Planning Municipal Debt Adjustment

May 21, 2018

Good Morning! In this morning’s eBlog, we take a fiscal perspective on post-chapter 9 Vallejo, before exploring the seeming good gnus of lower unemployment data from Puerto Rico.

Fiscal Reinvention.  After Vallejo, a waterfront city in Solano County of about 115,000 in California’s Bay Area, filed for chapter 9 municipal bankruptcy, just over a decade ago, on May 17, 2008, claiming it could no longer afford to pay wages and benefits promised to its employees; it appears its chapter 9 plan of debt adjustment has worked. The municipality, which served twice as California’s capital, was the nation’s largest city to file for municipal bankruptcy when it did—a period during which, in the wake of cuts of as much as 40 percent in its police force, and closure of its fire stations, leading to sharp increases in crime—there were, consequently, serious declines in assessed property values.  The municipality’s cash reserves disappeared; it was unable to pay its bills amid falling property tax revenue, soaring costs of employee compensation and pension liabilities, and a consequent surge in foreclosures. Thus, with its official exit, the city will be able to resume its governance—albeit, as Moody’s moodily explained last month, the city’s plan of debt adjustment will bequeath “significant unfunded and rapidly rising pension obligations,” adding that in addition to higher taxes, the city will be confronted by “challenges associated with deferred maintenance and potential service shortfalls.” Further, the credit rating agency noted, the “probability of continued financial distress and possibly even a return to bankruptcy.” Today, median household income in the city is under $40,000, while average municipal employee compensation is over $114,000. The city currently has 17 police sergeants receiving compensation packages which range from $220,000-$469,000—in addition to generous promised retirement pensions.  

Vallejo Assistant City Manager Craig Whittom last week noted that the city had been left to determine its Chapter 9 bankruptcy end date in the wake of U.S. Bankruptcy Judge Michael McManus’ approval of the city’s plan of debt adjustment last August—a key component of that plan being the codification of municipal bond repayment obligations to the city’s largest creditor, Union Bank, a plan approved by the Vallejo City Council three weeks ago, with Mr. Whittom noting that Vallejo’s formal chapter 9 exit is important in tangible ways for the city. For instance, he noted the elimination of real estate agents’ requirement to disclose that the city is in bankruptcy when selling properties, albeit conceding that municipal bankruptcy-deferred lawsuits against the city will now be free to go forward.

Nevertheless, leaving municipal bankruptcy is a fiscal challenge of its own—especially in instances where a municipality’s plan of debt adjustment does not take into account public pension obligations. As Ed Mendel of Calpensions explained: “Vallejo received court approval to exit from bankruptcy last week with a plan that includes a sharp increase in pension payments to CalPERS—the opposite of what many expected when the city declared bankruptcy in May 2008,” a resolution which, left the municipality with a proverbial ball and chain around its ankle because, by 2014, the city was confronted by ballooning public pension liabilities, with CNN reporting that Vallejo’s recent public-safety retirees have annual pension benefits which top $100,000 a year, leading Wallet-Hub to describe Vallejo as the “second least recovered city.”  That is, absent the ability to trim benefits for current employees, there are few options to keep pensions from consuming ever-increasing parts of a municipality’s budget.

Nevertheless, the city’s leaders have demonstrated innovative fiscal grit and determination: it has begun reinventing itself, using technology to fill personnel gaps, rallying residents to volunteer to provide public services, and even offering its voters the chance to decide how their taxes will be used—in return for an increase in the sales tax. Now, for the first time in five years, the city expects to have enough money to address potholes, weeds in public rights of way, etc.  

Lessons Learned. Prior to its chapter 9 filing, Vallejo’s salaries for city employees had ballooned: a number of top officials were making $200,000 or $300,000—enough so that some 80 percent of the city’s budget went toward compensation, even as the city’s credit rating was downgraded to junk status—meaning that, as part of the city’s plan of debt adjustment, the municipality paid only five cents for every dollar it owed to its bondholders, while the city also reduced employees’ pay, health care and other benefits—making it harder to attract key employees.  

That meant, as former Councilmember Marti Brown noted, that for Vallejo to fiscally survive, the city needed to study best practices from around the world and bring some of them to California—an effort which, in retrospect, she said turned “out to be a really positive experience for the city.” Together with former Councilmember Stephanie Gomes, the two elected leaders focused on public safety: they went the neighborhood to neighborhood setting up e-mail groups and social media accounts so residents could, for instance, share pictures of suspicious vehicles and other information: the number of neighborhood watch groups jumped nearly 300% from 15 to 350. Moreover, the City Council worked out an unusual compact with residents: in return for agreeing to a one-penny sales tax increase, projected to generate an additional $9.5 million in revenue, the resident gained the right to vote on how the funds would be used: citizen participatory budgeting—the first in a North American city.

This fiscal and governing innovation—or “ground-up restructuring,” as Karol Denniston, a partner with Squire Patton Boggs LLP notes, has meant that, today, Vallejo is “now routinely one of the top 10 cities where people want to live, which is a huge turn-around from when they entered bankruptcy.” The median listing price in Vallejo had soared to $420,000 by last month from $290,000 in May of 2015, according to realtor.com, crediting city leaders for turning around the relationships with its police and fire employees: “It looks like someone was able to improve those relationships: You have to bring the employees and the taxpayers along at the same time to reach a good consensus on financial goals.” Thus, unsurprisingly, last week, Finance Director Ron Millard presented a structurally balanced $105 million budget to the City Council for the fifth consecutive year—proposing reserves of 17.3%, after a strict fiscal diet of austerity measures in the intervening years composed of cutting police and fire services to the bone, tax increases, and economic development measures.

The Challenging Road to Recovery. Puerto Rico’s unemployment rate slipped below 10% last month for the first time in nearly two decades—albeit the change is more a reflection of emigration than economic improvement. According to the Bureau of Labor Statistics, nonetheless, Puerto Rico’s unemployment rate was 9.9%, its lowest level since it was 9.8% in November of 2000—a rate nearly 50% lower than the Spring of 2009. The BLS reported that the number of residents with jobs declined 1% last month from April of 2017 according to the Bureau’s Current Employment Statistics, and this showed total non-farm employment declining last month by 3.6% from a year earlier, with private sector non-farm employment down 3.3% from a year earlier—denoting a further sign of the fiscal challenges ahead as the U.S. territory restructures its debt. Of concern is who is leaving, as Advantage Business Consulting President Vicente Feliciano noted that the “unemployment rate is down mainly due to emigration: Thus, there are fewer people employed, but as a result of emigration, fewer people are looking for a job; meanwhile, the Puerto Rico economy is being impacted by the start of [hurricane-related] insurance and federal transfers.” Nevertheless, he reported that the Economic Activity Index in March 2018 was up with respect to February 2018: “Cement sales are up over 20% in March 2018 compared to March 2017. While these transfers are only beginning, they are non-recurrent and therefore should not be the basis for debt renegotiation.” However, Inteligencia Económica Chairman Gustavo Vélez noted: “The [labor force] participation rate remains very low…The information that I have is that the labor market is not normalized yet. Nevertheless, key industries like construction and retail are doing well because of the federal recovery funds already deployed into the local economy ($10 billion since October 2017).” According to the most recent economic activity index release (March), the index was down 2.6% from a year earlier; however, this was a rebound from the 19.7% decline in November 2017 from November 2016.

Who’s on First? Confidential conversations between the PROMESA Board and Gov. Ricardo Rosselló Nevares’s administration continued over the past few days without the certainty to reach a balance between the revenues and expenses the Government will have during the upcoming fiscal year—a year commencing in little over a month, on July 1st. Yet, even with the adjustments made by Governor Rosselló, following some of the Board’s mandates, government expenses are proposed for some $8.73 billion, a level some $200 million higher than the revenue certified by the Board. Nevertheless, neither the Board, nor the Fiscal Agency and Financial Advisory Authority (FAFAA) have been willing to discuss the preparation of the new budget or the differences, which have been publicly outlined between the parties. For his part, the Governor has refused to accept the revenue scheme certified by the Board to prepare the budget, instead opting to use the numbers contained in the new Fiscal Plan—while the PROMESA Board has objected that pensions adjustments contained in the Fiscal Plan have not been implemented, nor have their proposed labor reforms been listed.

Some parties have indicated that, as part of the process between the parties, Puerto Rico has promised, as required by the PROMESA Board, to eliminate Law 80, a Puerto Rican law which protects workers from unjust dismissals, in exchange for the allocation of some $100 million to municipalities, as well as an increase in funds for the Legislature, the Governor’s Office, and the Federal Affairs Administration. The see-saw issue at a time of steep cuts in Puerto Rican government services and school closures, including limitations in the Government’s Health Plan, has led Gov. Rosselló Nevares’ administration to criticize the seemingly contradictory fiscal situation in which the PROMESA Board has requested nearly a 33% increase from $60 million to $80 million in the amount it receives to finance its operation and bankruptcy lawsuits of the central government and several public agencies, at the same time, as Rafael Hernández Montañez, spokesman of the Popular Democratic Party minority in the House, expressed the Board does not appear to “think the same about the elimination of workers’ rights,” and at the same time the Governor is looking to increase government investment in Puerto Rico’s future.

Advertisements

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.”

Leadership Challenges to Fiscal & Physical Recoveries

08/04/17

Share on Twitter

eBlog

Good Morning! In this a.m.’s blog, we consider the ongoing fiscal and physical recovery of Flint, Michigan—as well as the fiscal recoveries of Pontiac and Lincoln Park, and we look at the special fiscal challenge to Puerto Rico’s debts.

In Like Flint. EPA has okayed the State of Michigan’s plans to forgive $20.7 million in past water infrastructure loans owed by the City of Flint, relying on federal legislation enacted at the end of last year to provide states the Safe Drinking Water Revolving Loan program to forgive past loans owed to a state. EPA Administrator Scott Pruitt noted: “Forgiving Flint’s past debt will better protect public health and reduce the costs associated with maintaining the city’s water system over time…Forgiving the city’s debt will ensure that Flint will not need to resume payments on the loan, allowing progress toward updating Flint’s water system to continue.” In response, Mayor Karen Weaver stated: “We appreciate the EPA’s continued assistance as we work to recover from the water crisis: We have come a long way, but there is still much more work that needs to be done. With help and support like this from federal, state as well as local entities, Flint will indeed bounce back.”

Emerging from State Fiscal Oversight. The Michigan Treasury Department reports that the Michigan municipalities of Pontiac and Lincoln Park have both sufficiently improved their fiscal conditions to warrant release from eight long years of state oversight: they may return to local control in the wake of Michigan Treasurer Nick Khouri’s announcement that the Pontiac and Lincoln Park Receivership Transition Advisory Boards would be dissolved and effective immediately, thereby returning full fiscal authority to the elected leaders of the respective municipalities. The Michigan Receivership Transition Advisory Boards, which have been monitoring the cities’ finances since the departure of emergency managers, have been dissolved—clearing the way for locally elected officials to resume complete control of the respective municipal governments again, with Lincoln Park now making regular contributions to its pension fund, with the Detroit suburb emerging from state oversight which commenced in 2014. Nearby Pontiac had sought a state financial review a decade ago—operating in the wake thereof under a consent agreement and an emergency manager. The Treasury today reports the municipality has a general fund balance of $14 million. Thus, the two municipalities join Wayne County, Benton Harbor, Highland Park, and four other municipalities in exiting such fiscal oversight; however, nine municipalities and school districts remain under some sort of state oversight, although the state has imposed an emergency manager only in Highland Park Schools. In making the announcement, Gov. Rick Snyder reported: “Under the guidance of the Receivership Transition Advisory Boards, both Lincoln Park and Pontiac have made significant progress to right their finances and build solid, fiscal foundations for their communities: This is a great achievement for the cities.”

In the case of Pontiac, the city’s debt long-term debt dropped nearly 80% under state oversight, from over $45 million to about $8.2 million since 2009, according to the Michigan Treasury Department, culminating at FY2016 year-end with a general fund balance of $14 million. At the same time, a blight remediation program in the city has succeeded in razing nearly 680 blighted residential properties since 2012, in no small part through CDBG assistance. Secretary Khouri noted: “Pontiac has seen great economic progress and opportunity since the lost decade.” The city of Lincoln Park cut its long term debt from more than $1 million in 2014 when it entered state oversight to $260,707. At the end of fiscal-year 2016, Lincoln Park ended with a general fund balance of $24.4 million.  The city entered state controlled emergency management in February 2014 and began its transition to local control in December 2015. “Today marks an important achievement for Lincoln Park residents, the city and all who have contributed to moving the city back to a path of fiscal stability,” Khouri said. Lincoln Park, with a population of close to 40,000, where Brad Coulter, who has served as the Emergency Manager, noted that the Hispanic and Latino population make up about 15% of Lincoln Park residents, describing the diversity as a “growing and an important part of the city” which as really helped “to stabilize the city.”

Puerto Rican Debt. The Fiscal Supervision Board in the U.S. territory wants to initiate a discussion into Puerto Rico’s debt—and how that debt has weighed on the island’s fiscal crisis—making clear in issuing a statement that its investigation will include an analysis of the fiscal crisis and its taxpayers, and a review of Puerto Rico’s debt and issuance, including disclosure and sales practices, vowing to carry out its investigation consistent with the authority granted under PROMESA. It is unclear how that report will mesh with the provision of PROMESA, §411, which already provides for such an investigation, directing the Government Accounting Office (GAO) to provide a report on the debt of Puerto Rico no later than one year after the approval of PROMESA (a deadline already passed: GAO notes the report is expected by the end of this year.). The fiscal kerfuffle comes as the PROMESA Oversight Board meets today to discuss—and mayhap render a decision with regard to furloughs and an elimination of the Christmas bonus as part of a fiscal oversight effort to address an expected cash shortfall this Fall, after Gov. Ricardo Rosselló, at the end of last month, vowed he would go to court to block any efforts by the PROMESA Board to force furloughs, apprehensive such an action would fiscally backfire by causing a half a billion contraction in Puerto Rico’s economy.

Thus, we might be at an OK Corral showdown: PROMESA Board Chair José Carrión III has warned that if the Board were to mandate furloughs and the Governor were to object, the board would sue. As proposed by the PROMESA Board, Puerto Rican government workers are to be furloughed four days a month, unless they work in an excepted class of employees: for instance, teachers and frontline personnel who worked for 24-hour staffed institutions would only be furloughed two days a month, law enforcement personnel not at all—all part of the Board’s fiscal blueprint to save the government $35 million to $40 million monthly.  However, as the ever insightful Municipal Market Advisors managing partner Matt Fabian warns, it appears “inevitable” that furloughs and layoffs would hurt the economy in the medium term—or, as he wrote: “To the extent employee reductions create a protest environment on the island, it may make the Board’s work more difficult going forward, but this is the challenge of downsizing an over-large, mismanaged government.” At the same time, Joseph Rosenblum, the Director of municipal credit research at AllianceBernstein, added: “It would be easier to comment about the situation in Puerto Rico if potential investors had more details on their cash position on a regular basis…And it would also be helpful if the Oversight Board was more transparent about how it arrived at its spending estimates in the fiscal plan.”

Puerto Rico & Municipal Bankruptcy: a process of pain where “failure is not an option.”

eBlog

Good Morning! In this a.m.’s eBlog, we consider the opening under U.S. Judge Laura Swain of the unique, quasi chapter 9 municipal bankruptcy process which opened this week in Puerto Rico, where Judge Swain noted the process “will certainly involve pain,” but that “failure is not an option.”

Getting Ready to Rumble. Judge Swain has combined two major PROMESA Title III filings made earlier this month by Puerto Rican authorities—one for its general obligation debt, and one for debt which is backed by the Puerto Rico’s Commonwealth or COFINA sales tax revenues. Reuters helps explain, writing: “The island’s initial bankruptcy filing on [May 3] included only its central government, which owes some $18 billion in general obligation, or GO debt, backed by its constitution…The COFINA filing [on May 5] will pull in another $17 billion or so in debt under the Title III umbrella. Overall the island’s government and various agencies have a debt load of $74 billion that they cannot repay.” Unsurprisingly, as Bloomberg notes, a sizeable separation between general obligation and COFINA bondholders has already emerged. Judge Swain’s early decision to merge the two filings for administrative purposes appears to denote a small victory for the PROMESA Board, as some COFINA stakeholders had objected (COFINA bondholders were the first to sue the government of Puerto Rico after the freeze on creditor litigation under PROMESA expired at Midnight May 1st.) They accuse Puerto Rico, Governor Ricardo Rossello and other officials of angling to repurpose the tax revenue earmarked to pay COFINA debt.: they argued that COFINA is a separate entity whose assets, in the form of sales tax revenue, are earmarked only for creditors.” The debt here dwarfs any we have seen in Detroit, San Bernardino, etc.: Puerto Rico, according to the PROMESA Board, cannot even meet 25% of its $900 million necessary to service its municipal debt. And, in some sense, that debt—owed to investors in the 50 states, pales compared to the human obligations at home: NPR’s Greg Allen describes: “retirees who are owed pensions; 180 closed public schools, $500 million in cuts proposed for the university here…So lots of pain to come here—and the governor is going to be releasing a budget later this month, which will show a lot more pain coming. Among the things that are going to happen is, I think, big cuts in health care benefits.” He estimated the trial could exceed the duration of Detroit’s chapter 9, taking as many as five years to conclude. Judge Swain will—as Judge Rhodes had to in Detroit, and as was the very hard case in Central Falls, Rhode Island’s municipal bankruptcy‒Puerto Rico’s $49 billion in government pension obligations. But Puerto Rico’s debt is not just fiscal: the island has a poverty rate of 45%–a level dwarfing what we have experienced in previous chapter 9 bankruptcies. The current case may not affect all of these because some are for the employees of semi-autonomous Puerto Rico entities like the Puerto Rico Electric Power Authority. And, the trial here dwarfs the previous largest U.S. municipal bankruptcy in Detroit, where the stakes involved $18 billion in debt, pension obligations, and other OPEB benefits. The pension obligations have been described as liabilities of as much as $45 billion. On the trial’s first day, Judge Swain heard presentations with regard to whether the case should include mediation—and, if so, which parties should be included: that is, she will have a Solomon-like set of choices, choosing between Puerto’s Rico’s citizens, its municipal bondholders, suppliers owed money, pensioners, and government employees. Judge Swain will also hear presentations with regard to whether—and when‒Puerto Rico should be required to submit lists of its creditors and in what manner and how notice to creditors will be made. The PROMESA Oversight Board attorney Martin Bienenstock said he anticipates other Puerto Rico public entities, including the Highways and Transportation Authority, would soon file for Title III later. The considerations in the court will also have to address how some $800 million set aside in Puerto Rico’s certified 10-year fiscal recovery plan will be apportioned between competing claims–including those of constitutionally backed general obligation debt (GO) and sales-tax backed or COFINA bonds.

Solomon’s Choices: Who Will Define Puerto Rico’s Fiscal Future–and How?

eBlog

Good Morning! In this a.m.’s eBlog, we consider the growing physical and fiscal breakdown in the U.S. Territory of Puerto Rico as it seeks, along with the oversight PROMESA Board, an alternative to municipal bankruptcy. 

Tropical Fiscal Typhoon. U.S. Supreme Court Chief Justice John Roberts has selected Southern District of New York Judge Laura Taylor Swain, who previously served as a federal bankruptcy Judge for the Eastern District of New York from 1996 until 2000 to preside over Puerto Rico’s PROMESA Title III bankruptcy proceedings—presiding, thus, over a municipal bankruptcy nearly 500% larger than that of Detroit’s–one which will grapple with creating a human and fiscal blueprint for the future of some 3.5 million Americans—and force Judge Swain to grapple with the battle between the citizens of the country and the holders of its debt spread throughout the U.S. (Title III of PROMESA, which is modeled after Chapter 9 of the Municipal Bankruptcy Code and nearly a century of legal precedent, provides a framework for protecting Puerto Rico’s citizens while also respecting the legitimate rights and priorities of creditors.) For example, the recent Chapter 9 restructuring in Detroit sought reasonable accommodations for vulnerable pensioners and respected secured creditors’ rights.

The action came in the wake of Puerto Rico’s announcement last week that it was restructuring a portion of its nearly $73 billion in debt—an action which it was clear almost from the get-go that the requisite two-thirds majority of Puerto Rico’s municipal bondholders would not have supported. (Puerto Rico’s constitution provides that payments to holders of so-called “general obligation” bonds have priority over all other expenditures—even as another group of creditors has first access to revenues from the territory’s sales tax.) More critically, Judge Swain will be presiding over a process affecting the lives and futures of some 3.5 million Americans—nearly 500% greater than the population of Detroit. And while the poverty rate in Detroit was 40%, the surrounding region, especially after the federal bailout of the auto industry, differs signally from Puerto Rico, where the poverty rate is 46.1%–and where there is no surrounding state to address or help finance schools, health care, etc. Indeed, Puerto Rico, in its efforts to address its debt, has cut its health care and public transportation fiscal support; closed schools; and increased sales taxes. With the Bureau of Labor Statistics reporting an unemployment rate of at 12.2%, and, in the wake of last year’s Zika virus, when thousands of workers who were fighting the epidemic were let go from their jobs; the U.S. territory’s fiscal conditions have been exacerbated by the emigration of some of its most able talent—or, as the Pew Research Center has noted:  “More recent Puerto Rican arrivals from the island are also less well off than earlier migrants, with lower household incomes and a greater likelihood of living in poverty.”

For Judge Swain—as was the case in Detroit, Central Falls, San Bernardino, Stockton, etc., a grave challenge in seeking to fashion a plan of debt adjustment will resolve around public pensions. While the state constitutional issues, which complicated—and nearly led to a U.S. Supreme Court federalism challenge—do not appear to be at issue here; nevertheless the human aspect is. Just as former Rhode Island Supreme Court Judge Robert G. Flanders, Jr., who served as Central Falls’ Receiver during that city’s chapter 9 bankruptcy—and told us, with his voice breaking—of the deep pension cuts which he had summarily imposed of as much as 50%—so too Puerto Rico’s public pension funds have been depleted. Thus, it will fall to Judge Swain to seek to balance the desperate human needs on one side versus the demands of municipal bondholders on the other. Finally, the trial over which Judge Swain will preside has an element somewhat distinct from the others we have traced: can she press, as part of this process to fashion a plan of debt adjustment, for measures—likely ones which would have to emanate from Congress—to address the current drain of some of Puerto Rico’s most valuable human resources: taxpayers fleeing to the mainland. Today, Puerto Rico’s population is more than 8% smaller than seven years ago; the territory has been in recession almost continuously for a decade—and Puerto Rico is in the midst of political turmoil: should it change its form of governance: a poll two months’ ago found that 57% support statehood. Indeed, even were Puerto Rico’s voters to vote that way, and even though the 2016 GOP platform backed statehood; it seems most unlikely that in the nation’s increasingly polarized status the majority in the U.S. Congress would agree to any provision which would change the balance of political power in the U.S. Senate.

Is There a PROMESA of Recovery?

eBlog

Good Morning! In this a.m.’s eBlog, we consider the growing physical and fiscal breakdown in the U.S. Territory of Puerto Rico as it seeks, along with the oversight PROMESA Board, an alternative to municipal bankruptcy, after which we journey north to review the remarkable fiscal recovery from chapter 9 municipal bankruptcy of one of the nation’s smallest municipalities.

Tropical Fiscal Typhoon. Puerto Rico is trapped in a vicious fiscal whirlpool where the austerity measures it has taken to meet short-term obligations to its creditors all across the U.S., including laying off some 30,000 public sector employees and increasing its sales tax by nearly 75% have seemingly backfired—doing more fiscal harm than good: it has devastated its economy, depleted revenue sources, and put the government on a vicious cycle of increasingly drastic fiscal steps in an effort to make payments—enough so that nearly 33% of the territory’s revenue is currently going to creditors and bondholders, even as its economy has shrunk 10% since 2006, while its poverty rate has grown to 45%. At the same time, a demographic imbalance has continued to accelerate with the exit of some 300,000 Puerto Ricans—mostly the young and better educated—leaving for Miami and New York. Puerto Rico and its public agencies owe $73 billion to its creditors, nearly 500% greater than the nearly $18 billion in debts accumulated by Detroit when it filed for chapter 9 municipal bankruptcy four years ago in what was then the largest municipal bankruptcy in U.S. history. Thus, with the island’s hedge-fund creditors holding defaulted municipal general obligation bonds on the verge of completing a consensual agreement earlier this week, the PROMESA oversight board intervened to halt negotiations and place Puerto Rico under the Title III quasi municipal bankruptcy protection. That will set up courtroom confrontations between an impoverished population, wealthy municipal bondholders in every state in the domestic U.S., and hedge funds—pitted against some of the poorest U.S. citizens and their future. Nevertheless, as Congress contemplated, the quasi-municipal bankruptcy process enacted as part of the PROMESA statute provides the best hope for Puerto Rico’s future.

Thus the PROMESA Board has invoked these provisions of the PROMESA statute before a federal judge in San Juan, in what promises to be a long process—as we have seen in Detroit, San Bernardino, and other cities, but with one critical distinction: each of the previous municipal bankruptcies has involved a city or county—the quasi municipal bankruptcy here is more akin to a filing by a state. (Because of the dual federalism of our founding fathers, Congress may not enact legislation to permit states to file for bankruptcy protection.) Unsurprisingly, when Puerto Rico was made a U.S. territory under the Jones-Shafroth Act, no one contemplated the possibility of bankruptcy. Moreover, as chapter 9, as authorized by Congress, only provides that a city or county may file for chapter 9 bankruptcy if authorized by its respective state; Puerto Rico inconveniently falls into a Twilight Zone—to write nothing with regard to access to such protections for Puerto Rico’s 87 municipalities or muncipios.

Moreover, while from Central Falls, Rhode Island to Detroit, the role of public pension obligations has played a critical role in those chapter 9 resolutions; the challenge could be far greater here: in Puerto Rico, retired teachers and police officers do not participate in Social Security. Adopting deep cuts to their pensions would be a virtual impossibility. So now it is that Puerto Rico will be in a courtroom to confront hedge funds, mutual funds, and bond insurers, after the negotiations between Puerto Rico and its creditors over a PROMESA Board-approved fiscal plan that allocates about $787 million a year to creditors for the next decade, less than a quarter of what they are owed, was deemed by said creditors to be a slap in the face—with the Board having pressed for a combination of debt restructuring spending cuts in its efforts to revive an economy trapped by a 45% poverty rate—and where the Board had proposed upping water rates on consumers, liquidating its decades-old industrial development bank, and seeking concessions from creditors of other government agencies. Moreover, amid all this, Gov. Ricardo Rosselló, who has recently renegotiated to mitigate politically unpopular fee increases on residents, now finds himself nearly transfixed between desperate efforts to sort out governance, meet demands of his constituents and taxpayers, and negotiate with a federally imposed oversight board, even as he is in the midst of a campaign for U.S. statehood ahead of a plebiscite on Puerto Rico’s political status—and in the wake of being named a defendant in a lawsuit by hedge funds after the expiration of a stay on such suits expired this week. Hedge funds holding general obligation and sales-tax bonds filed the suit on Tuesday, naming Gov. Rosselló as a defendant—albeit, the suit, and others, are nearly certain to be frozen, as the main judicial arena now will fall into a quasi-chapter 9 courtroom epic battle. And that battle will not necessarily be able to fully look to prior chapter 9 judicial precedents: while Title III incorporates features of chapter 9, the section of the U.S. bankruptcy code covering insolvent municipal entities, courts have never interpreted key provisions of Title III—a title, moreover, which protections for creditors which chapter 9 does not.

The Rich Chocolatey Road to Recovery! Moody’s has awarded one of the nation’s smallest municipalities, Central Falls, aka Chocolate City, Rhode Island, its second general obligation bond upgrade in two months, a sign of the former mill city’s ongoing recovery from municipal bankruptcy—an upgrade which Mayor James Diossa unsurprisingly noted to be “very important.” Moody’s noted that its upgrade “reflects a multi-year trend of stable operating results and continued positive performance relative to the post-bankruptcy plan since the city’s emergence from Chapter 9 bankruptcy in 2012,” adding that it expects the city will enhance its flexibility when its plan of debt adjustment period ends at the end of next month—at which time one of the nation’s smallest cities (one square mile and 19,000 citizens) will implement a policy of requiring maintenance of unassigned general fund reserves of at least 10% of prior year expenditures. In its upgrade, Moody’s reported the upgrade reflected Central Falls’ high fixed costs, referring to its public pension obligations, OPEB, and debt service–costs which add up to nearly 30% of its budget—and what it termed a high sensitivity to adverse economic trends compared with other municipalities, with the rating agency noting that a sustained increase in fund balance and maintenance of structural balance could lead to a further upgrade, as could a reduction in long-term liabilities and fixed costs and material tax-base and growth.

 

The Hard Challenges of Fiscal Sustainability

eBlog, 11/29/16

Good Morning! In this a.m.’s eBlog, we consider the ongoing—and evolving–state role in addressing municipal fiscal distress in Atlantic City: what is the role of a state and the impact on fiscal sustainability? Then we turn to the grim fiscal and governance situation in East Cleveland, Ohio—where state un-governance and next week’s looming Mayoral election appear to bode fiscal ills. Then we head south to the challenge of determining whether and how there might be promise in the implementation and unrolling of Congress’ recently enacted PROMESA legislation—the quasi chapter 9 for the U.S. Territory of Puerto Rico.

Not the Moody Blues. Moody’s Investors Service was uncharacteristically unmoody in determining that the state takeover of Atlantic City was a “credit positive” for the city, citing the unlikely threat of immediate default through 2017 as the largest contributing factor in its outlook. The credit positive comes during the first month of Gov. Chris Christie’s appointment of Jeffrey Chiesa to oversee the city: under his appointment, he has wide-ranging fiscal authority—indeed, as Moody’s described it: “While the state has not officially guaranteed Atlantic City’s debt, [the State] intends to prevent any default.” The state takeover comes as the city confronts a $2.3 million payment this week, followed by a $4.8 million debt payment on December 15th—but in the wake of the New Jersey Local Finance Board’s unanimous vote to grant its director, Timothy Cunningham, far-reaching governing powers over the beleaguered city under the authority granted by the state’s Municipal Stabilization and Recovery Act, was the worst-case scenario for the city, which has been fighting a takeover for the last year, even as it barely escaped going broke; Moody’s described Mr. Cunningham’s expressed “willingness to go to the state treasury for assistance if necessary to pay debt service” as a credit positive—or, as Moody’s described it: “While the state has not officially guaranteed Atlantic City’s debt, Director Cunningham has said the state intends to prevent any default.”

Trouble in River City. In the wake of last month’s hefty fine ($114,100) by the Ohio Election Commission of East Cleveland, Ohio Mayor Gary Norton over incomplete, late, and missing fundraising reports—fine nearly quintuple last year’s—with this year’s levied in response to complaints from the Cuyahoga County Board of Elections that the Mayor failed to file a 2015 annual report, turned in his 2014 report late, and has yet to resolve issues with his 2013 reports. In a series of letters, the board of elections asked Mayor Norton to fix a number of discrepancies in his 2013 reports—including incorrect fundraising totals and missing addresses; the board has now also requested proof of mileage, bank fees, phone expenses, and other spending for that year. In response to the reports, the Mayor—and December candidate for re-election, responded: “I am aware of the situation regarding delinquent campaign finance reports…All required reports will be completed and filed. The decision of the elections commission will be appealed. Campaign finances and reporting are completely separate from city finances. No city or public funds are involved.”

It’s not as if the fiscally insolvent city is new at this game: Mayor Norton also faced complaints in the wake of several missing finance reports from years prior to 2013, according to elections commission case summary records. Many of those reports have since been submitted and posted on the county board of elections website. Last year, the Ohio elections commission imposed a $20,000 fine on the Mayor in connection with many of those cases. The problems come at an inopportune time: Mayor Norton faces a recall election next Tuesday.

Is There Promise in PROMESA? At a third session of the PROMESA oversight board, Puerto Rico Gov. Alejandro García Padilla warned the Board he will not cooperate with it to administer a fiscal plan which subjects his constituents to greater sacrifice, but offers no federal financial assistance. The response comes in the wake of last Friday’s warning by Board members that the solution to the U.S. territory’s problems will have to include deep government spending cuts and structural changes. None of the Board members emphasized the importance of paying Puerto Rico’s debt. Indeed, several board members emphasized that substantial federal aid was neither likely, but rather impossible. In the wake of last month’s implicit and at times explicit rejection of the fiscal plan presented by Gov. Alejandro García Padilla last month, PROMESA Board Member Ana Matosantos noted that “deep” restructuring was necessary—adding that additional reforms and spending cuts would also be necessary, warning that federal assistance was unlikely and that without it, there would have to be an additional $16 billion in spending cuts “before you pay a dime of debt service.” Indeed, Board member Andrew Biggs noted that the PROMESA Board will have to put together a recovery package which does not assume a federal bailout; but he also noted that in cases of sovereign debt crises, most attempts to turn the situation around fail, because they fail to examine and address the “big questions.” Thus, he warned: the successful turnarounds question the existence of the big social programs. PROMESA Board Chairman José Carrión III warned that he believed it unlikely Puerto Rico would receive all of the fiscal assistance the Governor was seeking—especially vis-à-vis health care, where the U.S. territory is not treated on a par with states—noting that the board must come up with multiple scenarios, and the Board would have to be bold and use the plan to encourage economic growth.

The PROMESA Board December 15th deadline would seem, as our colleagues at Municipal Market Analytics note, “in peril,” but also raise the specter of the legal authority of the PROMESA Board should a new gubernatorial regime prove unwilling to comply with or carry out mandates from the PROMESA Board. MMA notes, also, the near term impossible straddle between addressing its structural debt whilst making projected debt payments, adding that “an acceptable plan’s likely need for sweeping layoffs, service austerity, and, potentially, pension payout reductions increases the potential for social unrest on the island.”

Finding Hope in Flint. Brian Willingham, for the New York Times last week wrote of his services two decades ago with the Flint Police Department “because I believed I could make a difference,” asking: “How can a city fall so far that we lose sight of the possibility of solutions?”  Noting that wages and benefits in the city have been reduced by more than 25% since 2011—a period during which he was laid off and rehired thrice—he noted the police force today is one-third of its former size—adding that while the national average is three officers for every one thousand citizens, in Flint is half an officer for that number of citizens, writing: “In one of America’s most dangerous cities, the people who secure the city are less secure than they’ve ever been. Yet we continue serving, as we did through the loss of General Motors, through the crack cocaine epidemic and, most recently, through the mass lead poisoning of Flint citizens. The crisis around Flint’s poisoned water points to a larger issue of structural racism and poverty in urban society. How can citizens in Flint trust the police to protect them when they can’t even trust their government to provide them with clean water? This is the kind of question that has placed police officers and African-Americans on a collision course. Police officers are seen as outsiders in urban America. White officers are seen as racist, while black officers like me are seen as traitors to our race.”