Joseph Krist

Publisher

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THE EMERALD CITY

The Muni Credit News took a couple of weeks off (hopefully you noticed) and headed to the Northwest. Part of that trip included a visit to Seattle. The city tries to be on the forefront of progressive governance whether it be transit, the environment, or social policy. It tries to leverage its role as a tech headquarters to create a modern image but it struggles with some longstanding issues. Much has changed yet at the same time much has remained the same.

The first issue is a symptom of the underlying problems. That issue is homelessness. The numbers of homeless mostly mentally ill individuals is clearly higher. They are not hidden away, they are right in the city center. And they are aggressive. It is the sort of situation that easily deters visitors. There is no easy fix. Yet this creates additional costs for the City of Seattle until the underlying problem is addressed. Which brings us to the issue of development.

There was lots of construction and almost all of it residential. So that will increase supply and availability to meet the local housing needs across the board? No. The development was all geared towards market rate buyers. Half to one and a half million market rate. It wasn’t really clear where if any where affordable  housing was being developed.  That means the problem will just continue. The old tools which have been tried and abandoned in other cities – including the installation of various items designed to deter public sleeping in open city spaces – are all on display. And failing in the absence of housing supply.

Then there was transportation. Whatever you want they have – monorail, bus, light rail, subway, traditional electric buses (on overhead lines). And they certainly have lots of micromobility. Scooters and electric bikes strewn all over the sidewalks. When you read about the phenomenon you ask is it really that bad? Unfortunately, the answer is yes. Seattle was the first major city in North America to allow private dockless bike sharing companies to operate within the city beginning in July 2017. At least Manhattan learned something and will not allow the vehicles in Manhattan.

SANCTUARY CITIES

The early successes in federal court on the part of those cities seeking to receive funding for local law enforcement from the federal government suffered a setback this week. A number of so-called “sanctuary cities” sued the federal government after grant requests were turned down when those cities could not certify that the focus of the supported law enforcement efforts would be directed at illegal immigration enforcement. The Department of Justice (DOJ) chose to prioritize agencies that focused on unauthorized immigration and agreed to give Immigration and Customs Enforcement (ICE) access to jail records and immigrants in custody. 

The particular program in question is Community Oriented Policing Services (COPS) grants. The program really doesn’t have anything to do with immigration enforcement. The city of Los Angeles first sued the administration after it was denied a $3 million grant on the grounds that it did not receive the money because it did not focus on immigration for its community policing grant application. A federal district court judge found in favor of the City.

Now, The 9th Circuit Court of Appeals ruled that the Department of Justice (DOJ) was within its rights to withhold Community Oriented Policing Services (COPS) grants from sanctuary cities. “The panel rejected Los Angeles’s argument that DOJ’s practice of giving additional consideration to applicants that choose to further the two specified federal goals violated the Constitution’s Spending Clause.”   

An appeal would be expected in that other California cities have had success in the courts over the issue of grants and new requirements to obtain them. What does not help is how the law works. Congress created the fund in 1994. It was meant to provide federal assistance to state and local law enforcement to get more police on foot patrol and improve police-community interaction. However, the law provided for the Justice Department to administer the funds.

PUERTO RICO

Protesters amassed in Old San Juan for several day to demand the resignation of embattled Gov. Ricardo Rosselló. The position of Secretary of State  was occupied by Luis G. Rivera Marín until he resigned Saturday. The positions of chief financial officer and representative of the governor to the island’s Financial Oversight and Management Board, both held by Christian Sobrino became vacant on Saturday as well.

The Governor is in the midst of a political scandal resulting from a release of e mails sent by staff which disparaged legislative and other political opponents of the Rosello administration. The messages include 889 pages of a messaging app chat group in which Rosselló and his inner circle speak without inhibition about how to manipulate opinion polls, how to mark officials and journalists to affect their reputation, and how to handle operations to give the impression that they are addressing fundamental problems that affect citizens.

So what’s the point? The Rosello administration has been exposed as a sham. It finds itself the subject of federal indictments from the U.S. Department of Justice against former Education Secretary Julia Keleher and Ángela Ávila, the former executive director of the Health Insurance Administration. There have been enough concerns about this administration’s competence. Now it looks like they haven’t even been trying.

Under these circumstances, the implementation of a final plan of emergence from the Title III proceedings is now a longer way off. It is most likely that whatever decision reached by Judge Swain will be appealed. In the meantime creditors face a Promesa board of unclear standing, an extremely weak chief executive, and a poisonous political atmosphere. And regardless of intent, a blank check has been handed to opponents of real aid and reform including the President.

The resolution of Puerto Rico’s effort to escape its debt burden and reinvent its economy will not in and of itself create success for Puerto Rico. The latest political saga is but one in a long line now spanning two generations of political failure. Already a significant opening has been ignored which would have provided much cover for the hard decisions which needed to be made. Regardless of how this all turns out, it will go down as a missed opportunity.

CONNECTICUT PENSION REPORT

The Connecticut Legislature established the Connecticut Pension Sustainability Commission to study the feasibility of placing state capital assets in a trust and maximizing those assets for the sole benefit of the state pension system.

The Commission’s key findings, conclusions and recommendations The Commission’s key findings, conclusions and recommendations include a belief that it may be feasible for the state to establish a mechanism to identify and transfer state assets into a trust for the sole benefit of the state’s pension funds. The Commission recommends that the legislature provide specific policy guidelines before specific assets are considered for potential contribution to a trust mechanism and concludes that the Office of the State Treasurer is the appropriate authority to provide oversight and direction on the management of any kind of asset trust

The Commission believes that the concept of using the proceeds of the Connecticut Lottery for the benefit of the pension funds or the wholesale transfer of the Connecticut Lottery, as an asset to the funds, is technically feasible.  In many cases, a program such as this would be a sign of weak governance but the reality is that traditional approaches to addressing the State’s extreme unfunded liability position are not going t cut it.

The Commission consisted of appointees from all the major legislative and executive agencies. That should in theory provide cover for any legislators needing it. Commissions are a tried and true way to drive consensus on topics with no obvious political upside. Pension funding  is one of those issues. Let’s see if they take advantage of the opportunity.

SEC CONTINES ENFORCEMENT EFFORT

The Securities and Exchange Commission (SEC) has announce another enforcement action in the municipal securities space.

The latest matter involves a registered municipal advisor’s use of unregistered “solicitor” municipal advisors to solicit business from school districts in California. In 2010, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act which amended the Exchange Act to establish a federal regulatory regime applicable to municipal advisors. The Exchange Act and SEC rules and regulations identify two broad categories of municipal advisors: (1) those that provide certain advice to or on behalf of a municipal entity or obligated person; and (2) those that undertake certain solicitations of a municipal entity or obligated person on behalf of an unaffiliated broker-dealer, municipal advisor or investment adviser. The latter category of municipal advisors are known as “solicitor municipal advisors.” Section 15B(a)(1)(B) requires all municipal advisors to register with the Commission. The registration requirement for solicitor municipal advisors is intended to provide protection and transparency to municipal entities and obligated persons as they make decisions on the hiring of financial professionals, including the hiring of municipal advisors.

Dale Scott & Co., Inc. (“DSC”) is a seven employee municipal advisory firm located in San Francisco, California, that provides advisory services to school districts and community college districts in California. DSC is registered as a municipal advisor with both the Commission and the Municipal Securities Rulemaking Board. Between October 2011 and March 2016, DSC engaged three unregistered parties to provide various services to DSC including to solicit municipal advisory business on DSC’s behalf. By soliciting municipal advisory business on behalf of DSC without properly registering with the Commission, those three parties violated the registration requirements of Section 15B(a)(1)(B) of the Exchange Act. DSC was a cause of those violations.

Why should the individual investor care? So often when an issuer finds itself in trouble financially it has often followed the advice of  unscrupulous advisor. It is a natural outgrowth of the knowledge imbalance between issuers and other market participants. The nature of political and elective turnover makes it more difficult for issuers to rely on their own in-house expertise. It is all the more important that issuers receive advice from those advisors who properly register and disclose.

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