Municipal Bankruptcy Is Large, Complicated, & Seemingly Unending

September 10, 2015

Fiscal Gales in the Windy City. As the City of Chicago grapples with its growing unfunded pension liabilities, the city’s fiscal sustainability has become increasingly at risk—putting Mayor Rahm Emanuel nearer to a fiscal cliff for the Windy City. Increasingly the unfunded pension liabilities are threatening the city’s fiscal future, and the options on the table—such as a potential huge property tax hike to fund the city’s pension liabilities portray how risky the city’s fiscal future and options are: would a huge property tax increase discourage businesses and families from moving into Chicago? Or, as the ever insightful Laurence Msall, president of the Chicago Civic Federation, puts it: “How is Mayor Emanuel going to convince the City Council and the citizens of Chicago that with this very painful and, we believe, necessary increase?” The question arises as Mayor Emanuel may seek a record half billion property tax increase to address the city’s rising pension costs—and avoid bankruptcy. The city is also considering the imposition of a new levy for garbage collection, as well as other revenue sources to respond to a $328 million to $550 million scheduled annual spike in police and fire pension contributions under a prior state unfunded mandate requiring the city to make such contributions on an actuarial basis. The window for the Mayor is winnowing down: he is scheduled to release his proposed budget a week from Tuesday—a budget in which, in addition to tax and revenue proposals, Mayor Emanuel is also expected to propose a long-term fiscal plan which will also include changes in both spending habits and debt practices in what Mr. Msall denotes as a day of reckoning for Chicago. Chicago’s fiscal dilemma is further complicated by the ongoing stalemate in Springfield, where Gov. Bruce Rauner and the legislature remain deadlocked, so that there is still no FY2016 budge—where the stalemate shows little sign of abatement. For Mayor Emanuel, no matter the stalemate in the state capitol, he has just over 10 days to put together a proposed $754 million budget—one likely to incorporate a $233 million operating deficit, $93 million in increased city contributions owed to the municipal and laborers’ pension funds, and about $100 million in debt repayment the city previously intended to defer in its amortization schedule. The budget is almost certain to propose a $328 million hike in contributions for Chicago’s police and firefighters’ pension funds—but mayhap larger if the legislature and Gov. in Springfield are unable to reach consensus on pending state legislation which would re-amortize payments.

Fiscal Teetering in Pa.’s Capitol City. In his State of the City address this week, Harrisburg Mayor Eric Papenfuse warned that the city’s plan it adopted two years ago when the city narrowly averted filing for municipal bankruptcy must be amended—noting that the revenues assumed under that plan are falling short and will be insufficient by next year—and making clear that the deficiencies could not be offset by cost-cutting alone, especially since, he noted: “While the City is starving for capacity, we have already cut discretionary funding to the bone.” Indeed, Mayor Papenfuse noted the city has reduced its work force by nearly half over the last decade and that this fiscal year “will mark the second year in a row that we have significantly underspent our adopted budget.” Nevertheless, he warned, this city is simply not on a “sustainable course.” Therefore, he has proposed three key fiscal changes: 1) Tripling the municipality’s $1-per-week tax on employees working within the city limits to $3 per week; 2) Expanding the city’s sanitation operations, and 3) Transitioning to home rule authority.

Planning Debt Adjustment. The nation’s last large municipality in municipal bankruptcy, San Bernardino, has reached a tentative contract agreement with its largest employee group, its so-called general unit. The announcement, Tuesday, reached after last month’s agreement with the city’s Police Officers Association, means that San Bernardino now has plan of debt adjustment agreements with nearly all its employees—except its firefighters—where multiple legal complaints by the fire union against the city continue. Indeed, in the wake of the city’s rejection of its bargaining agreement with the fire union and implementing changes, including closing fire stations—in an election year—the city hopes to reach agreement on the fire front within a week, even as the city is proceeding in its process of having its fire department annexed into the San Bernardino County fire protection district—a key step anticipated to add more than $12 million to the bankrupt municipality’s treasury: $4.7 million in savings and $7.8 million in revenue from a parcel tax, according to San Bernardino’s bankruptcy attorney, Paul Glassman—or more than the $7 million to $10 million in savings the city incorporated into its proposed plan of debt adjustment it submitted to U.S. Bankruptcy Judge Meredith Jury—proposing that the funds should go toward pension obligation bondholders whom San Bernardino proposes to pay 1 cent for every dollar they are owed, according to the bondholders’ attorney—a proposal certain to be bitterly challenged in the federal courtroom. Complicating the process—and quite unlike any other major municipal bankruptcy—is that it remains unclear what might occur were the proposed annexation process to break down between now and July — especially were a sufficient number of San Bernardino voters to protest the tax and trigger an election. Although missing the deadlines required to complete the annexation process by July 2016 would be costly (because it would trigger a full fiscal year delay), an interim agreement with the San Bernardino County Fire Department would continue to provide services. Next up: Judge Jury has scheduled a hearing in her federal courtroom next month on the adequacy of San Bernardino’s financial statements and its modified plan of debt adjustment for October 8th.

Debt Restructuring Outside of Bankruptcy. The U.S. territory of Puerto Rico yesterday proposed a five-year plan Document: Puerto Rico’s Debt Plan under which the island would broadly restructure its unpayable debts, restructuring more than half its $72 billion in outstanding municipal bond debt, and seeking to implement major economic overhauls—and act under the direction of a financial control board—somewhat akin to the actions taken in New York City and Washington, D.C. to avert municipal bankruptcy. The proposed plan also proposed changes, such as welfare reform, changes to labor laws, and elimination of corporate-tax loopholes. Under the proposal, the governor would select a five-member control board from nominees submitted by creditors, outside stakeholders, and, possibly, the federal government—a panel which would have the power to enforce budgetary cuts. The document explains that Puerto Rico confronts a $13 billion funding shortfall for debt payments over the next five years—even after taking into account proposed spending cuts and revenue enhancement measures outlined in a long-awaited fiscal and economic growth plan. The report from Puerto Rico Governor Alejandro Garcia Padilla’s administration notes that Puerto Rico will seek to restructure its debt in negotiations with creditors as an alternative to avoid a legal morass which could further weaken the territory’s economy: it offered no estimates of what kind or level of potential losses would be anticipated from the owners spread across each of the nation’s 50 states of Puerto Rico’s $72 billion in outstanding municipal debt. The plan details the grim situation of Puerto Rico’s fiscal challenges—and of the dire consequences to the island’s 3.5 million residents: Puerto Rico will have less than a third of the fiscal resources to meet its obligations: it has only about $5 billion available to pay $18 billion of principal and interest payments to its municipal bondholders spread all across the U.S. and coming due between 2016 to 2020—and that only if the plan’s proposed savings from the consolidation of 135 public schools, reductions in health-care spending, additional subsidy cuts, and reductions in payroll expenses were realized. Mayhap the greatest obstacle under the proposed plan will be its proposal to restructure Puerto Rico’s general obligation bond debts, municipal bonds which were sold to investors with an explicit territorial constitutional promise that Puerto Rico would commit to timely repayments—repayments which would take priority over all other governmental expenditures. Nevertheless, the plan proposes to renege on the so-called ‘full faith and credit’ pledge attached to municipal bonds issued by state and local governments on so-called general obligation or ‘full faith and credit’ bonds—a proposal which is unconstitutional under the territory’s constitution—but which the island’s leaders contend is critical lest Puerto Rico were to run out of cash by next summer—as its current fiscal projections indicate is certain absent access to municipal bankruptcy protection or triggering a proposal such as has been now proposed. The plan leaves unclear how it squares with Puerto Rico’s constitution; yet island officials made clear that were Puerto Rico to continue to make such required payments, Puerto Rico’s treasury would be depleted by next summer—with such payments, were they not cut back, leaving the government short of cash for vital public services as early as November. Under the proposed fiscal blueprint, Puerto Rico will provide its creditors with more detailed cash flow projections so that negotiations could begin on repayment alternatives and options—negotiations not only pitting the island’s essential services against bondholders in every state in the U.S., but also between classes of municipal bondholders—with general obligation bondholders anticipated to seek the most favorable treatment. One of the exceptional challenges will be that—unlike in Jefferson County, Detroit, Stockton, or San Bernardino—there will be no referee, no federal bankruptcy judge—to oversee the process. In addition to the debt restructuring, the new five-year plan calls for an ambitious series of steps to deliver public services and collect taxes more efficiently, stimulate business investment and job creation and carry out long-overdue maintenance on roads, ports and bridges. Many of the measures will require legislative approval.

Financial Control Board. The plan proposes a five-member board of independent fiscal experts who would be selected from a list of candidates nominated by different parties, including classes of creditors, the federal government, and others. Such a board would be charged with: how to deal with disproportionate and inequitably imbalanced creditors—creditors imbalanced not just fiscally, but also in terms of capacity to represent themselves. How do the island’s poorest U.S. citizens (an estimated 48 percent of Puerto Ricans are Medicaid recipients) fare against some of the wealthiest U.S. citizens who live in Alaska, California, New York, etc., and who own Puerto Rican G.O. bonds? That is, as members of Governor Padilla’s working group have noted, the inability to have access to a neutral federal court and legal process could put the island—and especially its poorest Americans—at the greatest disadvantage.

Fiscal Challenges. Gov. Padilla’s working group plan projected that, if the plan were adopted and implemented, it would be key to bringing Puerto Rico’s five-year total fiscal deficit down to about $13 billion. To close it, however, they made clear, Puerto Rico could not meet its full municipal bond payment obligations. The working plan estimated that over the next five years, Puerto Rico would have to make $18 billion in principal and interest payments to municipal bondholders on some $47 billion in outstanding municipal bond debt—but that they would propose diverting $13 billion to finish paying for essential public services over the coming five years, leaving for a Solomon’s choice about how to apportion deep cuts in Puerto’s Rico’s constitutionally obligated payments to bondholders scattered all across America—and no road map or federal bankruptcy judge to opine what might be the most equitable means in which to opt to make such payments—much less what legal ramifications might trigger. Put in context, the plan proposes a fiscal restructuring significantly larger than Detroit’s record municipal bankruptcy filing—a filing with U.S. Bankruptcy Judge Steven Rhodes which involved some $8 billion of municipal bond debt. Puerto Rico entities are unable to access Chapter 9.

Muni Bankruptcy Is Large, Complicated, & Seemingly Unending. Jefferson County, which emerged from what was—at the time—the largest municipal bankruptcy in U.S. history nearly two years ago now can better appreciate that it “ain’t over until it’s over,” finding itself before the 11th U.S. Circuit Court of Appeals this week where a group of the County’s residents claimed they were denied constitutional protections under the decision of the U.S. bankruptcy court’s approval of Jefferson County’s plan of debt adjustment, with their attorney testifying: “The essence of our client’s position to the 11th Circuit Court of Appeals is that our clients are entitled to their day in court on the merits of the legal issues presented by the Jefferson County plan of adjustment,” adding that while it was “understandable that the U.S. bankruptcy court wanted to bring the case to closure…fundamental constitutional issues simply cannot be trumped by such concerns.” The issue is whether the court should accept or reject Jefferson County’s appeal of a September 2014 ruling by U.S. District Judge Sharon Blackburn, in which Judge Blackburn rejected the county’s arguments that the ratepayers’ municipal bankruptcy appeal was moot, in part because the plan had been significantly consummated, but also because Judge Blackburn claimed she could consider the constitutionality of Jefferson County’s plan of debt adjustment, which ceded Jefferson County’s future authority to oversee sewer rates to the federal bankruptcy court. The odoriferous legal issue relates to Jefferson County’s issuance—as part of its approved plan of debt adjustment—to issue $1.8 billion in sewer refunding warrants—an issuance which not only paved the way for Jefferson County to write down some $1.4 billion in related sewer debt, but also to exit municipal bankruptcy and the overwhelming costs of the litigation. Thus, with the sale of the new warrants consummated, Jefferson County exited (or at least believed it had…) municipal bankruptcy. The county’s sewer ratepayers, however, are claiming Jefferson County’s plan contains an “offensive” provision which would enable the federal bankruptcy court to retain jurisdiction over the plan for the 40 years that the sewer refunding warrants remain outstanding—a federal oversight which Jefferson County has argued has provided a critical security feature that has been key to attracting investors to purchase the warrants it issued in 2013—a transaction which the County alleges cannot be unwound—and added that the appeal by the residents is constitutionally, equitably, and statutorily moot, because the plan has already been implemented. The ratepayers have countered that even if the federal oversight provision were to be deleted from the County’s approved plan of adjustment, the indenture for the 2013 sewer warrants provides greater latitude to resolve a default: noting that were a subsequent fiscal default to occur, “the trustee shall be entitled to petition the bankruptcy court or any other court of competent jurisdiction for an order enforcing the requirements of the confirmed plan of adjustment.” (Such requirements include increasing rates charged for services, so that the sewer system generates sufficient revenue to cure any default.) But it is the provision allowing the federal bankruptcy court to maintain oversight which is central to Jefferson County’s position—in no small part because it offers an extra layer of security for bondholders and prospective bondholders of a municipality which opts to avail itself of a provision in the U.S. bankruptcy code which allows the judicial branch of the U.S. to retain oversight of a city or county’s plan of fiscal adjustment—or, as the perennial godfather of municipal bankruptcy Jim Spiotto puts it, the question in Jefferson County’s case involves an interpretation over what the U.S. bankruptcy code permits and whether the federal court’s supervision is actually the act of setting rates or insuring that the county complies with the covenants that it promised.

In Jefferson County, as in most cities and counties, sewer system rates have been set by resolutions approved by the Jefferson County Commission to fix rates and charges sufficient to cover the cost of providing sewer service, including funds for operations and maintenance, capital expenditures, and debt service on the 2013 warrants. Jefferson County’s attorneys have added that neither the plan of adjustment or U.S. Bankruptcy Judge Thomas Bennett’s confirmation order “changes the substantive law of the state of Alabama with regard to the enforcement of rates established pursuant to contract or legislation….Rather, the plan merely retains the bankruptcy court as an available forum in which such substantive law may be enforced, using the same remedies available in Alabama state court…In no event will the bankruptcy court ever set sewer rates; it is simply a forum to enforce the plan and related contracts – just as an Alabama state court could.” Ergo, part of the federalism issue and challenge relates to the Johnson Act, which essentially prohibits federal courts from taking actions that directly and indirectly affect the rates of utilities organized under state laws. In this instance, the ratepayers have claimed that the removal of the “retention of jurisdiction provision” from Jefferson County’s bankruptcy confirmation order would not unlawfully impose a new, involuntary plan on the county and its residents because “the indenture explicitly contemplates that the purchasers of the new sewer warrants may seek relief from courts other than the bankruptcy court.” Moreover, they claim the transaction would not have to be unwound were the U.S. district court to strike the jurisdictional retention provision from the plan, because the sewer bondholders could seek relief from other courts were Jefferson County to fail to increase sewer rates. The court directed Jefferson County to respond to its challenging sewer ratepayers by Monday, September 28th. Stay tuned.

The June 5 eNews

Featured image

June 5, 2015

Running on Empty. According the Congressional Budget Office, the federal Highway Trust Fund would need an estimated $3 billion in additional revenue to keep the flow of funding to transportation projects going through Sept. 30th—and that would be the minimum amount of additional revenue the fund would need for future extensions of its spending authority; should Congress opt to extend the HTF’s spending authority through the end of the calendar year, the CBO projects that the fund would need $8 billion in additional revenue — $6 billion for the highway account and $2 billion for the transit account. Were Congress serious and cognizant of the way in which state and local leaders finance capital construction financing for the infrastructure critical to the nation’s economy, CBO estimates that Congress would have to come up with between $85-$90 billion to extend the program through May 2021—still far, far short of the usual term for state and local capital financing for public infrastructure. And the Congressional agency had caveats: projections could vary based on weather-related construction delays, changes in the price of gas and the price and demand for certain construction materials and labor, as well as the responses of state and local governments to federal policies. Its calculations, the CBO advised Congress, are based on the assumption that the fund needs a minimum total cash balance of $5 billion. The CBO report comes with Congress only scheduled to be in session twenty-eight days before its August recess, adding to the increasing inability of states and local governments to sign long-term contracts—and sharply increasing the cost of issuing long-term municipal bonds for critical public infrastructure financing.

Double Standards. The Economist this week notes: “Admitting to criminal behavior in America was once a guarantee of bankruptcy. That, at any rate, was the fate of big names such as Drexel Burnham Lambert, an investment bank, and Arthur Andersen, an accountancy firm, which had to shut up shop after losing both operating licenses and clients that were restricted from doing business with felons. Yet the Department of Justice and other regulators seem to have magicked this consequence away.”

“I will be stunned if the Republicans deal with the Highway Trust Fund responsibly…It’s not going to happen,” U.S. Sen. Bob Corker (R-Tenn.), the former Mayor of Chattanooga, who last year proposed a 12 cent per gallon increase in the federal gasoline tax, told reporters at a breakfast session sponsored by the Christian Science Monitor this week, adding that the short-term HTF extension favored by some in Congress is “incredibly irresponsible.”

  • 2015 Schedule
    March 13th. State & Local Governments Securities (SLGS). Congress’s failure to act to increase the nation’s debt ceiling triggered a federal unfunded mandate: the cost of refinancing state and local bonds and securities to increase.
    July 31st. The current federal surface transportation law expires; the federal highway trust fund is projected to be out of money by mid-summer; state and local governments have already begun to cut back on projects. To date, there has been no progress in Congress.
    June. The Export-Import Bank, which helps finance overseas purchases of American exports, might shut in the face of opposition to its mission.
    Sept. 30. The Children’s Health Insurance Program faces expiration.
    October 1. Sequester set to trigger.
    September-October. Default? The government’s borrowing limit was reinstated on March 16, although Congressional Budget Office projects the government will likely come up against the ceiling in September or early October.

State & Local Finance
Mapping Challenges to Fiscal Sustainability. As we noted last week, from looking at the map here, the growing disinvestment by the federal government in domestic discretionary programs and significant increase in federal tax subsidies which disproportionately subsidize the highest earning individual and corporate taxpayers is contributing to increasing disparity in wealth—an increase with significant implications for state and local leaders: the persistent federal disinvestment is creating, it appears, significant and growing geographic and governance implications. One only need, as we noted, look at the graphic here of the sea of vacant homes and buildings in Baltimore to appreciate how it is undercutting critical property tax revenues to the city—even as it is imposing ever greater public safety costs on the city’s depleting fisc. According to Scott Calvert of the Wall Street Journal, nearly 17,000 homes, or about 8% of the city’s housing stock, are deemed unfit for habitation. But, as in Detroit, the fiscal challenge confronting Baltimore is not just those residences that have become uninhabitable, but rather those that are abandoned: because the city’s population has declined more than a third over the last six decades. Whether it be Baltimore, Detroit, San Bernardino, or a growing list of cities throughout the nation, it appears a growing list of urban areas are confronting the twin fiscal risks of widespread vacancies: a risk not just to property tax revenues, but also as these neighborhoods become at risk to become magnets for criminal activity. There were 43 victims of homicide last month: the most since 1972—a time when the city was 50% larger than it is today. In a way, one could deem the Great Recession, triggered in large part by the mortgage crisis, itself a product of exceptionally lax federal oversight, as the most significant recession disproportionately impacting cities and counties in U.S. history—but especially for minority communities, where homeowners who qualified for safe, traditional mortgages were often steered into ruinously priced loans—loans which provided lucrative profits for brokers and lenders, but contributed to what became the foreclosure crisis—a federally-related crisis which left many middle-class minority communities with vastly disproportionate numbers of abandoned housing. Indeed, a study by sociologists, Race,

Space, and Cumulative Disadvantage: A Case Study of the Subprime Lending Collapse, by Jacob Rugh, Len Albright, and Douglas Massey, which focuses on 3,027 loans made in Baltimore from 2000 to 2008 by Wells Fargo (the company which in 2012 agreed to pay $175 million to settle allegations of predatory lending in Baltimore and elsewhere), in the journal Social Problems, and which considers credit scores, income, down payments (information all of which was available to brokers and lenders when these loans were made) finds evidence of greater widening of the already huge wealth gap between African-Americans and whites. Unsurprisingly, the study has been completed even as some lobbyists for the banking industry are lobbying Congress to block proposed federal rules intended to help facilitate investigations of mortgage discrimination and enforce fair-lending laws. The report determined that black borrowers in Baltimore, especially those who lived in black neighborhoods, were charged higher mortgage rates and were disadvantaged―at every step in the borrowing process―compared with similarly situated whites: had black borrowers been treated the same as white borrowers, according to the authors, their loan default rate would have been considerably lower; instead, however, the report notes that discrimination harmed individuals and entire neighborhoods. Their report notes that over the life of a 30-year loan, these racial disparities would cost the average black borrower an extra $14,904—and $15,948 for the average black borrower living in a black neighborhood—as compared with white borrowers—a difference which might otherwise have been invested in their children’s education, or used to improve health or living standards. The report finds that the racial penalty was highest for black borrowers earning over $50,000—a finding consistent with other studies, which determine that brokers who earned more fees for larger, higher-cost loans deliberately targeted black families of means, or, as the study notes: these facts show that whiteness still confers “concrete advantages in the accumulation of wealth through homeownership” and that pervasive racial disadvantage continues to “undermine black socioeconomic status in the United States today.” One difficulty in this evolving policy issue has been the absence of key information with which the federal government could better document and react to the widespread discrimination: the data that lenders were required to report to the federal government did not include crucial information, such as the property value, the term of the loan, the total points and fees, the duration of any teaser or introductory interest rates, or the applicant’s or borrower’s age and credit score. The Dodd-Frank financial reform law of 2010 sought to remedy that problem by directing the Consumer Financial Protection Bureau to require lenders to report this information. Now the question is whether the Bureau can promulgate final rules which would make it easier to determine if lenders are operating in accordance with fair-housing law—and whether the Bureau will conduct regular audits of lenders to make sure that racial disparities are publicly cited and addressed before they become entrenched. Using Baltimore, Maryland as a case study setting, the dynamic trio combined data from reports filed under the Home Mortgage Disclosure Act with additional loan-level data from mortgage-backed securities, thereby determining that race and neighborhood racial segregation are critical factors explaining black disadvantage across successive stages in the process of lending and foreclosure, controlling for differences in borrower credit scores, income, occupancy status, and loan-to-value ratios: analyzing the cumulative cost of predatory lending to black borrowers in terms of reduced disposable income and lost wealth, they found the cost to be “substantial: Black borrowers paid an estimated additional 5 to 11 percent in monthly payments and those that completed foreclosure in the sample lost an excess of $2 million in home equity. These costs were magnified in mostly black neighborhoods and in turn heavily concentrated in communities of color. By elucidating the mechanisms that link black segregation to discrimination, we demonstrate how processes of cumulative disadvantage continue to undermine black socioeconomic status in the United States today.”

  • Thomas Friedman, this week, after visiting Baltimore, convinced by his spouse to attend the graduation ceremony at a new public college-prep boarding school in Baltimore, the Seed School of Maryland, a school which admits girls and boys from the meanest neighborhoods and most dysfunctional schools in the state, wrote—as he always does—some very wise words:

“As the saying goes: ‘If you want to go fast, go alone. If you want to go far, go together.’ Unfortunately, not everyone made it to the finish line: Of the 80 who won the lottery that day in 2008, only 29 stuck it out or made it from sixth grade to graduation. The good news is that the graduates are going to the University of Virginia, the University of Wisconsin, University of Michigan, U.S.C., Villanova and others; one is joining the Coast Guard.
Several things struck me. One was the kindness with which the young men and women who had been living together in dorms since sixth grade treated one another. The class valedictorian, Stephanie Keyaka, who is going to Penn State, spoke touchingly about her classmates in her speech and seemed to speak for all when she said, ‘Today we say goodbye to the world of lockers without locks, to the world of having the confidence to leave a laptop in a hallway certain that it will be there when we return.’ The next phase will not be so nurturing, she added, but that didn’t matter — SEED left them all with a lot of ‘grit.’

Then she concluded: ‘SEED’s greatness, however, doesn’t lie in what SEED did do, but what SEED did not do for us. SEED never made us feel inadequate; SEED never discouraged us from daring to dream. … And, most importantly, there was never a time when we felt unwanted or unloved.’

When I asked Devin Tingle, who’s going to the Illinois Institute of Technology, what he took most from SEED, he cited the summer science internships and the fact that ‘this school teaches eight core values,’ which he then ticked off: ‘respect, responsibility, self-determination, self-discipline, empathy, compassion, perseverance and integrity. This school teaches these core values from sixth grade until we graduate.’

Take me for a State Tax Ride. Oregon is testing a new system, MyOreGo, under which drivers would be taxed by the mile to pay for transportation projects—experimenting with what is termed the first so-called VMT or “vehicle miles traveled” program in the nation.

The Oregon Department of Transportation says the program will be voluntary and has promised drivers’ personal information will be protected: “OReGO is the Oregon Department of Transportation’s new road usage charge program. OReGOvolunteers will pay for the miles they drive, creating a fair and sustainable way to fund road maintenance, preservation and improvements for all Oregonians.” Under the program, Duck drivers who join the program will be charged 1.5 cents per mile for trips that take place on Oregon roads; participants will be given the option of using a GPS to record their miles or using a non-GPS option which will track usage based on the mileage counters of cars; in return for participating, the drivers will be offered a tax credit reimbursing them for the 31-cent-per-gallon Oregon gas tax—with participation in the program initially limited to 5,000 cars.

Tempus Fugit. Illinois Gov. Bruce Rauner this week warned his cabinet the state must prepare for operating and cash flow challenges if a stalemate with the legislature over the FY2016 budget cannot be resolved, as the Gov. continued to press the General Assembly on the need to address at least a $3 billion shortfall, telling his cabinet: “We have very difficult jobs, challenges ahead…This puts us all in a bind, because the reality is we don’t have a budget today, a constitutionally balanced budget and we have a team in the General Assembly who so far is unwilling to compromise…We are going to be facing very serious operating and cash flow challenges…[we need to] get ready for the very possibility that we are facing a cash crisis.” Gov. Rauner had requested some $6 billion in cuts to eliminate a the state’s deficit for the onrushing fiscal year—making clear any support for his support for any tax hikes would be contingent upon Democratic support for a scaled-down version of his turnaround agenda. Gov. Rauner is proposing a local property tax freeze, caps on civil judgments, worker’s compensation reforms, and constitutional amendments on term limits and redistricting—most of which were rejected by the legislature during committee hearings; the legislature instead passed its own general fund plan before adjourning, acknowledging the $36 billion plan is at least $3 billion short on revenue, but assailing Gov. Rauner’s $32 billion spending plan as imbalanced, because it relies on $2.2 billion from pension reforms that the governor now acknowledges may not be able to withstand a legal challenge. House Speaker Michael Madigan (D-Chicago) called the House back into session yesterday to consider workers’ compensation reforms. The Governor said he met Wednesday Chicago Mayor Rahm Emanuel, terming it a constructive meeting even as he expressed disappointment over legislation approved by the Democratic majority at the Mayor’s behest which would grant the Windy City more time before it begins contributing to its public safety pension funds on an actuarial basis.

State Initiatives. In 2012, President Obama signed the JOBS Act, or Jump-Start Our Business Start-Up a law, a bipartisan bill to assist entrepreneurs seeking financing to start or expand a business—the new law offered an avenue for small businesses seeking financial backers an avenue for average citizens-investors to take stakes in businesses they found promising; however, in the absence of enabling federal regulations; 22 states and D.C. have enacted crowdfunding laws and regulations to let local businesses raise money from local residents. Eleven other states are considering enacting similar laws; three states, Florida, Illinois, and New Mexico, have rules or legislation awaiting their respective governors’ signatures. Unlike the federal legislation, the emerging state enabling laws restrict such fund-raising to in-state investors only; in addition, the amount of funds corporations may raise is relatively small: most limit the total to $1 million or $2 million, with the amount any individual investor may typically capped at $10,000 or less. Nevertheless, these state initiatives appear to be yeastful: Mobcraft, for instance, a not unlikely brewery in the beer-loving capitol of Madison recently raised more than a mug: it also raised $67,000 in growth capital from 52 Wisconsin residents. Unlike crowd gambling, equity crowdfunders receive actual shares in the companies they back. Understandably, the fast emerging model raises not just opportunities, but also risks for state leaders: brand new or small companies can present significant risks—most, after all—fail within their first half decade—and lack much in the way of disclosure requirements: that is, there is a certain level of unsharing that can create public risk. According to the Grey Lady, “In many states, business are encouraged — and in some cases, required — to advertise their offerings through online portals. Dozens have opened in the last year. In Texas, potential investors will be able buy their own piece of an oil well through Crudefunders and browse real estate deals onMassVenture. People interested in investing in restaurants can shop the listings on EquityEats (District of Columbia) and CraftFund (Wisconsin), while those looking to explore ventures in a variety of fields can peruse truCrowd (Texas), HoosierCrowd (Indiana), Michigan Funders and Hatch Oregon, among others.
Demography & Urban Downsizing. Boston Mayor Martin Walsh last year wrote that according to a 2010 census, 88,000 older adults resided in the City of Boston, but noted that “Projections show that by 2030, the number of older adults in Boston will grow considerably, comprising about one fifth of the City’s population.” This type of increase, he wrote, will place “demands on our resources and services.” That is to write that there seem to be two powerful trends underway with critical governing challenges for local and state leaders: more and more cities can expect to realize a persistent decline in population—and a disproportionate increase in the percentage of their population that is aging. How do elected leaders anticipate and react? This is not an issue of the future, either: think: Detroit, which has experienced a decline of nearly half its population since 1950, was unable to raise enough taxes from its diminished workforce to pay its debts, even as it experienced an increasing population of retirees—so that there were fewer contributions going into its retirement pool, even as the demands on its pension and post-retirement benefits were growing. Baltimore’s population dropped from 949,708 in 1960 to 620,000 in 2010; Detroit from 1,849,568 in 1950 to 713,777 by 2010; and Pittsburgh’s population dropped by more than 50 percent over those three decades. Yet, the challenge is not just the decline, but also the demographic change. Outside of Florida almost all the retirement capitals are in the Northeast and Midwest. The second most senior region, for example, is Pittsburgh, where 18.0% of the population is over 65; it is followed by Cleveland, Rochester, Providence, Hartford, St. Louis, and Detroit―all of which have a senior set that comprises 14% or more of the overall population―but will live longer than any previous generation in U.S. history, imposing its own unique sets of challenges in terms of essential public services and reduced workforces. Pittsburgh and Dessau-Rosslau, in Germany, appear to be in the vanguard of cities which have moved to knock down and clear vacant houses and buildings—in effect affirmatively constructing their own future: indeed, as we pointed out in our report, Pittsburgh today has a daytime population 40 percent higher than its residential population.

Rain, Rain, Go Away…Former Texas Governor Rick Perry officially kicked off his second bid for the White House yesterday with a blistering critique of the Obama years and a campaign pitch that touted his record in Texas. Part of his record was the policy devised whilst he was Governor to help tackle a severe drought: “Under the authority vested in me by the Constitution and Statutes of the State of Texas,” he formally did “hereby proclaim the three-day period from Friday, April 22, 2011, to Sunday, April 24, 2011, as Days of Prayer for Rain in the State of Texas.” It seems unlikely, however, that his successor, Gov. Greg Abbott, will now call on Texans to pray for the end of rain, notwithstanding the extraordinary economic and human costs of the deludes and flooding last week in large chunks of Houston and Austin, and dozens of smaller cities, flooding in which at least 19 people were killed, thousands of homes were flooded, and hundreds of cars left abandoned―the worst flooding in central Texas in over a decade—possibly the worst since 1981, when a flood, also on the Memorial Day holiday weekend, killed 11 people in Austin. Since then, however, Texas’s population has nearly doubled from less than 15 million to almost 27 million—so the human and property risk has shot up accordingly. The state, however, has no centralized flood control program; unlike its predilection to preempting municipal authority; this is an issue on which it imposes responsibility and risk on the leaders of its cities and counties—but risks and responsibilities without the fiscal tools or authority to act. And, with Congress Hell-bent on defunding public infrastructure, the Army Corps of Engineers has only funded 12 of 27 Army Corps of Engineers flood-reduction projects in the state—in no small part because of a lack of local matches from local sponsors. Unlike many cities, Texas’ population is projected to double—mayhap abetted by all that rain–over the next three decades—and then double again. Absent statewide planning, prayer might be the only option available.

Oh, Auntie Em! Kansas is in trouble. Again. Fiscal trouble. After sharply cutting income taxes in 2012, on the premise taxpayers would race like lemmings from other states to a state with rapidly diminishing state taxes, instead the result appears to be rapidly diminishing state revenues and academics—with the school year shortened because funding has expired prior to the end of the scheduled academic year: Not exactly a draw for families with children to follow the yellow brick road to the other Manhattan. Now the prairie state faces a revenue gap of more than $400 million—putting Governor Sam Brownback and state legislators in a quandary with regard to how to make up the shortfall—with one agreement so far: Commencing next month, Kansans on public assistance will be limited to a single ATM withdrawal of no more than $25 per day; no such assistance will be permitted for attendance at movie theaters, swimming pools, video arcades, nail salons, or tattoo parlors, with Gov. Sam Brownback noting: “The primary focus is to get people back to work, because that’s where the real benefit is—getting people off public assistance and back into the marketplace with the dignity and far more income there than the pittance that government gives them.” However, Duane Goossen, a former Republican state lawmaker who served 12 years as Kansas’s budget director under governors of both parties before departing his position in 2010, warns the new restrictions will likely do little to help fix the budget crisis, remarking it will have “zero” effect. Others say the political calculus for lawmakers facing reelection next year is clear. “Now they can go home and say they made it really tough on” the poor, says Burdett Loomis, a professor of political science at the University of Kansas. “No more free ride, blah-blah-blah.”

State Revenue Volatility. As we have on many an occasion strongly recommended to our readers that you pay heed to the wisdom of Federal Funds Information for the States, especially its exceptional State Policy Reports; FFIS this week, with an uncertain global and U.S. economy, and the end of state fiscal years rapidly approaching; the organization’s soul of wisdom, Marcia Howard, treated us to observations about state revenue volatility, writing with regard to a new Pew report and its recommendations for policy changes:
 Maintain adequate rainy day funds. The Pew report urges states to hold robust budget reserves to cushion against fiscal uncertainty and revenue shortfalls, noting that a magnificent seven—Georgia, Nevada, Oklahoma, South Carolina, Tennessee, Vermont, and Virginia—have raised the caps on the size of their rainy day funds, allowing for more reserves, contrasting that with other states with large forecasting errors, such as Kentucky, Maine, Mississippi, North Carolina, and Oregon, states which maintain insufficient reserves to protect against revenue volatility.
 Adopt rules that tie rainy day fund deposits to fluctuations in specific or overall revenues. She writes: “For example, Virginia adopted a formula that compares revenue growth in the most recent year to growth over the preceding six years. It deposits half the excess revenue growth into its rainy day fund.” The report cites a dozen other states that have such rules: Alaska, Arizona, California, Hawaii, Idaho, Indiana, Louisiana, Massachusetts, Michigan, Tennessee, Texas and Washington.
 Develop and adopt the official revenue estimate as close to the beginning of the fiscal year as possible.
 Analyze forecasting errors and make adjustments. The Pew report cites states such as Kentucky, which uses more than one analytical model to develop the revenue estimate, but adds: States also must balance historical knowledge with that provided by technical models.
 The report repeats Pew’s call for consensus revenue forecasting, although it explicitly states, “No revenue study, including this one, has proved that consensus forecasting increases accuracy or improves the forecast itself.” This echoes an observation FFIS State Policy Reports made when Pew first issued this recommendation. Instead, the report concludes that, “arriving at agreement among the governor, lawmakers, and other parties on a single estimate is beneficial for obtaining acceptance of the forecast;” or, as she notes: “Put another way, a consensus estimate is a political tool as much as a technical one,” citing the example of New Jersey, where the Governor’s office has sole responsibility for developing the revenue estimate, and where the chief economist resigned this year after three years of forecasting errors; the Pew report cites disputes arising from non-consensus arrangements in Montana and New Hampshire. Ms. Howard recaps her insightful analysis as follows: “State personal income tax collections in April 2015, and their apparent ability to upend a narrative of weak state revenues up until that point, lend credence to the contention that state tax collections have become more volatile. As it turns out, Pew, one of the country’s largest policy organizations, has been peddling an array of policy responses to reduce the disruption caused by such volatility. That said, it may be difficult to get states to pay close attention to a problem that—at least this year—is likely to lead to budget surpluses rather than shortfalls.

As we observe the changing economy—what with the sharing economy, the impact of the internet on work hours and locations, we can anticipate it will lead to profound changes in transportation and housing. Because the internet is permitting more people to work from anywhere, anytime, the old model of cities and suburbs is becoming increasingly obsolete.

The Disruptive, but Sharing Economy: What’sApp? Do States & Local Governments Need New Rules for the Sharing/Disruptive Economy?
We Can’t Hear! San Diego’s City Council’s Smart Growth and Land Use Committee has unanimously requested the mayor’s office to increase funding in the upcoming fiscal year to enforce noise, overcrowding, and refuse regulations that often are violated by occupants of short-term rental or sharing units in the city, with committee members, in the wake of a long hearing, also requesting staff to develop a land-use ordinance that would create specific regulations for vacation rental properties, which have proliferated in the beach areas and other sections of town. Committee Chairwoman Lorie Zapf, who represents areas such as Mission Beach and Pacific Beach, said she repeatedly has heard from constituents worried about how the rental properties impact their neighborhoods: “They were specifically concerned about the vacation rental units changing the fabric of the single-family residential zones, where the impacts of noise, parking, and frequency of guests are most noticeable.” And Councilmember David Alvarez apologized to the large crowd that attended the hearing: “We have really been failing our neighborhoods, because we have not enforced laws that are on the books today.” Even though the City has added additional funding for extra code enforcement, set to be available in the new fiscal year, the Councilmember noted it could take up to two years for a more comprehensive law to take effect, with an ordinance drafted by staff still awaiting feedback from community groups and the Planning Commission before it returns to the committee and, eventually, the full City Council. Moreover, if and when approved, the municipal regulations would still have to be approved by the California Coastal Commission before they could take effect in beach areas. Further, in developing said regulations for this kind of the sharing/disruptive economy, staff will have to distinguish between residences which are occupied by owners and those which are not, take into account residents who are simply renting out a room, determine whether to establish a minimum number of days that renters can stay, and whether to set a cap on how many people can occupy a dwelling used as a vacation rental. The Councilmembers stressed that the rules would target what they called “bad actors,” while trying to avoid hurting rental property owners who are not causing problems. Amanda Lee, of the San Diego’s Development Services Department, said the city code does not include a specific land use category for vacation rental properties. Many residents, especially in the beach areas, contend their quality of life is suffering because of increased noise from heavy partying and overcrowding. Owners, i.e., sharing owners, in contrast, claim aid they have experienced few problems with their guests, and need extra income to keep up with high housing costs. In San Diego, property owners are required to obtain a registration certificate to pay a monthly room tax, and pay a rental unit business fee annually. About 2,700 vacation rentals are registered with the city. Thus, unsurprisingly, San Diego’s City Council Smart Growth and Land Use Committee last Friday unanimously requested the mayor’s office to increase funding in the upcoming fiscal year to enforce noise, overcrowding, and refuse regulations—regulations often violated by occupants of short-term rental units in San Diego—a vote that came in the wake of a two-day hearing. Committee members also asked staff to develop a land-use ordinance which would create specific regulations for vacation rental properties, which have proliferated in the beach areas and other sections of town. Chairwoman Zapf, who represents areas such as Mission Beach and Pacific Beach, said she repeatedly has heard from constituents worried about how the rental properties impact their neighborhoods: “They were specifically concerned about the vacation rental units changing the fabric of the single-family residential zones, where the impacts of noise, parking, and frequency of guests are most noticeable,” leading Councilman David Alvarez to apologize to the large crowd that attended the hearing in a meeting room above Golden Hall: “We have really been failing our neighborhoods, because we have not enforced laws that are on the books today.” While funding for extra code enforcement could go on the books for the fiscal year beginning July 1, it could take up to two years for a more comprehensive law to take effect. An ordinance drafted by staff would need vetting by community groups and the Planning Commission before it returns to the committee and, eventually, the full City Council. If eventually approved, the regulations would still have to pass muster at the California Coastal Commission before they take effect in beach areas. Moreover, in developing the regulations, staff will have to distinguish between residences which are occupied by owners and those which are not, take into account residents who are simply renting out a room, determine whether to establish a minimum number of days that renters can stay, and whether to set a cap on how many people can occupy a dwelling used as a vacation rental. In acting, the committee members stressed that the rules would target what they called “bad actors,” even as they stressed they would try to avoid hurting rental property owners who are not causing problems. Amanda Lee, of the city’s Development Services Department, said the city code does not include a specific land use category for vacation rental properties. Many residents, especially in the beach areas, contend their quality of life is suffering because of increased noise from heavy partying and overcrowding. Sharing owners, unsurprisingly, said they have encountered few problems with their guests, and that they need extra income to keep up with high housing costs.

Municipal Sharing Economy? The nonprofit Watchdog RI reports that new data shows Rhode Island spends too much money on fire protection services, and, think about this, that sharing services and operations should be considered to help reduce costs—without even adding that, at least from the experiences between No. Virginia jurisdictions, such shared essential public services, more importantly, save lives in a business where mere seconds can make the difference between life and death. The nonpartisan group, led by former Republican gubernatorial candidate Ken Block, said it had spent about 500 hours and $2,500 researching fire protection costs in Rhode Island and other states. Metropolitan Rhode Island spends more than $300 million annually on fire protection, more than other places with larger populations, including Dallas, Phoenix and Fairfax County, Virginia, according to Mr. Block. Rhode Island’s 158 fire stations (please not map above) outnumber Los Angeles’s 106 stations and the Windy City’s 92.

According to Mr. Block, Watchdog RI has not identified any other similarly sized region in the U.S. that spends as much as Rhode Island, adding that the nation’s smallest state features some 31 fire stations within five miles of Pawtucket, whilst Lincoln, a municipality of 21,000, has six fire districts, districts whose six fire chiefs combined earn more than $350,000 a year. The report notes that regionalizing or sharing fire services could not only reduce costs to municipal budgets, but also help to reduce significant unfunded public pension liabilities—urging that Rhode Island regionalize its fire protection services and that its fire departments formalize agreements beyond mutual aid to cut costs. In response, Richard Susi, executive director of the Rhode Island Association of Fire Chiefs, cautioned that before any changes are made, a study of the response times should be conducted. But Jim Higgins, Cumberland Town Council president, has noted that in 2010, the voters of Cumberland, by an overwhelming nearly 5-1 margin of 10,033 in favor and 2,544 opposed, authorized the Cumberland Town Council to take steps to consolidate our four independent fire districts into one district, adding: “As council president, I appointed an ad hoc committee of the council to recommend a governance model for the new fire district.” Similarly, Town Administrator T. Joseph Almond had made clear he was ready to move forward on consolidating Lincoln’s six fire districts, after observing the path Cumberland town officials took to combine theirs, noting that his town had opted to wait and see “what would come of” the Cumberland consolidation, and figure out “what the General Assembly was willing to do,” adding that Lincoln now has the opportunity to mirror the legislation used by Cumberland, albeit he notes town officials might want a “little more control” of the situation than given to their neighbors: “If we pursue the Cumberland model, we’ll seek control over tax rates, collective bargaining and borrowing.” Mr. Almond reports he would like board members to manage the district’s operations, while the town oversees the finances: “I think we could have a very good town of Lincoln fire district, run by an independent board, but overseen by the town to make sure taxpayers are protected,” proposing that the process begin immediately: he said he will be meeting with the district’s fire chiefs to discuss the merger going forward. Cumberland’s restructured department was set to begin serving the town starting this month.

It’s a bird; it’s a plane, no it’s a drone! The Indonesian government wants to find out the true size of plantations and the extent of mineral extraction in hard-to-reach places across its 17,000 islands—especially because of its inability to verify taxes owed: it has been easy for tax cheats to underreport their acreage and activities—but now Bloomberg reports government operated drones can find the truth. A tax office official says mine and plantation owners in his jurisdiction pay only about 30 percent of the taxes they owe. Indonesia has a population of 250 million, but only 900,000 Indonesians submitted a tax return last year.

Guess Who Else Is Beginning to Share Concerns about Public Policy & the Sharing Economy? In a speech yesterday at the New America Foundation, Sen. and former Virginia Governor Mark Warner (D-Va.) said that because many workers in the sharing economy are considered independent contractors rather than employees, many are ineligible for those benefits that other workers would be able to receive: “Many of those programs which were administered and funded by both contributions from the employer and the employee—this is changing that whole relationship in extraordinarily fundamental ways,” Sen. Warner said, adding that often workers operate without a safety net when something goes wrong, adding: “It’s fairly stunning to me that this much transformation has already taken place but virtually nobody in Washington is starting to ask the policy questions,” and then suggesting a series of proposals which he believes could assist workers in the sharing economy, such as creating exchanges for unemployment benefits or workers’ compensation in the model of Obamacare. Sen. Warner also suggested creating what he termed an “hour bank,” which could serve as a third-party trusted entity to track workers’ hours to administer benefits, not unlike ones used by trades. Sen. Warner’s apprehensions have been raised previously by Sen. Elizabeth Warren (D-Mass.) who last month noted: “I think there is evidence that increasingly employers use independent contractors not in ways that were originally intended,” an issue already pending in two court cases in which Uber and former Lyft drivers have filed suit to be compensated as employees rather than independent contractors, which would make them eligible for benefits, suits where the respective judges ruled they will go before a jury trial, or, as Judge Vince Chabria, in the Lyft case, noted: the jury will be “handed a square peg and asked to choose between two round holes.” Sen. Warner suggests “we could recognize that the 20th century definitions that we are using do not work in the 21st economy.” Indeed, instead of waiting for federal courts to resolve the question, a Warner aide responds: “We need to be thinking about what kind of safety net functions” can be developed to help the workers.” The Federal Trade Commission will host its own workshop on the sharing economy next month to “consider if, and the extent to which, existing regulatory frameworks can be responsive to sharing economy business models while maintaining appropriate consumer protections.” Sen. Warner notes: “This next generation, where they are in the ‘sharing economy,’ the Millennials, 80 million strong, will have no safety net at all: no unemployment, no workman’s comp, no disability…Somebody may be doing very, very well as an Etsy seller and Airbnb user and Uber driver and part-time consultant…but if they hit a rough patch, they have nothing to stop them until they fall, frankly, back upon government assistance programs.” Sen. Warner said he hopes to spark a debate in Washington and among the 2016 presidential contenders about how to respond to the complications of the new American workforce—and he suggested two potential policy approaches: an “hour bank,” modeled on a program used by some building trades, which tracks a worker’s hours for a variety of employers and collects and administers training and retirement programs, or an “opt-in” that gives consumers the option of adding a nominal amount to their payment that would go to a benefits fund for workers. Similar, he opines that health care exchanges established through the Affordable Care Act could provide a model for workers who are not covered by disability, retirement and other benefits through their jobs to get them through a public-private initiative.

No, grazie! An Italian court in Milan has banned Uber: the court in Italy’s business capital Milan said the Uber POP service, which links private drivers with passengers through an easy-to-use smartphone app, created “unfair competition.”

State & Local Leader of the Week
Little Stevie Wonder, aka Steve Jeffrey, began work at the Vermont League of Cities and Towns (VLCT) in 1978 – one of three staff. He retires this July after 37 years of service, 33 of them as executive director. He leaves a much larger organization – 50 staff and membership by all 246 cities and towns as well as a tremendous growth in the stature and visibility of VLCT around the state. He came to Vermont from the now defunct New England Municipal Center, and a brief stint at the Connecticut Conference of Municipalities, to interview for a town manager position, and the then director offered him instead to work for all, not just one municipality. The rest is history, at least in Vermont. The Wonder is well known throughout the state and has had among his board members many who went on to serve in the Vermont legislature and statewide offices. Among the many illustrious and independent-minded local officials who sat on VLCT boards and helped to grow the association, was one mayor, now a junior U.S. Senator from Vermont, who launched his bid for the U.S. Presidency from a municipal waterfront park in Vermont last week. Mr. Jeffrey, not only talks the talk, he walks the walk and has served in local government in his own towns of residence as volunteer fire fighter, town moderator, merger study participant, recreation board member, parliamentarian, and planning commission member. Despite the many thrills of the Vermont Executive Director position, Steve mentioned he may not miss daily tromping through blizzards and 30 below zero diamond dust fogs to the State House, wishing for at least a warming to gropple and knowing there was no respite until “spring” – sometime in late May. He just might hightail it somewhere warm in winter.  He is also uniquely distinguished for putting up a keynote speaker at one VLCT annual conference in New Hampshire, and then arranging a U.S. Open pre-dawn tennis match in a howling New England wind storm, lending the erstwhile NLC guest a pair of tennis shoes several sizes too small—mayhap a gentle reminder of the New England warmth for visitors from the nation’s capital.

The Silver Tsunami. Anne Tergesen of Dow Jones this week noted that a growing number of state legislatures are trying to proactively address the country’s retirement savings crisis, with Washington State becoming the second state—after Illinois, where former Gov. Pat Quinn last January signed into law new legislation which requires all businesses which have been in operation for at least two years and that have at least 25 employees to offer, by no later than June 1, 2017, its workers an individual retirement savings option. Such companies without a work-based savings plan such as a pension or 401(k) can decide to work with private entities, but they can also join the newly created Illinois Secure Choice Savings Program, which comes with a default 3 percent payroll deduction. In Illinois, according to state officials, some 2.5 million private-sector employees do not have access to a work-sponsored retirement savings plan. Officials expect the vast majority of those offered plans under the new law will stick with it, though it allows them to opt out or lower their contribution amounts. Under the state law, no match or employer contribution is required, and no public dollars will be invested. Now Washington State has authorized its own state-run retirement savings program in an effort to spur small businesses to offer comparable plans, under which the participating businesses would deduct contributions from employees’ paychecks and direct them into individual retirement accounts. This puts the two states at the head of a potential vanguard of nearly half the states which are either studying similar state-run retirement savings plans or are actively considering legislation that would establish one. The Minuteman State, Mass., for instance, is in the early stages of implementing a 2012 law which creates a state-run 401(k) program for employees of nonprofits with 20 or fewer workers; other states, including California, Minnesota, Connecticut, and Oregon, are conducting feasibility studies which could open the door for similar programs aimed at all small businesses.

According to AARP, states are motivated to take action because “a lot of the burden is going to fall on state and local governments to provide public assistance” for retirees with insufficient savings: currently, more than half of working-age Americans have no retirement-plan coverage at work: according to the Center for Retirement Research at Boston College, some 53% of working-age households are at risk of being unable to maintain their pre-retirement standard of living after they stop working. That would, of course, have serious fiscal implications—not just for states, but also for local governments. According to the Center, the existing state plans follow different models: For example, Washington State’s plan leaves it up to employers with 100 or fewer employees to decide whether or not to offer retirement savings accounts to their employees. Under the Washington plan, which is likely to be up and running by 2016 or 2017, the state’s Commerce Department will appoint a private company to oversee a state marketplace, where financial-services companies can offer retirement plans, featuring all-in-one target-date mutual funds, which shift more from stocks to bonds as participants age. Some plans may also offer balanced funds, which typically consist of 60% stocks and 40% bonds, says the bill’s co-sponsor, state Senator Mark Mullet (D-Issaquah): who notes that such plans may not impose administrative fees and must cap the fees participants pay—including investment-management fees—at 1% of assets a year. Aside from promoting the retirement plans to small businesses, the state will monitor the offerings and may even offer financial incentives to small employers to sign up, according to Sen. Mullet: Employers will have a choice of three plans: a Simple IRA, which can accept both employee and employer contributions; an IRA which will only accept employee contributions; and the federal myRA, which is a Roth IRA with just one investment option—a Treasury bond with relatively modest returns. Individuals can contribute up to $5,500 a year to an IRA, although the limit rises to $6,500 for those aged 50 or older. Washington’s program will need about $250,000 to $500,000 in state or private funding and will be open to state-based employers with 100 or fewer employees—almost 80% of which do not currently offer retirement plans. South of Washington, in the Golden State, Gov. Jerry Brown in 2012 signed into law legislation to authorize a feasibility study of a program to require private-sector companies with five or more employees which currently do not offer a retirement plan to automatically deduct contributions from employees’ paychecks and funnel them into IRAs. The study is scheduled to be published by year-end, according to Ms. Gill, who expects the state to authorize a plan in 2016.
RIP. Cook County’s proposed public pension reform legislation failed, for the second consecutive year, to pass muster in the Illinois General Assembly, which adjourned on Sunday without taking action on the bill after it had been reported, 5-4, by the House Pension and Personnel Committee on May 20 by a 5-4 vote along party lines. It was sent to the House floor but was never picked up there due to a lack of support. County President Toni Preckwinkle, in expressing disappointment with regard to the outcome, noted: “We are approaching the point of no return for the Cook County retirement system. We have reached an untenable situation, and doing nothing is no longer an option. I will continue to work with the General Assembly and the Governor to get our bill passed and review all options to protect the interests of Cook County taxpayers, retirees and employees.” Even though the General Assembly is expected to return this summer, action to overturn the result appears unlikely. Both Moody’s and Fitch have given the county a negative outlook, in large part because of its underfunded pension plans—the downgrades, according to County CFO Ivan Samstein could cost taxpayers an additional $25 million a year in interest as Cook County now is likely to restructure $625 million of variable-rate bonds into fixed-rate debt to avoid any termination events. Like Chicago, which faces its own pension crisis, Cook County must obtain authority from the state to make any changes to its retirement systems; even should it succeed, of course, it would still face another hurdle in the Illinois Supreme Court. Cook County’s main pension fund has a funded status of 54% with a $6.8 billion liability. That includes health care obligations.

Here Come da Mayor. A bipartisan group of current and former local elected officials, led by former San Jose Mayor Chuck Reed (D) and former San Diego City Councilmember Carl DeMaio (R), have filed a statewide ballot initiative in California to reform how compensation and pension benefits of state and local government employees are determined. The initiative is offered in an effort to impose a “check” on state and local politicians by explicitly affirming the ability of voters to ensure that government employee compensation and retirement benefits are affordable for their communities. In particular, the initiative would:

1) Require voter approval of any defined benefit pensions for new government employees;
2) Require voter approval of any increase in pensions for existing government employees;
3) Prohibit any taxpayer subsidy of government retirement benefits in excess of 50 percent of the cost – unless voters expressly approve a higher contribution; and
4) Prohibit politicians and government agencies from delaying, impeding, or challenging any voter-approved state and local ballot measures regarding compensation and retirement benefits.

Joining the former municipal elected leaders as proponents of the initiative are: former San Bernardino Mayor Pat Morris (D), Anaheim Mayor Tom Tait (R), former Vallejo Vice Mayor Stephanie Gomes (D), and Pacific Grove Mayor Bill Kampe (D). The Ventura County Taxpayers Association also participated in the effort. Despite the state’s improving economy, public employee pension debt in California continues to explode, according to the sponsors, growing from $6.3 billion in 2003 to $198 billion in 2013. In addition, state and local governments have approximately $150 billion in unfunded liabilities for retiree health care benefits.

GASP:GASB, the Governmental Accounting Standards Board this week approved two statements which provide new accounting and financial reporting standards for OPEBs, or other post-employment benefits than pensions—standards which reflect GASB’s standards for pensions that were issued in 2012. Under one of the new statements, state and local governments would be required to report an OPEB liability on the face of their financial statements. In its release, GASB’s Chair, David Vaudt, wrote: “These OPEB standards usher in the same fundamental improvements in accounting and financial reporting that were previously introduced for pensions…Because OPEB promises represent a very significant liability for many state and local governments, it is critical that taxpayers, policymakers, bond analysts, and others are equipped with enhanced information, which will enable them to better assess the related financial obligations and annual costs of providing OPEB.” GASB Statement No. 74 addresses reporting by OPEB plans which administer the benefits on behalf of the governments, and will be effective for financial statements for periods beginning after June 15, 2016. GASB Statement No. 75 addresses reporting by governments that provide OPEB to their employees and those that finance benefits for employees of other governments; it will be effective for fiscal years beginning after June 15, 2017. Both of GASB’s OPEB statements for governments and for plans require more extensive note disclosures and supplementary information about their liabilities. GASB also approved Statement 73, which is about accounting and financial reporting for pensions that are not administered through trusts meeting certain criteria, and thus are not covered by board statements issued in 2012. The pension-reporting requirements in this statement are similar to those in the statement issued in 2012 for governments, GASB said. Some of the new pension statement’s provisions will be effective for fiscal years beginning after June 15, 2015, and other provisions will be effective for financial statements for periods starting after June 15, 2016, according to GASB.

Running out of Time? The U.S. Government Accountability Office, or GAO, warns, in a new report that many retirees and workers approaching retirement have limited financial resources: “About half of households age 55 and older have no retirement savings (such as in a 401(k) plan or an IRA),” a warning with dire implications for local leaders. According to GAO’s analysis of the 2013 Survey of Consumer Finances, many older households without retirement savings have few other resources, such as a defined benefit plan or nonretirement savings, to draw on in retirement (please see figure below). According to its report, among households age 55 and older, about 29 percent have neither retirement savings nor a defined benefit (DB) plan, which typically provides a monthly payment for life. Households which have retirement savings generally have other resources to draw on, such as non-retirement savings and DB plans. Among those with some retirement savings, the median amount of those savings is about $104,000 for households age 55-64 and $148,000 for households age 65-74, equivalent to an inflation-protected annuity of $310 and $649 per month, respectively. Social Security provides most of the income for about half of households age 65 and older. Studies and surveys GAO reviewed provide mixed evidence about the adequacy of retirement savings. Studies range widely in their conclusions about the degree to which Americans are likely to maintain their pre-retirement standard of living in retirement, largely because of different assumptions about how much income this goal requires. The studies generally found about one-third to two-thirds of workers are at risk of falling short of this target. In surveys, compared to current retirees, workers age 55 and older expect to retire later and a higher percentage plan to work during retirement. However, one survey found that about half of retirees said they retired earlier than planned due to health problems, changes at their workplace, or other factors, suggesting that many workers may be overestimating their future retirement income and savings. Surveys have also found that people age 55-64 are less confident about their finances in retirement than those who are age 65 or older. As baby boomers move into retirement each year, the Census Bureau projects that the age 65-and-older population will grow over 50 percent between 2015 and 2030. Several issues call attention to the retirement security of this sizeable population, including a shift in private-sector pension coverage from defined benefit plans to defined contribution plans, longer life expectancies, and uncertainty about Social Security’s long-term financial condition. In light of these developments, GAO was asked to review the financial status of workers approaching retirement and of current retirees. GAO examined 1) the financial resources of workers approaching retirement and retirees and 2) the evidence that studies and surveys provide about retirement security for workers and retirees. To conduct this work, GAO analyzed household financial data, including retirement savings and income, from the Federal Reserve’s 2013 Survey of Consumer Finances, reviewed academic studies of retirement savings adequacy, analyzed retirement-related questions from surveys, and interviewed retirement experts about retirement readiness. GAO found the data to be reliable for the purposes used in this report.

Ethics & Public Trust
From the Richmond Times Dispatch: “Successful government relies on trust. The breakdown of comity at all levels reflects the citizenry’s lack of confidence in institutions and individuals. Washington’s woes are well documented. Local jurisdictions suffer self-inflicted damage as well.”

Vermont Secretary of State Jim Condos this week said it was time for the establishment of a state ethics commission to review complaints about conflicts of interest, the ethics of public officials, and financial disclosures, proposing the creation of an independent state ethics commission to address complaints about the legislative, executive, and municipal sections of government: “The time has come for Vermont to enact a clear law regarding ethics, conflicts of interest, and financial disclosure for our elected officials…Vermont is one of only three states nationwide without an ethics commission.” Secretary Condos is a former long-time city councilor from South Burlington and state senator from Chittenden County who is concerned about the state’s low ranking by the Center for Public Integrity, which last graded the green Mountain State (in 2012) an overall grade of D+. Noting he wanted his state to earn an A, Secretary Condos said: “Vermonters deserve good government and that includes an open and transparent government,” adding he would focus on a clear definition of conflicts of interest, required financial disclosures by all candidates and elected officers, and establishing an independent ethics commission. Such a commission, he said, would be empowered to adopt a code of ethics and to fairly and impartially field complaints from the public to determine if a violation happened in the arenas of conflict of interest, campaign finance, or financial disclosure. Such a commission would have authority to enforce the laws. The Secretary added that in recent years Vermonters have heard allegations of ethical issues about the Governor, attorney general, legislators, candidates, and municipal officials, with such complaints coming from all political parties. He noted that, currently, his office has no authority to investigate or enforce such complaints, adding that the Vermont Constitution specifically provides that “all officers of government, whether legislative or executive, are their trustees and servants; and at all times, in a legal way, accountable to them.” The Secretary also recommended that along with an ethics commission, the Legislature should pass a clear law describing what constitutes unethical behavior in areas of ethics and conflicts of interest.

Smoking Gun? Agents representing Pennsylvania’s Attorney General Kathleen Kane’s office raided the Harrisburg home of its former mayor, Stephen Reed (1982-2010), a raid which appears to be part of the AG’s lengthy investigation into aspects of Mayor Reed’s time in office, as part of a review of the finances which nearly forced the capitol city into municipal bankruptcy—a review under investigation by a grand jury. The grand jury has been investigating the financial dealings, including municipal bond financing related to an incinerator retrofit project, which saddled 49,000-population Harrisburg with more than $600 million in debt and on the brink of municipal bankruptcy. Mr. Reed has testified before that grand jury as have other city officials. Harrisburg narrowly avoided a Chapter 9 filing by crafting a financial plan late in 2013 that included a sale of its incinerator and a long-term lease of parking assets.

Should Foxes Guard the State Henhouse? Should Current Elected Leaders Serve on Ethics Panels? Former Va. Lieutenant Governor Bill Bolling, whose second term coincided with former and now convicted Gov. Bob McDonnell, and who currently heads up the Governor’s Commission on Integrity and Public Confidence in State Government, is deeply concerned that the state’s new ethics initiative and creation of an ethics advisory council devised to guide Virginia state elected leaders, because it is designed to include lawmakers. The new council, which could begin meeting in July, is supposed to provide guidance to lawmakers and approve trips from lobbyists costing more than $100. Mr. Bolling this week commented: “I don’t believe any sitting member of the General Assembly should be sitting on the ethics panel…I think it’s a conflict of interest…It puts them in a really tough spot when they’re being asked potentially to sit in judgment on their colleagues.” Under Virginia’s new conflict of interest law, the state’s ethics advisory council will have nine members; however, unlike either the Congressional ethics oversight panels, or those of many states, there is antagonism in the Virginia legislature to either any independent panel—or the provision of any enforcement authority; rather the council’s members are appointed by House Speaker Bill Howell (R-Stafford County), the Senate Rules Committee, and the Governor, with each permitted to select three members: the speaker and Senate committee must both appoint a retired judge and two lawmakers; the Governor must appoint a current or former member of the executive branch, a recommendee of the Virginia Municipal League, and someone recommended by the Virginia Association of Counties. The ethics advisory council could begin meeting as early as July 1, when the law creating it goes into effect; no meeting, however, has been scheduled. The key provision of the new law is a $100 cap on gifts lawmakers may accept from lobbyists, which becomes law Jan. 1; however, the advisory council has authority to approve gifts or travel above that threshold. The former Lt. Governor said the study group should recommend ways to close loopholes next year, including that no sitting member of the General Assembly should serve on the council, adding: “Nobody should think we’re done talking about this…Our ethics laws are better today than they were two years ago or a year ago…everybody talked about, well, we’ve imposed this ban on gifts above $100. Nothing could be further from the truth. What they have done – let’s be very clear about this – they have imposed a limit of $100 on gifts from registered lobbyists or lobbyist principals, and it doesn’t apply to anybody else.” Referring to the federal corruption conviction of former Gov. Bob McDonnell, who had accepted more than $170,000 in gifts from Jonnie Williams, a business owner who wanted the state to study his nutritional supplement, Mr. Bolling noted: “At the time Jonnie Williams was giving gifts to the former governor, I don’t think he was a registered lobbyist…He could give those gifts tomorrow, and there’s nothing in this law that would prohibit that, as I read it.”

                                               TIME TO STEP UP
Daily Press Editorial: Running for public office takes courage, confidence and the committed support of family and friends. The endeavor is not easy — walking through neighborhoods and knocking on doors takes plenty of time and effort — nor is it cheap, since campaign signs do not grow on trees. So as we head down the stretch toward Election Day, we extend our gratitude to those who volunteered for the experience and seek a place in local government. And we encourage other civic-minded citizens to lend their time and talent to the calling of public service, since our communities will surely benefit as a result. ~ Bill Bolling, former—and now convicted—Governor Bob McDonnell’s lieutenant governor, and current Co-Chair of the Governor’s ethics commission, writes on his Facebook page: “The public’s trust is hard to gain and easy to lose.”

                                                             Little Legalities

                                         Federalism, Preemption, State & Local Authority
One Person One Vote? The U.S. Supreme Court has agreed to hear a case which could answer a long-contested question about a bedrock principle of our U.S. political system: what do we really mean by “one person one vote?” The court’s decision could result in significant shifts in governance powers. The court has never resolved whether that means that voting districts should have the same number of people, or the same number of eligible voters. The difference matters in places with large numbers of people who cannot vote legally, including immigrants who are here legally but are not citizens; unauthorized immigrants; children; and prisoners. The new case, Evenwel v. Abbott, No. 14-940, is a challenge to voting districts for the Texas Senate brought by two voters, Sue Evenwel and Edward Pfenninger, who are represented by the Project on Fair Representation, the small conservative advocacy group which has mounted earlier challenges to affirmative action and to a central part of the Voting Rights Act, and, in their brief, argue: “There are voters or potential voters in Texas whose Senate votes are worth approximately one and one-half times that of appellants.” the challengers’ brief said. The decision could further define voting districts in the wake of the Court’s 1964 decision, Reynolds v. Sims, in which the court held that voting districts must contain very close to the same number of people; the decision did not, however, define which people count. Because almost all state and local governments draw districts based on total population, but persons who are ineligible to vote are unevenly distributed, the difference between counting all people or counting only eligible voters matters: demographic patterns vary widely—or, as Joseph R. Fishkin, a law professor at the University of Texas at Austin, wrote in 2012 in The Yale Law Journal, the outcome of this case could “shift power markedly at every level, away from cities and neighborhoods with many immigrants and many children and toward the older, whiter, more exclusively native-born areas in which a higher proportion of the total population consists of eligible voters.” Evenwel v. Abbott, U.S. Supreme Court. No. 14-940.

Chilling on Quill? Colorado has filed a supplemental brief in the Tenth Circuit Court of Appeals, arguing that its remote retailer sales tax notice and reporting requirement does not violate the commerce clause or Quill, because it does not constitute economic protectionism. The state also argued that the case is not barred by comity because the state waived it as a jurisdictional bar. ___ On May 20, 2015, nine state and local government interest groups filed an amicus brief in the Tenth Circuit Court of Appeals supporting Colorado’s sales and use tax information reporting regime. The brief argues that the inability of states to assess and collect sales and use tax on electronic commerce has had real consequences for states and local governments that are not able to provide dollars necessary to adequately fund education, infrastructure, public safety, and other government services. On May 19, 2015, group of interested law professors filed amicus curiae brief in the Tenth Circuit Court of Appeals supporting Colorado’s sales and use tax reporting regime, arguing Quill does not preclude the regime. They argue that the statute serves important purposes for which there is no alternative, other than the one foreclosed by Quill. Direct Marketing Association v. Brohl, U.S. Supreme Court, No. 13–1032, March 3, 2015 (remanded).

School Segregation. In 1970, the district court determined that the City and the Board in Pitt County, North Carolina, were operating racially segregated schools and directed them to submit desegregation plans that would establish a nonracial, unitary school district. This appeal stemmed from the district court’s two desegregation orders. Plaintiffs moved to enjoin the implementation of the Board’s 2011-2012 student assignment plan because it failed to move the school district toward unitary status. The district court denied relief. The court vacated the district court’s ruling, holding that the district court erred when it failed to place the burden on the Board to show that the 2011-12 student assignment plan moved the school district toward unitary status. Subsequently, the district court granted the Board’s motion requesting that the district court declare the school district unitary and the district court dismissed plaintiffs’ request for an injunction as moot. The court affirmed, noting that “The district court’s decision to assess unitary status first comports with its obligation to ‘restore state and local authorities to the control of a school system that is operating in compliance with the Constitution,’” concluding that the district court acted within its discretion in choosing to address the Board’s motion for declaration of unitary status before ruling on plaintiffs’ motion for injunctive relief. Further, the district court did not clearly err in determining that the school district is unitary. Everett v. Pitt County Board of Education, 5th U.S. Circuit Court of Appeals, # 13-2312, June 3, 2015.

Special Use. World Outreach, a religious organization, purchased a YMCA building in a low income area of Chicago, where it proposed to rent rooms to needy persons. The YMCA had a license for that use, even after the area was rezoned as a community shopping district. Chicago, however, refused to grant World Outreach a license, claiming it did not have a Special Use Permit (SUP). After the area was reclassified as a Limited Manufacturing/Business Park District, the city sued in state court, contending that the use was illegal. The city later abandoned the suit; however, World Outreach sued under the Religious Land Use and Institutionalized Persons Act (RLUIPA), 42 U.S.C. 2000cc. The city relented and granted the licenses. According to World Outreach, however, the Windy City continued harassing it. On remand, the district court entered summary judgment in favor of Chicago on all but one claim. The Seventh U.S. Circuit, however, affirmed partial summary judgment in favor of World Outreach, regarding the attorneys’ fees for having to defend itself against a frivolous suit, reversed partial summary judgment to the city, and remanded. The federal court determined the frivolous suit cannot be thought to have imposed a merely insubstantial burden on the organization, but the organization presented weak evidence concerning damages for the two years during which it was denied a license. World Outreach Conference Ctr. v. City of Chicago, U.S. 7th Circuit Court of Appeals, #13-3728, June 1, 2015.

The Unique Federalism of Municipal Bankruptcy


December 17, 2014
Visit the project blog: The Municipal Sustainability Project

Federalism Writ Large

As we observe the interplay of the three different levels of government in addressing municipal bankruptcies across the nation, one of the most striking issues is the extraordinary disparity in state roles and the unforeseen, but extraordinary role of the federal judiciary branch. While the federal municipal bankruptcy law, chapter 9, bars a municipality from eligibility to file for federal protection absent state authorization; the state—if it so authorizes—then can also define how it wishes to play (or not to play). Thus, in the wake of Central Falls, Rhode Island’s bankruptcy filing, the state not only appointed a former Rhode Island Supreme Court Judge, Robert Flanders, to serve as the city’s receiver, but undertook significant state actions to provide intervention and assistance in an effort to help other severely distressed municipalities from having to enter into bankruptcy. Central Falls had served as a wake-up call. In contrast, in the case of Jefferson County, U.S. Bankruptcy Judge Thomas Bennett wrote: “All those who attribute Jefferson County’s bankruptcy case…and plight only to the conduct and actions by the county are ill informed…The State of Alabama and its legislature are a significant, precipitating cause…” In the case of Detroit, the deft (and astute) intervention by U.S. Chief Judge Gerald Rosen appeared to play a unique role in facilitating a significant state role, as Michigan Governor Rick Snyder and bipartisan leaders of the Michigan legislature converted Judge Rosen’s hastily scribbled diagram into what become the so-called “Grand Bargain”—a development that seemed to be the key to the Motor City’s successful exit from bankruptcy. But in California, as in Alabama, the state not only appears to have contributed to some of the severe fiscal stress that precipitated the string of municipal bankruptcies, but also has been virtually irrelevant to any and all efforts to municipal bankruptcy recovery. Rather, it is the federal judiciary—especially in its intermediary role—that seems to be contributing to defining a new, constructive role.

A Friendly Federal Hand. With the judicious assistance of court-appointed mediator, U.S. Judge Gregg Zive of the Federal Bankruptcy Court in Reno, Nevada; San Bernardino finally has what City Attorney Gary Saenz describes as a “work plan” to prepare its plan of adjustment to address not only the city’s 200 creditors, but also to put together its plan of debt adjustment so that San Bernardino could exit bankruptcy and create a path to a sustainable future. Not only that, but the plan has been reviewed by the entire City Council — not just the small team that previously was allowed to know details of the confidential mediation where much of the city’s bankruptcy plan has been ironed out. Mr. Saenz noted: “That [gag]order (by Judge Zive) has now been revised so that Council will now be part of those negotiations and will significantly become a part of bankruptcy team discussions…However, as mediation with creditors continues, your council representatives will be subject to the confidentiality order and will not be at liberty to discuss particulars.” Mr. Saenz said the council will now meet regularly with the bankruptcy team, whereas, previously, the majority of the council was not permitted to be involved in these critical discussions about whether and how to shape the city’s plans to exit municipal bankruptcy and create the architecture for a sustainable future—or, as Councilmember Henry Nickel noted yesterday: “You’re making decisions with very, very incomplete information…That, I think, really inhibits the ability to make fully considered decisions.” Interestingly, Judge Zive’s gag order encompassed not just San Bernardino elected officials, but also U.S. Bankruptcy Judge Meredith Jury. Mr. Saenz yesterday said the City Council met Monday with Management Partners, the consulting company San Bernardino hired last November and which played a key role in helping former Stockton City Manager Bob Deis and the city’s elected officials to put together Stockton’s plan of adjustment—providing the key for the city to successfully exit municipal bankruptcy last month. Thus, Mr. Saenz told the Council: “They now stand united in their pledge and commitment to support the city manager and his team to ensure the work plan is fully executed…We are at this time confidently poised to develop and present a comprehensive recovery plan that will take us through and out of bankruptcy.” Mr. Saenz added: “As we proceed through development of our recovery plan of adjustment, the public will be provided more and more information regarding its particulars, so that, ultimately, all stakeholders, citizens, business community and even creditors will commit to and support the plan.”

Michigan Takes on Urban Blight. Michigan Governor Rick Snyder yesterday announced the state is splitting $75 million in federal funding between 12 cities, including nearly $50 million for Detroit, in its latest effort to take on blight: “This is another important step in Michigan’s comeback, which has become a national example for what can be accomplished when federal, state and city partners work together with a shared vision to solve a problem…As a result of this collaboration, these cities will be better places to live, work, play and invest.” The effort is being funded under the U.S. Department of Treasury’s Hardest Hit Fund program. Last October, the U.S. Treasury approved Michigan State Housing Development Authority’s reallocation of $75 million to its blight elimination program: the $75 million is part of nearly $500 million Michigan was allocated in 2010 through a federal program to help homeowners hit hard by the national housing crisis, with the state creating an evaluation system which includes residential housing vacancies and requiring each applicant municipality to submit blight plans, estimate project costs, and provide a timeline for the work. U.S. Treasury Deputy Secretary Sarah Bloom Raskin noted: “This partnership demonstrates a commitment to revitalizing our cities and to addressing the damaging effects caused by vacant and blighted properties…Removing blighted properties is an important step in stabilizing neighborhoods, and we look forward to continuing our efforts to assist hardest hit communities around the nation.” In its application, the Motor City successfully applied for $50 million of the current $75 million allotment to provide for 3,100 demolitions, or significantly less than 10% of its more than 40,000 vacant structures. (The feds have already has awarded Detroit’s Land Bank $52 million to tear down at least 3,300 of them. Another $420 million — saved by the city as part of its federally approved plan of debt adjustment — also will be used to raze vacant houses and clear lots. The city’s land bank is averaging about 200 demolitions a week. The included communities are: Detroit, $50 million ($47.4 million in second-round funding combined with $2.6 million in reserves from the first round); Lansing, $6 million; Jackson, $5.5 million; Highland Park, $5 million; Inkster, $2.25 million; Ecorse, $2.19 million; Muskegon Heights, $1.8 million; River Rouge, $1.3 million; Port Huron, $1 million; Hamtramck (a municipality wholly within the boundaries of Detroit), $952,000; Ironwood, $675,000; and Adrian, $375,000. According to officials, each blight partner must spend 25 percent of all funds in the first six months, 70 percent of funds within 12 months, and 100 percent within 18 months. U.S. Treasury requirements state any remaining funds as of New Year’s Eve, 2017, must be returned to their office.


Motor City Depositions. Attorneys for Motor City labor unions yesterday took nearly three hours of deposition from Michigan Gov. Rick Snyder with regard to why he authorized Detroit’s historic bankruptcy filing and whether Continue reading


Detroit’s Pension Blues. Detroit’s two pension funds—the General Retirement System and the Police and Fire Retirement System—experienced losses of 47% and 33% on real Continue reading