Responding to Fiscal, Political & Physical Storms

November 17, 2017

Good Morning! In today’s Blog, we consider, again, some of the governance and federalism challenges in the wake of the devastating Hurricane Maria impact on the U.S. territory of Puerto Rico.

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Governor Ricardo Rosselló this week asked Congress to reject the requests of the PROMESA Oversight Board to be granted greater authority over the government of Puerto Rico in the wake of the slow process of recovery and reconstruction after Hurricane Maria. In his written statement to the House Natural Resources Committee, Governor Rosselló specifically requested that the efforts by the Board to control emergency assistance funds, public corporations, and be granted the authority to veto government legislation be dismissed, noting: “The Government and the Fiscal Oversight Board must be able to resolve any differences,” and that “collaboration, not control, is the key to a successful future for Puerto Rico.” The Governor’s views came as U.S. Judge Laura Taylor Swain dismissed the motion of the PROMESA Board to appoint engineer Noel Zamot as trustee of the AEE, under the title of principal Transformation official.

In addition, Puerto Rico is seeking $94 billion from Congress to help in the recovery efforts that devastated the U.S. territory in September, leaving much of the island still without power and worsening a fiscal crisis. The bulk of the funds the Gov. has requested, some $31 billion, would be focused on rebuilding homes, with another $18 billion requested for PREPA: in his epistle to President Trump, Gov. Rossello wrote: “The scale and scope of the catastrophe in Puerto Rico in the aftermath of Hurricane Maria knows no historic precedent…We are calling upon your administration to request an emergency supplemental appropriation bill that addresses our unique unmet needs with strength and expediency.” Natalie Jaresko, the PROMESA Board’s Executive Director, said that $13 billion to $21 billion was needed over the next two years just for Puerto Rico to keep the government running, given the toll the storm has taken on the economy and anticipated tax collections. (Two months after the storm, much of Puerto Rico remains without power, further eroding the government’s already precarious finances. Prior to the hurricane, the government had put together a fiscal plan to cut back spending severely and finance only a fraction of the debt payments due over the next decade—but, like the island’s physical situation, the storm also devastated its fiscal plight. Puerto Rico’s long-term economic recovery will depend not just on an equitable response by Congress and the White House, comparable to the aid provided to Houston and Florida, but also whether its citizens who fled to the mainland will return—or make their moves permanent. According to the PROMESA Board, about 100,000 residents have fled since the storm. The Board did not break down the data of those who had left; however, it seems likely that those who left were both younger—and better able to afford to depart. The Governor also warned that calls for him to raise taxes could further undermine the precarious state of the territory’s economy: “If Congress does not consider Puerto Rico in tax reform, it would lead to the exodus of companies that currently generate 42 percent of Puerto Rico’s gross domestic product, the loss of jobs on the island and exacerbate the outward migration of island residents moving to the mainland.” statement from the governor’s office accompanying the letter said.

In Congress, however, there appears to be growing skepticism with regard to the Governor’s ability to manage federal emergency assistance funds, as House Natural Resources Committee Chair Rob Bishop (R-Utah) warned: “There are serious concerns of committee members, and Congress in general, about the ability and the capacity of the current local government to adequately handle the massive amounts of dollars in federal assistance that has begun to be sent,” with the Chairman’s comments coming in the wake of the discovery of documents provided by the Puerto Rico Electric Power Authority (PREPA) about the contract with Whitefish Energy Holdings, which has become the symbol of Congressional apprehensions with regard to the administration of federal funds: the documents appear to 1) demonstrate that the Puerto Rican authority ignored recommendations of the Greenburg Traurig law firm to protect the public corporation in the contract, 2) raise complaints about the high cost of the fees requested by Whitefish, and 3) disclose a personal offer made by the president of the energy company, Andrew Techmanski to the head of the Supply Division of the public corporation, Ramón Caldas Pagán, to take supplies (generators, water or food), as part of the mobilization to Puerto Rico. Chairman Bishop noted: “Confidence in the ability of the public corporation to administer contracts and infrastructure work in response to the disaster, which is very sensitive in terms of time, disappeared a long time ago.” Adding to the Congressional apprehension, Rep. Bruce Westerman (R-Ca.), the Chair of the Committee’s Oversight and Investigations Subcommittee, pointed out that the contract with Whitefish underscored the need for the Board to have higher responsibilities over the government of Puerto Rico: “It is obvious that PREPA did not know how to draft a contract that complied with FEMA, nor did PREPA officials follow the advice of their own lawyers on how to comply with it. This is precisely the reason why the Board should be given more authority.”

The Congressional concerns came in the wake of U.S. Judge Laura Swain, at the beginning of the week, rejecting a motion by the PROMESA Board to impose engineer Noel Zamot as a trustee or Chief of Transformation of PREPA. Mr. Zamot has been the Revitalization official of the financial authority imposed on the government of Puerto Rico through the Promesa Law. Chairman Bishop, has defended the claims of the Board in favor of new powers to control emergency funds and to direct the work of PREPA. However, in the wake of Judge Swain’s decision, the Chairman said he wants to see the written opinion prior to deciding on a next course of action. In the hearing before the Senate Committee on Energy and Natural Resources, the executive director of the PROMESA Board, Natalie Jaresko, said that the judge’s decision had been “a setback,” but also preferred to wait to see the decision in writing before commenting publicly on the steps to follow—adding it was unrealistic to think that the federal government will provide new emergency funds without proper supervision.

Governor Rosselló, in his testimony, told Chairman Bishop that during the past 10 months the U.S. territory has collaborated much more than it has struggled, and alluded to the approval of the fiscal plan that now will have to be revised due to the catastrophe caused by Hurricane Maria. In response, Chairman Bishop noted: “There has to be an increase in collaboration, for the sake of Puerto Rico.” At the session, the Governor affirmed that the Central Recovery and Reconstruction Office of Puerto Rico, which he established by executive order, has been seeking to establish controls on the use of funds, an issue that is also under discussion with the White House and the Office of Management and Budget, regarding Puerto Rico’s request for some $94.4 billion in emergency assistance; moreover, in addition, the Governor told Chairman Bishop that any collaboration cannot be at the expense of “the sovereign powers” of the people of Puerto Rico and “the democratically elected government,” with his comments appearing to raise the specter of a governance challenge between the oversight PROMESA Board created by Congress and the Governor: last week, when she appeared before the Committee on Natural Resources, the oversight Board Chair Jaresko requested that, if necessary, Congress should modify federal legislation in order to “clarify” that the Board has the power to appoint a trustee in  PREPA or, she even suggested, that any new federal assistance to Puerto Rico be conditioned. During the hearing, other Members of the Committee queried why Governor Rossello did not consult with the PROMESA Board with regard to the decision to exempt small and medium-sized companies from the Sales and Use Tax during the period from January 20 to December 31, at a time when the government had a serious liquidity crisis that has forced it to request a credit line of up to $4.7 billion from the federal government. Interestingly, Rep. Don Young (R-Alaska) noted that “Puerto Rico would not have the problems it has if it were a state.” Rep. Garret Graves (R-La.) asked the Governor what he should say to one of his voters if questioned, in the wake of the PROMESA enactment, whether the law constituted a financial bailout at a time when its citizens do not pay federal income taxes—in response to which, the Governor replied that Puerto Ricans are U.S. citizens, who have faced a historical catastrophe that keeps the Island in an emergency situation and that it is not an issued related to “the strange territorial arrangement that we have.”

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Seeking Equitable Federal Assistance

November 15, 2017

Good Morning! In today’s Blog, we consider, again, some of the governance and federalism challenges in the wake of the devastating Hurricane Maria impact on the U.S. territory of Puerto Rico.

Visit the project blog: The Municipal Sustainability Project 

Governor Ricardo Rosselló will ask Congress today to reject the requests of the PROMESA Oversight Board to be granted greater authority over the government of Puerto Rico in the wake of the slow process of recovery and reconstruction after Hurricane Maria. In his written statement to the House Natural Resources Committee, Governor Rosselló specifically requested that the efforts by the Board to control emergency assistance funds, public corporations, and be granted the authority to veto government legislation be dismissed, noting: “The Government and the Fiscal Oversight Board must be able to resolve any differences,” and that “collaboration, not control, is the key to a successful future for Puerto Rico.” The Governor’s views came as U.S. Judge Laura Taylor Swain dismissed the motion of the PROMESA Board to appoint engineer Noel Zamot as trustee of the AEE, under the title of principal Transformation official.

Puerto Rico is seeking $94 billion from Congress to help in the recovery efforts that devastated the U.S. territory in September, leaving much of the island still without power and worsening a fiscal crisis. The bulk of the funds the Gov. has requested, some $31 billion, would be focused on rebuilding homes, with another $18 billion requested for PREPA: in his epistle to President Trump, Gov. Rossello wrote: “The scale and scope of the catastrophe in Puerto Rico in the aftermath of Hurricane Maria knows no historic precedent…We are calling upon your administration to request an emergency supplemental appropriation bill that addresses our unique unmet needs with strength and expediency.” Natalie Jaresko, the PROMESA Board’s Executive Director, said that $13 billion to $21 billion was needed over the next two years just for Puerto Rico to keep the government running, given the toll the storm has taken on the economy and anticipated tax collections. (Two months after the storm, much of Puerto Rico still remains without power, further eroding the government’s already precarious finances. Prior to the hurricane, the government had put together a fiscal plan to cut back spending severely and finance only a fraction of the debt payments due over the next decade—but, like the island’s physical situation, the storm also devastated its fiscal plight. Puerto Rico’s long-term economic recovery will depend not just on an equitable response by Congress and the White House, comparable to the aid provided to Houston and Florida, but also whether its citizens who fled to the mainland will return—or make their moves permanent. According to the PROMESA Board, about 100,000 residents have fled since the storm. The Board did not break down the data of those who had left; however, it seems likely that those who left were both younger—and better able to afford to depart. The Governor also warned that calls for him to raise taxes could further undermine the precarious state of the territory’s economy: “If Congress does not consider Puerto Rico in tax reform, it would lead to the exodus of companies that currently generate 42 percent of Puerto Rico’s gross domestic product, the loss of jobs on the island and exacerbate the outward migration of island residents moving to the mainland.” statement from the governor’s office accompanying the letter said.

Stormy Governance & Federalism Challenges in the Wake of a Storm

eBlog

November 14, 2017

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

Visit the project blog: The Municipal Sustainability Project 

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

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

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

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

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

Putting Humpty-Dumpty Back Together Again

November 13, 2017

Good Morning! In today’s Blog, we consider the election results in Atlantic City, where incumbent Mayor Don Guardian was defeated by two-term Democratic City Councilman Frank Gilliam, in a municipality which has been under state intervention since last November.

Visit the project blog: The Municipal Sustainability Project 

Emerging from State Oversight? In New Jersey, voters elected a new Governor, Phil Murphy—and a new Mayor in Atlantic City, potentially paving the way for Atlantic City to emerge from its state takeover. Indeed, prior to his election, candidate Phil Murphy, who was elected over Republican candidate Lt. Gov. Kim Guadagno, had said he would end the state takeover of the city and instead work together with city officials as partners. The election came almost a year after the state takeover of the city—so that in his victory statement, Mayor-elect Frank Gilliam Jr., noted: “This is the beginning of a new era in Atlantic City: For the past 30-40 years Atlantic City has been taking the back seat, and now it is time for us to actually take the front seat.” How this new era will transform the municipality as it emerges from state intervention—and under a new Governor will be a challenge: the former Governor Chris Christie, under whom the state took over Atlantic City; has been replaced by the voters, who elected Philip Murphy, a former Wall Street banker with no experience in office, as the Garden State’s 56th governor—with Gov.-elect Murphy prevailing in a decisive victory to end the two-term reign of Gov. Chris Christie. The twin changes in governance could play a critical role as the city is emerging from its state takeover. The Governor-elect has proposed instituting a millionaire’s tax; he has also called for boosting public pension funding; he has not publicly discussed what he might propose with regard to the state’s current relationship with Atlantic City. Meanwhile, in Atlantic City, where voters turned Mayor Don Guardian out of office after a single, turbulent term, during which five of the city’s famed dozen casinos shut down, and the State of New Jersey seized control of the city’s assets and governing authority—voters selected Atlantic City Councilman and city native Frank Gilliam, who has served as a member of the City Council since 2009 to replace Mayor Guardian, with the Mayor-elect noting: “This is the beginning of a new era in Atlantic City.” Mayor Gilliam, in his first discussion, surrounded by his colleagues selected to fill the three open council-at-large seats, noted: “It’s going to always be about the people: We love Atlantic City: Now it’s time for us to actually take the front seat.” But the challenges ahead for the newly elected Mayor who, during his campaign, had promised the city’s voters would reverse the previous four years of debt and state takeover will not be easy. The Mayor-elect said he wants to focus on shaping up the city’s finances, improving tax rates, and bringing in more development for the city to appeal to people of all ages. In addition, he said he would like to clean up the beach blocks to raise the value of housing—a slight contrast from Mayor Guardian’s platform of taking credit for stabilizing the city’s finances and more interest from investors on new projects coming to the city, such as South Jersey Gas and Stockton University’s city campus: promises and promises which could not be converted to victory. Rounding out the City Council were victories by incumbent council-at-large candidates George Tibbitt and Moisse “Mo” Delgado, and the third at-large seat was won by Jeffrey Fauntleroy II. The Mayor-elect noted he was looking forward to having a “prosperous” relationship with the governor—describing it as it “is going to be a true partnership.”

Mayhap ironically the shuttered Trump Taj Mahal casino will reopen as a Hard Rock casino resort, bringing new life, and potentially new gaming, hotel revenue, and assessed property values; Stockton University is expected to open its Atlantic City satellite campus as part of a project which could also lead to the construction of a new corporate headquarters for South Jersey Gas in a section of the city starved for economic activity. As Brigid Harrison, a political science professor at Montclair State University put it: most people in the region believe Atlantic City has put its worst problems behind it, and are optimistic about a coming wave of development: “Part of Don Guardian’s greatest legacy will be the fact that he believed in and worked for a diversification of the city’s economic base, and, as Mayor, Frank Gilliam certainly will be able to reap some of the credit and benefits for projects initiated in the Guardian administration…Hopefully Mayor Gilliam will take a page from Mayor Guardian and continue the process of attracting a wide variety of businesses and enterprises to Atlantic City, which will only serve to strengthen the city and the region.”

But the new Mayor will also inherit unresolved challenges and problems, including the state’s takeover of Atlantic City, hundreds of millions in debt, the stalled development of a former airport property, and a city economy, which, albeit less dependent on casinos, is still disproportionately affected by their success or failure. And it is the unwinding of the state takeover which could prove the most challenging: The Mayor-elect, in his campaign, said he would commence with an audit of Atlantic City; he vowed to work closely with the incoming administration of Gov.-elect Murphy in what will be a key challenge with regard to how to unwind the state takeover of Atlantic City—a challenge to work across bureaucratic boundaries in a city where numerous state agencies held vast power even before the state takeover—or, as the Mayor-elect put it: “Atlantic City has been working in silos for 30 years: We have to talk to one another.”

S&P Global Ratings analyst David Hitchcock, in the wake of the election results, wrote that while Gov.-elect Murphy will have the support of a Democratic-controlled legislature, he will, nevertheless, be confronted by signal fiscal challenges due to decades of poor budgetary decisions. Mr. Hitchcock wrote that public pension-funding shortfalls under both Republican and Democratic administrations the last two decades have left the Garden State with a heavy pension liability shortfall along with high debt and consistent structural budget deficits, noting: “These impediments will likely constrain the state’s ability to increase funding for local aid or avoid deficits during an economic downturn, regardless of any near-term tax increases or spending cuts…The magnitude of the credit risks facing Governor-Elect Phil Murphy and the newly elected legislature means the state’s long-term credit conditions will remain challenging for the foreseeable future, no matter what policy direction they choose.”

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. 

Post-Chapter 9 Elections–and Post Physical & Fiscal Storms

November 6, 2017

Good Morning! In today’s Blog, we consider yesterday’s election results in municipalities we have followed through their fiscal stress or chapter 9 municipal bankruptcy, including: Flint, and Detroit, in its first Mayoral election since emerging from chapter 9, Then we turn to the historic municipality of Petersburg, Virginia—a municipality which avoided chapter 9 thanks to state intervention. Finally, we consider U.S. District Court Judge Laura Swain’s approval yesterday of an urgent motion from the government of Puerto Rico and the Fiscal Oversight Board (JSF) that requires all federal funds to be allocated for the tasks of assistance and recovery in the wake of Hurricane Maria, removing said funds from possible use in restructuring the U.S. territory’s restructuring of its public debt.

Visit the project blog: The Municipal Sustainability Project 

In Like Flint. Flint Mayor Karen Weaver yesterday prevailed over City Council member Scott Kincaid in a recall election involving 18 candidates, retaining the city’s proposed 30-year agreement with the Detroit water system, with Mayor Weaver prevailing by a 53-32 percent margin, according to the unofficial results. The recall had arisen from a controversy related to the Genesee County’s garbage contract: Mayor Weaver had pressed for an emergency trash collection contract with the former Rizzo Environmental Services in Macomb County over City Council opposition. The controversy arose because a former trash provider, Chuck Rizzo, and his father have reached plea deals with federal prosecutors and are expected to plead guilty this month for their roles in a wide-ranging public corruption scandal in Macomb County—a scandal which has, so far, led to criminal charges against 17 persons. The recall also came amid Mayor Weaver’s ongoing struggle with the Flint City Council with regard to the approval of a 30-year agreement with the Detroit area Great Lakes Water Authority—with City Council opposition arising from apprehension about increased water rates—and in response to last month’s decision by U.S. District Court Judge David Lawson taking the small city to task for failing to act on an April agreement supported by Mayor Weaver, the State of Michigan, and EPA which would have Flint remain on the Detroit area water system. Flint had been supposed to switch to the regional Karegnondi Water Authority; however, Mayor Weaver’s administration rejected that option, because updating of the Flint water treatment facility had been projected to cost more than $68 million and to consume more than three years to complete. The Flint Council had disregarded Judge Lawson’s decision, and approved a two-year extension of service with the Great Lakes Water Authority. Thus, while the prior agreement with the Detroit area water authority had lapsed, Mayor Weaver, the State of Michigan, the Great Lakes Authority, and other supporters have revived the agreement. Last week, the Michigan Department of Environmental Quality had filed an emergency motion asking Judge Lawson to approve giving Mayor Weaver the authority to sign the renewed contract by Election Day, because of the inability of the City Council to act—a request from the state which the Judge rejected; however, he has scheduled a hearing on the motion later this month.

Motor City Victory Lap. Detroit Mayor Duggan was re-elected yesterday by more than a 2-1 margin over challenger State Sen. Coleman A. Young II, son of a former Detroit Mayor. In remarks after the decision, Mayor Duggan  noted: “I have been treated with nothing but warmth and kindness from Detroiters in every neighborhood in the city…I hope that this is the year where we put us-versus-them politics behind us forever because we believe in a one Detroit for all of us.” His opponent, in conceding, claimed he had commenced a movement to help the politically dispossessed: “The campaign might be over, but the passion and values are eternal…We are the voice for the voiceless. We are the hope for the hopeless.” Mayor Duggan, who won a write-in primary campaign in 2013 and then defeated Wayne County Sheriff Benny Napoleon in the general election, thus became the Motor City’s first mayor to serve two terms since Dennis Archer in the 1990’s.  In his campaign, the former CEO of the Detroit Medical Center gained prominent endorsements from city labor unions, clergy, and business groups—he overwhelmed his opponent in fundraising: he secured about $2.2 million; whereas Mr. Young raised just under $39,000. Mayor Duggan, in his victory remarks, noted his campaign had focused on spending “time talking about the vision of what we are going to do in the next four years,” adding: “I thought one of the most profound things President Obama ever said was ‘If you have to divide people in order to get elected, you’ll never be able to govern.’”

In his campaign, Mayor Duggan touted public service improvements under his administration in the wake of the nation’s largest-ever municipal bankruptcy, including new streetlights, improved public safety response, and more dependable bus lines. He said he intends to continue work on building a more unified Detroit—focusing now on a series of efforts to fix up neighborhood corridors, roads, and sidewalks—and stating: “There are haves and have-nots in every city in America. We’re building a city here that it doesn’t matter where you start, you have the opportunity to be successful,” adding that he believe the greatest challenge now confronting Motor City residents will be over automobile insurance reform legislation—referring to legislation rejected by the Michigan House last week, but making clear he does not intend to give up: “We were a lot closer this time than we were two years ago, and we have a plan to get it through the next time: It’s going to be one relationship at a time, one vote at a time, but we’ve already had several meetings with both the medical and the legal community, and I think they realize we were three votes away.” 

The Road Out of State Oversight. The re-election comes at a critical time, as the City expects to have its full municipal fiscal authority restored next spring for the first time since it exited the nation’s largest ever chapter 9 municipal bankruptcy three years ago—challenging the city’s appointed and elected leaders with the task of resuming governance after the end of state oversight—and as the Mayor and Council resume authority over budgets and contracts. With two balanced budgets and an audit of a third expected next May, city leaders anticipate Detroit will be released early next year from the strict financial controls required under the city’s approved plan of debt adjustment—a key issue during the just completed campaign, where both the Mayor and his challenger had proposed plans with regard to how they would fiscally guide the recovering city—and as Michigan Governor Rick Snyder expressed optimism about the city’s ability to manage its finances, telling the Detroit News: “They’ve been hitting those milestones, and I hope they continue to hit them—that’s a good thing for all of us.”

Indeed, the Motor City’s credit rating has been upgraded; its employment rate is up; assessed property values are climbing. In its financial update last month, the city noted economic development in some neighborhoods and Detroit’s downtown, job creation efforts, and growth in multifamily home construction. Nonetheless, the road to recovery will remain not just steep, but also pot-holed: it confronts very large future payments for past borrowing and public pension obligations under the plan of debt adjustment—or, as our colleague Lisa Washburn of Municipal Market Analytics noted: “It really takes the economic environment to cooperate, as well as some very good and focused financial management. Right now, that seems to be all there…Eventually, I suspect there will be another economic downturn and how that affects that region, that’s something outside of their control. But it can’t be outside of their field of vision.”

Petersburg. In one of the most closely watched municipal elections in Virginia, last night, Gloria Person-Brown, the wife of the current embattled City Treasurer Kevin Brown of Petersburg, was trounced by former City Council member Kenneth Pritchett, with Mr. Pritchett winning by a large margin: he captured more than 70 percent of the vote. In his campaign, stating he had been frustrated by the city’s low credit rating, and by the city’s struggles with collecting revenue and timely payment of bills, Mr. Pritchett vowed he would implement policies and standardize internal controls to improve the office’s operations. Likely, in the wake of a Virginia state fiscal report last September—a report which scrutinized eight specific aspects of city governance and fiscal responsibilities—and contained allegations of theft involving Ms. Person-Brown’s husband, City Treasurer Kevin Brown. Some Council members then had called for his resignation, and even Ms. Person-Brown had distanced herself from her husband’s actions during the election, albeit she did not say he had done anything wrong. Rather she ran on a platform of improving the Treasurer’s services, including instituting more checks and balances, and calling for more accountability.

Stepping in to Help Puerto Rico. U.S. District Court Judge Laura Taylor Swain has approved, with various changes, an urgent motion from the government of Puerto Rico and the PROMESA Fiscal Oversight Board which mandates that all federal funds to be allocated to the country for the tasks of assistance and recovery due to the passage of Hurricane Maria may not be claimed in the process of restructuring the public debt, accepting to the request of the Authority for Financial Supervision and Tax Agency and the JSF during the general hearing held in New York City‒in which it emerged that, in part, the order would restrict the use of disaster assistance funds as a condition of the federal government, so that Puerto Rico can receive assistance: the order will establish that the Federal Emergency Management Agency (FEMA) funds for Puerto Rico following in the wake of Hurricane Maria, as well as funds granted by other federal agencies, will be maintained. Judge Swain granted the order after listening to the arguments of Suzanne Uhland, legal representative of AAFAF, as well as lawyers from municipal insurers and the organized group of General Obligations bondholders (GOs), who underscored the need to incorporate into the order transparency criteria and mechanisms to ensure that some entity such as the JSF has influence in how federal funds granted by the government will be used. Matthew J. Troy, the federal government’s representative in the case, told Judge Swain that to include specific language which would give the Puerto Rican government priority in claiming funds that had been misused by state agencies or public corporations in the Island was indispensable for Puerto Rico to receive funds from the federal government: as part of the order, it would be established that, in the event federal funds were misused, it will be up to the central government to claim these funds from the agency or public corporation which received them from the federal government. Judge Swain has scheduled a follow-up hearing for next Wednesday.

During the hearing, an attorney, Marcia Goldstein, pointed out that it is urgent to know what role if any the Junta de Supervisión y Administración Financiera for Puerto Rico (the JSF) will have with regard to the approval of the contracts for the recovery tasks. The PROMESA law establishes, among other things, that the federal agency has the power to review the contracts granted by the Puerto Rican government or the dependencies subject to the control of the JSF. To date, however, it is uncertain whether the JSF has examined or had influence in the process of hiring dozens of companies which would be responsible for multiple tasks, from infrastructure repair to the audit of federal funds. In an interview with the Puerto Rican El Nuevo Día a little over a week ago, House Speaker Paul Ryan (R-Wis.), in the wake of his visit to Puerto Rico, pointed out that the JSF will have a key role in defining the scope of the aid package that Puerto Rico would need and how such resources would be allocated.

Three Different Roads to Fiscal Recovery

November 6, 2017

Good Morning! In today’s Blog, we consider the next critical step in Detroit’s emergence from the largest chapter 9 municipal bankruptcy in U.S. history; then we consider the ongoing legal and fiscal recovery of Ferguson, Missouri, before, finally, trying to go to school in Puerto Rico.

Visit the project blog: The Municipal Sustainability Project 

The Road Out of State Oversight. The city of Detroit expects to get the keys back to its financial house this spring for the first time since it exited bankruptcy in 2014. The question is whether it can keep the house in order once state oversight ends — and local elected officials regain control over budgets and contracts. With two balanced budgets and an audit of a third expected in May, city officials anticipate they will be released early next year from the strict financial controls required under Chapter 9 restructuring. The shift is especially important as voters cast ballots Tuesday for the Detroit leaders who will chart the city’s direction. Both Mayor Mike Duggan and challenger Coleman Young II have offered plans on how they would guide the city financially. Gov. Rick Snyder said he is optimistic about the city’s ability to manage finances on its own. “They’ve been hitting those milestones, and I hope they continue to hit them — that’s a good thing for all of us,” Snyder told The Detroit News.

There is evidence that the oversight is no longer warranted: Detroit’s credit has been upgraded among rating agencies, its employment rate is up and property values are climbing. The city, in a financial update last month, noted economic development in some neighborhoods and Detroit’s downtown, job creation efforts and growth in multifamily home construction. Experts say bankruptcy allowed Detroit to drop billions in debt, setting it on a solid financial path. But the city faces massive future payments for past borrowing and pension obligations that are difficult to plan for. “It really takes the economic environment to cooperate, as well as some very good and focused financial management. Right now, that seems to be all there,” said Lisa Washburn, managing director of the Concord, Massachusetts-based firm Municipal Market Analytics. “Eventually, I suspect there will be another economic downturn and how that affects that region, that’s something outside of their control. But it can’t be outside of their field of vision.”

Post-oversight protections. The landmark municipal bankruptcy set forth strict conditions to help Detroit avoid falling back into debt. A nine-member commission, which under the law includes Duggan and City Council President Brenda Jones, currently signs off on the city’s four-year budget plan, certain contracts and transactions. It has also empowered to review, modify and approve operational budgets. The commission was established as a condition of a financial aid package approved by the state Legislature to defray cuts to Detroit retiree pensions and shield the Detroit Institute of Arts collection from bankruptcy creditors. There are still protections even if the city is released from oversight, Detroit officials note. The state-mandated commission would continue to meet monthly and could step back in if necessary, the city’s Chief Financial Officer John Hill said. The city would continue to hold revenue estimation conferences in February and September to set budgeting limits for each fiscal year, as well as develop a four-year financial plan. Detroit’s numbers are headed in the right direction when it comes to property values, income tax collection, median income and employment. Among the positives:

■The city’s taxable value is projected to climb by about $100 million, from $6.4 billion based on the taxable values from the end of the 2016 calendar year to $6.5 billion at the end of this year, according to data from the CFO’s office.

■The city projects an increase of about $30 million in its residential real estate — the first boost in the property class in almost two decades. Detroit’s level of owner-occupied homes went from a low of 59 percent in 2010 to a projected 74 percent in 2018, based on findings from the reappraisal, officials say.

■City figures show income tax collection has gone from $263.2 million in the 2016 fiscal year to a forecast of $285 million for 2017, based on unaudited figures.

■The city’s employment has gone up from 206,568 in January 2014 to 233,068 this July, according to labor statistics.

■Detroiters’ median household income was $28,099 in 2016, a 7.5 percent hike from the previous year, according to U.S. Census estimates released in September.

Not as encouraging are poverty and crime rates. The poverty rate has dipped 4 percentage points to 35.7 percent, Detroit’s lowest since 2008. But the rate is still the highest among large U.S. cities, as is the city’s violent crime rate. “You can’t ignore what’s happening in the downtown and Midtown, but Detroit is obviously so much bigger than that,” said Matt Butler, a vice president at Moody’s Investors Service and lead analyst for Detroit. “The real story here going forward is how is Detroit able to re-create that development in other areas of the city.”

The city filed for bankruptcy in the summer of 2013 and officially exited on Dec. 10, 2014, with a plan to shed $7 billion in debt and pump $1.7 billion into restructuring and city service improvements over a decade. Last month, Moody’s Investors Service upgraded Detroit’s credit outlook and praised the city for its gains. Detroit’s economy “remains vulnerable,” the report noted, but adds it “is showing real progress.” Detroit recorded a general fund surplus of just over $63 million in fiscal year 2016 and expects an additional surplus for 2017 of about $38.5 million. For 2015, the surplus was about $71 million. But Moody’s warns of economic unknowns that could pose future problems, namely the massive contributions that loom for its two pension funds.

A funding plan forged through Detroit’s bankruptcy coined the “grand bargain” relieved the city of much of those payments through 2023. But in 2024, the city will have to start funding a substantial portion of the pension obligations from its general fund for the General Retirement System and Police and Fire Retirement System. The initial payment was first contemplated at $113.9 million, but city officials later said estimates had been off, in part because of outdated mortality tables. If earnings meet the plan of debt adjustment’s assumed return rate of 6.75 percent, the city’s contribution in 2024 would be $167 million. If there are no earnings, it could soar to $344 million or more. Contributions to the pensions would be annual and could continue for 20-30 years. Investment returns have varied greatly. To minimize a shortfall, the city’s administration established a dedicated Retiree Protection Fund that’s expected to pull together $335 million in the coming years to help meet the required contributions. The City Council would contribute a dedicated amount from its general fund each year. So far, $105 million has been set aside. Moody’s has called the fund a “credit positive action,” noting, however, that once it’s depleted in 2033 the city will be required to fund annual pension payments directly from its budget.

Retooling debt structure. CFO Hill notes that today his greatest concern is restructuring the city’s debt, so, last month, the city solicited requests for proposals from investment banks which could help address debt tied to past capital borrowing and millages—or, as Mr. Hill put it: “We think revenues should increase, but if we can also deal with the structure of the debt and lower those payments then the city will be much better off,” said Hill, adding a plan, he said, would “set the city on the course to have dealt with two of its major challenges.” Indeed, the issue of the city’s debt and finance has been, unsurprisingly, an issue in the mayoral campaign, where Mayor Duggan, during a debate, said Detroit’s City Council has been rigorous in making sure that we “watch every dollar that we have,” and he expects the city will be released from state fiscal oversight this spring—adding that, under his administration, “We won’t ever lose self-determination again.” In response, his opponent, Coleman Young, counters that Detroit will not fully regain budget and contract authority back from the state; moreover, he vowed he would, if elected, find efficiencies and reduce costs—and cut what he deemed the “top heavy” staff to manager ratio, adding: “These are some of the things I am willing to do to make sure we have a balanced budget and our finances get back in order.”  “In theory, it would be great to have as much money plowed into redevelopment as possible, but that comes at a cost,” she said. “With less than seven years away from having to start making pension payments again, you don’t want to find yourself in a budgetary hole at a time when you can see it coming.”

Ferguson’s Steep Road to Recovery. Ferguson, Missouri, a small city of about 21,000, which in 2010 was 67.4% black, and 29.3% white, with 8,192 households of which 39.1% had children under the age of 18 living with them, and 31.5% had a female householder with no husband present—and where 32.9% were non-families, is a relatively young municipality: the median age in the city was 33.1 years, while 10.3% were 65 years of age or older. The gender makeup of the city was 44.8% male and 55.2% female. It is a city where the Mayor is directly elected (Mayor James Knowles ran unopposed in 2014 in an election where voter turnout was approximately 12%.) Ferguson is one of 89 municipalities in St. Louis County, where the county police have jurisdiction throughout. It is a city where the fatal police shooting of Michael Brown still weighs.

Last Friday, in Ferguson, as part of a street theater protest, activists set fire to a model depicting the Ferguson Commission report in front of City Hall: it was a demonstration intended to mock political leaders and the city police department’s response to crime and protests in the city. The demonstration came just two weeks after St. Louis police, using a technique called “kettling,” in which exits are blocked in and people are arrested en masse, arrested dozens of protesters, residents, journalists, and legal observers as people protested, for a third day, after former police officer Jason Stockley was found not guilty in the 2011 fatal shooting of Mr. Lamar–and after Mayor Lyda Krewson challenged the city to recommit itself to reforms laid out in the Ferguson Commission report—the nearly 200-page report which had proposed 189 “calls to action,” and marked the culmination of nearly 10 months of work for a commission established by former Gov. Jay Nixon in 2015, in response to the shooting death of Michael Brown, a black teenager, by a white Ferguson police officer—a report in which Commissioners grouped their post-Ferguson calls for action into three categories: Justice for All, involving urgent police and court reforms; Youth at the Center, exploring policies to promote better lives for children; and Opportunity to Thrive, laying out changes to address economic inequalities.

Regional leaders have largely focused on the “Justice for All” component of the report, overhauling municipal court practices such as jailing defendants who could not pay their fines, even as discussion has commenced on strengthening the Civilian Oversight Board, equipping police with body cameras, and developing police policies for using force and for handling public demonstrations. The report also called for improving the public’s relationship with law enforcement through community policing, by encouraging police departments to facilitate better interactions between officers and those they serve, and allowing the public to weigh in on programs and policies through forums. Starsky Wilson, the former co-chair of the Ferguson Commission, in a recent interview with the St. Louis Post-Dispatch, noted that while police accountability and reform has clearly been the starting point for those revisiting the Commission’s findings, he hoped elected leaders would not forget the aspects of the report devoted to building a better St. Louis for the city’s children: “It can’t just be about police. That’s just one piece of the puzzle.”

Nevertheless, the Ferguson protests appear to have produced changes, particularly in Ferguson itself, where new city and police leaders came into power. The state Legislature also passed a municipal reform statute, the most significant element of which lowered the cap on revenue from traffic tickets: It can now only make up 12.5 percent of a city’s general operating revenue in St. Louis County, and 20 percent elsewhere, down from 30 percent. Moreover, municipalities which fail to submit a timely and accurate report on their finances to the state auditor will immediately lose jurisdiction over their courts. (The previous law did little to punish the many courts that ignored the limits.) The impact was swift: Ferguson’s Municipal Court revenue plummeted from $2.7 million in 2014 to roughly $500,000 in 2016.

In St. Louis, Mr. Wilson cites several achievements, including the creation of a Civilian Oversight Board and the decision to raise the city’s minimum wage, both in 2015, though state lawmakers negated the wage effort this year. Meanwhile, other bills have been introduced to address some of the Ferguson Commission’s findings, including a measure being considered by the St. Louis Board of Aldermen limiting when St. Louis police could use pepper spray and tear gas. Sponsoring Alderman Megan Green, 15th Ward, reports she hopes it will serve as a starting point for officials to discuss revising the city’s vague ordinance against unlawful assembly. Asked what changes were made in the city police department in response to the Ferguson report, spokeswoman Schron Jackson said the St. Louis Police Department has begun training officers in de-escalation tactics and how implicit bias may affect their work, as well as how to work with victims of violence who are gay, transgender, and bisexual. These kinds of higher training standards were among recommendations laid out by the Ferguson Commission. Additionally, Ms. Jackson said, the department has launched its Community Engagement and Organizational Development Division, which carries out community outreach programs.

But Mr. Wilson questions these early efforts: “When we see police arrest more than 300 people over 18 days, then we have to ask how seriously the increased training requirements were implemented…and how much culture change is actually happening, around use of force: What were the lessons that were learned surrounding de-escalation?” Allegations that police have improperly used force in recent weeks have already prompted the ACLU to challenge St. Louis police tactics in federal court. They have also sparked conversations at the St. Louis Board of Aldermen about when force should be used—and who should investigate afterward. The aldermanic public safety committee has already interviewed Maj. Mary Warnecke, deputy Commander of the department’s Bureau of Professional Standards, and Circuit Attorney Kim Gardner. Attorney Gardner has pitched the formation of a new unit in her office to investigate use-of-force incidents and officer-involved shootings, arguing that it is no longer acceptable for police to be investigating themselves.

In the long-term, the Ferguson Commission recommended shifting deadly force investigations to the Missouri Highway Patrol and the state attorney general—a recommendation in response to which Gov. Eric Greitens said he was open to considering. City lawmakers, too, are exploring Attorney Gardner’s idea, crafting legislation expanding the circuit attorney’s prosecutorial powers and giving the office the ability to open investigations into police officers’ use of force, according to Board of Aldermen President Lewis Reed, who notes that events such as the Stockley verdict can be catalysts for change, if legislators work quickly enough: noting that the creation of a Civilian Oversight Board is proof of that. The Aldermen had attempted to institute an oversight board in 2006, but the bill, which included subpoena power, was vetoed by former Mayor Francis Slay. Ferguson finally opened the door for its creation, President Reed said, but subpoena power did not have the requisite support to make it into the final product. With the continued unrest, a new mayor and a more open-minded board, Mr. Reed sees a window of opportunity to revisit subpoena power: “I see a readiness for people now to step outside of what I would call their normal comfort zone and support efforts that probably in a normal state they would be a little more hesitant to support.” Mayor Krewson supports providing subpoena power to the city’s Civilian Oversight Board, which investigates complaints against police, and has said she agrees with community leaders who have demanded local police change how they handle use-of-force investigations and prosecutions. She also has committed to establishing a Racial Equity Fund, a proposed 25-year city fund dedicated to promoting racial equity in the region. “I know I don’t have the decision-making power across all of these things, but I am committed to adding my political will to the push to find the right way to get those things done,” Mayor Krewson said after the first week of protests over Stockley. One thing the Mayor says she has the power to do immediately is oust interim Police Chief Lawrence O’Toole, who declared police “owned the night” after law enforcement used a technique called “kettling” to surround and arrest more than 100 people on a single evening. She has shown no indication that she will act before the chief hiring process plays out.  “We have all the answers we need in the report. The road map exists. The longer (Krewson) chooses not to act, the longer our city hurts,” said Charli Cooksey, a catalyst with the Forward Through Ferguson advocacy group. ‘Not a short-term endeavor.’ There may be a long road ahead in making changes laid out in the report a reality, but leaders have pointed to some encouraging signs. Wilson says he has noticed a more diverse group of people engaging in disruption this time, suggesting that people understand the problems don’t amount to “black people’s issues” alone. “These are justice issues. Racial inequity harms the entire region and all people,” he said.

Forward Through Ferguson, the advocacy group that grew out of the Ferguson Commission, plans to knock on as many as 4,000 doors to get feedback before kicking off a series of policy campaigns next spring. “It’s not a short-term endeavor,” Ms. Cooksey said: “Diverse stakeholders in the region have to be committed to this for years to come.” But those inspired to run for office after the events of Ferguson, such as Rasheen Aldridge, a former Ferguson commissioner and now 5th Ward Democratic Committeeman, contend that new leaders have emerged at the state and local levels who have a better understanding of why young people have been protesting in recent weeks. “We have new people at the table, folks who are for the people, who haven’t been bought out and who haven’t been around for a while,” Aldridge said: “They’re willing to do the work.”

Learning about Fiscal & Physical Recovery. The Department of Education of Puerto Rico expects to open 80 percent of the 1,113 public schools on the island next Monday after having relaxed the criteria to enable the schools by the pressure of parents, mothers and students who demand a return to normalcy. Through twitter, the Department of Education published the list of schools that will open. The slowness in the process of resumption of classes on the island has been criticized by parents, educators, and even legislators who complain that six weeks after the passage of hurricane Maria on the island, only 152 schools have been opened (13 percent of the total) in the educational regions of San Juan, Ponce, Mayagüez and Bayamón. Groups of parents and teachers have held protests; the Federation of Teachers of Puerto Rico (FMPR) has called for a massive demonstration for November 9th to press for the opening of closed schools.  Members of the school community claim that many of the schools are able to operate, with water, no debris, or damage that poses a danger to students, but have not been opened. Even a mother of a special education student started a hunger strike against the DE in Hato Rey to demand that classes be resumed at the Urban Elementary School in Guaynabo, because the prolonged closure is having adverse effects on her child’s health: “Children of special education, when you take away their world, when you take away their school, you take away their therapies, you are leaving them unarmed. It is another hurricane that is reaching them: “I am seeing my daughter break down day by day, I am seeing my daughter who has started to attack herself, something that five years ago she did not do.”

The criticism focuses on the slowness of the work of the US Army Corps of Engineers and a company that contracted to inspect the schools and certify that they do not represent a danger to students and that they have water service, they are free of debris and fumigated. Most the the re-opened schools are without electricity: even the education unions FMPR and National Union of Educators and Education Workers (Unete) maintain that the limited opening of schools could be part of a supposed plan to close schools and eliminate teacher positions, something which had been happening before the impacts of hurricanes Irma and Maria, when Puerto Rico’s public education system had, after severe budget cuts, closed 167 schools—and suffered a decline of some 44,000 students. To date, some 800 schools which have been inspected, but there are still another 300—leaving Education Secretary Keleher to describe her frustration with the “slowness of the inspection process,” and that the Department will not use the Corps of Engineers or the CSA private firm for these works. The Secretary added that there are about 44 schools which will not open because of structural damage; she noted that for schools that will not open, “We are going to relocate that population or to bring them a temporary school, which is like a wagon.”