying an annual average of $85,000 and 1,700 retail and service positions paying $25,000—with Michigan reimbursed via captured state and municipal income taxes over the next two decades.  

As we have noted—and she writes: this is a fiscal dare: notwithstanding its fiscal recovery, the Motor City still has the highest rate of concentrated poverty among the 25 most populous metro areas in the U.S.; its median household income is about $26,000; and its unemployment rate was 9.6% in July. That is: this is a gamble in an area in the downtown where—on the day Detroit filed for chapter 9 municipal bankruptcy, the hotel clerk told me it was unsafe for me to walk to the Governor’s Detroit offices—about a half mile away—to meet with Kevin Orr on his very first morning as the Governor’s appointed Emergency Manager. Now, nearly a decade later, the fiscal challenge—and risk—is whether new state tax expenditures which benefit developers could succeed in boosting Detroit’s recovering revenues.

Physical & Fiscal Destruction. Hurricane Maria left no equina or corner of Puerto Rico untouched: the cataclysmic storm meted out systemic physical and fiscal devastation to the U.S. territory and to the lives and livlihoods of its 3.4 million American citizens. This morning, more than five weeks later, too many residents still lack safe and clean drinking water, access to food, and communications. Power, and transportation links are only partially restored. While tens of thousands of public servants and volunteers are now hard at work restoring those essential needs and unblocking constraints from logistics to information flow, the contrast with the federal responses in Houston and Florida have become even more stark. It means Puerto Rico’s leaders face two simultaneous challenges: addressing people’s most urgent physical needs, and laying the foundations for the direction of the medium- and long-term recovery and reconstruction efforts ahead.

In a way similar to Detroit, Puerto Rico confronts a legacy of debt and economic uncertainty, but, as we have noted above; the physical and fiscal devastation might offer a historic opportunity to reimagine Puerto Rico’s future. Yet, how the island’s fiscal and physical reconstruction is conceived and implemented will determine the future of the island: it will be the architecture of Puerto Rico’s physical and civic infrastructure for the next half century, or, as Puerto Rico’s Economic Secretary Manuel Laboy said recently: “We have this historic opportunity: Instead of going with incremental changes, we can go and push the envelope to really transform the infrastructure. That is the silver lining opportunity that we have.” After all, Hurricane Maria exacerbated the considerable challenges already confronting Puerto Rico: a massive public finance debt crisis and migration flows which have witnessed a dramatic outflow of the island’s population: an outflow of more than 10%–but an unbalanced 10%, as the outflow has been characterized disproportionately by being both younger and more educated, meaning Puerto Rico has disproportionately greater low-income and elderly citizens in need of greater fiscal assistance, even as those most valuable to a vibrant economy has become smaller.

The fiscal and human challenge, this, will be for its leaders not to employ the paper towels thrown at them by President Trump, but rather to leverage its considerable natural assets: its central location in the Caribbean region, its hard-working and resourceful residents, its mostly mild climate, and its development-friendly topography. Indeed, many agencies involved in the reconstruction are rightly conducting a “needs assessment” to align their aid efforts. Equally important to medium- and long-term reconstruction is an “asset map” to ensure that Puerto Rico’s strengths, resources, and opportunities are taken into account when imagining the future potential of the island. At the same time, as part of rebuilding, its leaders will need to anticipate that global warming means that more category 4 and 5 storms are certain in the future—so that rebuilding what was is not a constructive option: there will have to be innovation to creating a resilient infrastructure for power, water and sanitation, communications and transportation.

But, again as in Detroit, the physical, governance, and fiscal reform process which Puerto Rico’s new administration has promised must remain front and center: how can Puerto Rico restore its own fiscal and political solvency—a challenge hardly enhanced in the wake of criticism of the Puerto Rico Electric Power Authority’s (PREPA) now-canceled contract with Whitefish Energy Holdings: the territory must create transparent budgets and plans with regard to how recovery funding is allocated—as well as complete its exploration how citizen panels and consultations to review different design options and careful procurement, oversight, and reporting mechanisms can earn respect and support—not only from its citizens and taxpayers, but also from the PROMESA Oversight Board: a transparent procurement system which can assess the myriad offers that will come in to ensure that the legacies created are cost-effective and the best options for the people and the island. 

Puerto Rico’s Municipalities or Muncipios. Unsurprisingly, the fiscal crisis which has enveloped most of Puerto Rico’s municipalities has multiplied after the passage of Hurricane Maria. The economic burden to respond to the emergency situation has undermined efforts to refills depleted coffers, meaning that the municipal executives of the Popular Democratic Party (PDP), grouped under the Association of Mayors, have not ruled out imposing austerity measures in addition to those applied last year—or, as Association President Rolando Ortiz, the Mayor of Cayey, put it:I am sure that all municipalities are exposed to having to reduce working hours or eliminate places permanently, because we are all exposed to lack of income.” According to reports from El Nuevo Día from last August, some 15 municipalities had to cut working hours of their employees—in some municipalities up to 50%, including in the towns of Vieques, Toa Baja, Las Piedras, and Cabo Rojo. The physical and fiscal devastation comes in the wake of fiscal declines of the municipalities in the past decades after assuming burdens imposed by the Commonwealth, such as mandated increases in contributions to the Retirement Systems, the subsidy to the Government Health Plan, and the reduction in the government contribution. Even though the municipalities have been unable to generate specific data on the economic impact that the municipalities have suffered in the wake of Maria’s impact, Mr. Ortiz emphasized that the blow has been severe: the mayors have had to assume recovery and first response tasks which were not budgeted, such as the collection and disposition of debris and the purchase and supply of diesel and gasoline. Notwithstanding that some of the funds will be reimbursed by the Federal Emergency Management Agency (FEMA), such funding will not represent an automatic improvement in the coffers. As Mr. Ortiz notes: “Before the hurricanes Irma and María, 40 municipalities were about to close their operations. With this impact we have had, we have almost two months of zero commercial economic activity…it makes the fiscal situation precarious.” One of the most serious fiscal claims of the mayors has been for the return of $ 350 million in revenue from contributions that the central government has proposed to cut to municipal assistance in the next fiscal year—with the Mayors meeting yesterday in San Juan to discuss the economic and social situation of each of the associated municipalities in the wake of the storms, where they agreed that the urgency of water and food supplies and the restoration of basic services persists—and that they could not “validate” the claim of Puerto Rico’s Aqueduct and Sewer Authority that 82 percent of subscribers have service. Mayor Marcelo Trujillo of Humacao noted: “If electricity does not arrive, the municipality will go bankrupt, given the case that we depend on 13 industries, trade, and hospitals that we have that are working halfway,” adding that some of the businesses in his city which are open, are only partly operating—while the municipality’s largest shopping center remains shuttered—depriving the community of tax revenues, earned income, and hop—and meaning, as he reported, that the municipality has been unable to restore operations, because the Casa Alcaldía (town hall) suffered damages that prevent work from there. 

His colleague, the Mayor of Comerío, José A. Josian Santiago, noted: “As of July 1 of next year, my budget goes down from 60 percent from $10 million to $4 million, which would mean that, at this time of crisis, I have to leave 200 employees out of a total of 300. How am I going to operate? How will I respond to the emergency?” He noted that the current situation of Comerío is complicated, because, in addition to the lack of basic services, citizens have no way to obtain money for the purchase of food and basic necessities, because banks and ATM’s are closed: “It is a fatigue for my team, as for the people, to be every day trying to survive. A country cannot establish that as a condition of life. There is no way to sentence the communities of our municipalities to survive every day.”

The Price of Solvency. Even as Puerto Rico is struggling to recover without anything comparable to the federal assistance rendered to Houston and Florida, the PROMESA federal oversight board has given the U.S. territory about seven weeks to revise its financial recovery plan to account for the devastating damage suffered in Hurricane Maria, raising the possibility the territory will need to impose deeper losses on owners of its $74 billion debt. The panel earlier this week mandated that Puerto Rico will need to seek approval for any contract over $10 million, significantly expanding its supervision—a step taken in the wake of PREPA’s decision to grant a critical $300 million rebuilding contact to a small Montana company which had just two full-time employees before beginning its work in Puerto Rico. With Maria wreaking an estimated $95 billion in physical devastation, Puerto Rico’s municipal bonds have tumbled on speculation that investors will be forced to accept even steeper concessions than previously anticipated: the territory’s main operational account, which receives most of its public funds and covers most of its expenses, is now projected to report a deficit of $2.4 billion by the end of this year—a deficit exploded not just by the storm devastation, but also by Maria’s toll on the government’s tax collections—or, as PROMESA Board Executive Director Natalie Jaresko put it: “The devastation has affected millions of lives, decimated critical infrastructure, made revenue collections almost impossible…In light of this new reality, we must work urgently towards revising the certified fiscal plans.” The commonwealth and PREPA have been ordered to submit to the federal board their updated fiscal plans by Dec. 22nd. It is unclear, however, whether the PROMESA Board has fully taken into account the demographic changes caused by the physical storm: The revisions need to take into account the anticipated population loss because of Maria, with Hunter College’s Center for Puerto Rican Studies estimates Puerto Rico will lose 14 percent of its population by 2019 because of the storm.

Director Jaresko told the PROMESA Board the hurricane left several variables that will affect the amount of revenues available and spending that will be necessary in the next few years, meaning that the territory’s fiscal recovery plan should show that structural balance should be achieved by FY2022, so that, according to the schedule discussed by the Board, it will seek draft fiscal plans from the commonwealth government, PREPA, and the Puerto Rico Aqueduct and Sewer Authority by Dec. 22nd, aiming to have approved fiscal plans for these entities by Ground Hog Day. The Board plans to adopt certified plans by March 16th, after holding two public meetings in Puerto Rico and one in New York City to receive public comment on the revision to the fiscal plans: these are tentatively scheduled for Nov. 16, 28, and Dec. 4.