No announcement yet.

State & municipal bankruptcies

  • Filter
  • Time
  • Show
Clear All
new posts

  • State & municipal bankruptcies

    San Diego May Use Bankruptcy to Roll Back Benefits: Joe Mysak

    June 16 (Bloomberg) -- The city of San Diego should consider Chapter 9 municipal bankruptcy to help it reduce fringe benefits, pension and health obligations.

    That’s one of the suggestions made by the San Diego County Grand Jury, which does the normal duties of recommending indictments as well as reporting on local governments and special districts.

    San Diego is the fifth major city in the U.S. this year, and the second in California, where people are talking about bankruptcy as a means to “restructure and reorganize their assets and debts while providing relief from current and future obligations,” in the words of the grand jury’s 22-page report, published on June 8.

    San Diego has unfunded liabilities of $2.2 billion in its pension plan and $1.3 billion for health care, which the report calls “unsustainable.”

    More than two years of cutting budgets and the mounting public pension crisis have made the unthinkable an option, maybe even an attractive one.

    “Municipalities are not required to raise taxes or cut costs to the bone before filing for reorganization under Chapter 9,” the grand jury report says, quoting from a presentation at an October 2009, San Diego County Taxpayers Association seminar.

    Open Discussion

    San Diego has been wrestling with pension and benefits costs for years. In 2006, the city settled fraud allegations by the Securities and Exchange Commission for failing to disclose to investors that its pension system was underfunded.

    The recommendation that the mayor and city council convene a panel of municipal bankruptcy experts to talk about it is the last of 16 suggestions made by the grand jury. That it was made at all, in a wealthy city like San Diego, is disturbing.

    “It will be difficult to make the case that the city is insolvent,” said Natalie Cohen of National Municipal Research Inc. in New York in an e-mail this week. “It seems the grand jury report is looking to bust open the discussion about the irrevocable nature of pension obligations -- which will continue to eat up the city’s budget.”

    As the report says in its introduction: “One of the underlying causes of the current structural imbalance is the underfunding of the city’s pension obligation by previous city administrations.”

    This is a familiar story, both in California and around the country. As of June 30, 2009, the San Diego City Employees Retirement System has only 66.5 percent of the money needed to pay for future pension obligations, according to the report.

    Punish the Public

    The report contains an extensive discussion of San Diego’s retirement system, and recommends that the city investigate replacing it with some sort of alternative.

    Among the report’s other recommendations are having someone else run the libraries, selling portions of parks and charging for trash collection: a fairly standard grab bag.

    There’s also a little discussion on how to reduce headcount.

    Did you ever have a feeling that there’s a vindictive element to some of the cuts governments do manage to make? That is, when they are absolutely at the end of their tethers and are forced to fire people, did you ever think that the government somehow (and unbelievably, if you ask me) tries to punish the public? It’s almost as though those in charge say, “Fine, we’ll cut back, but you’ll never have clean streets again.”

    In other words, if the city makes cuts as painful and obvious as possible, we’ll all learn our lesson. I’m not sure what the lesson is. I suspect it depends upon who you are. Don’t lose your job? Offer to pay more taxes? Don’t ask if government might run more efficiently ever again?

    There’s a hint of this in the grand jury report.

    Too Many Managers

    The city, it says, acted “improvidently” in cutting the public safety workforce, such as mounted patrolmen and the canine unit. Meanwhile, “there are now anywhere from seven to nine layers of costly management between the mayor and a blue- collar worker in the field.”

    The recommendations: “Eliminate redundant positions and extraneous levels of management and supervision as employees leave city service through attrition,” and “Restore the cuts to public safety personnel as a priority.”

    There’s a startling level of clarity in the grand jury report on the city of San Diego’s financial crisis. I just hope it hasn’t come too late.

    (Joe Mysak is a Bloomberg News columnist. The opinions expressed are his own.)

    To contact the writer of this column: Joe Mysak in New York at

    Last Updated: June 15, 2010 21:00 EDT

  • #2
    Re: State & municipal bankruptcies

    States Can’t Count on Federal Bailout, Obama Appointees Say

    By Michael McDonald

    July 11 (Bloomberg) -- States can’t count on the federal government for more budget bailouts, the heads of President Barack Obama’s debt commission told governors today.

    States that are expecting Congress to authorize more bailout money are “going to be left with a very large hole to fill,” said Erskine Bowles, co-chairman of the National Commission on Fiscal Responsibility and Reform. States including New York and California have urged Congress to extend stimulus spending authorized to combat the recession, including extra Medicaid funding and money to pay public school teachers.

    “I don’t think we can count on the federal government again,” Bowles, White House chief of staff under former President Bill Clinton, said at the National Governors Association meeting in Boston. “They just do not have the financial resources.”

    While the economy has been expanding, states have yet to recover from the longest recession since the Great Depression. The economic rout cut into tax collections and led them to raise taxes and slash spending on schools, social services and other expenses. States have projected total budget deficits of $127 billion through 2012, according to a report last month by the governors association and the National Association of State Budget Officers.

    Money for Medicaid

    The governors of New York, Pennsylvania and Michigan on June 30 led states pressing Congress to extend higher financing for Medicaid, the health-care program for the poor whose use surged during the economic crisis.

    David Paterson of New York, Edward Rendell of Pennsylvania and Jennifer Granholm of Michigan and three other governors, all Democrats, traveled to Washington to appeal for funds after the Senate failed to approve $16 billion in extra financing for Medicaid and extended jobless benefits. Congressional Republicans opposed the measure’s cost.

    Illinois Governor Pat Quinn was among state leaders that reiterated the call for federal help yesterday at the gathering in Boston. Both Republican and Democratic governors previously urged Congressional leaders to extend the Medicaid help, with 47 state leaders signing a letter asking for a six-month extension earlier this year.

    “We need more help from Washington to protect against job cuts and health care cuts,” said Quinn, a Democrat. “If we don’t do that we’re following Herbert Hoover economics.”

    Recommendations Due

    After championing deficit spending to counter the economic downturn, Obama this year formed a commission to recommend ways to reduce the federal debt, which is projected to reach 90 percent of the U.S. economy by 2020. The panel’s recommendations are due Dec. 1, after the midterm elections in November.

    Former Republican Senator Alan Simpson of Wyoming, the panel’s other co-chairman, told governors today that the depth of the federal government’s spending imbalance is “shocking,” which limits the help it can provide for strained state budgets.

    “The pig is dead,” said Simpson, referring to so-called pork barrel spending that Congress directs to states. “There’s no more bacon.”

    States face a fiscal imbalance next year that is “just as tough” as this year because the economy is on pace to grow at a “lackluster” rate of about 3 percent a year, Yolanda Kodrzycki, an economist at the Federal Reserve Bank of Boston, told governors at the gathering yesterday. The budget pressure will be compounded by the need to help cities and towns faced with a drop in property tax collections, she said.

    Tax Collections Drop

    Property tax collections dropped in the first quarter for the first time since the onset of the real-estate market’s crash, to $107.7 billion from $108.4 billion a year earlier, the Census Bureau said on June 29.

    South Carolina Governor Mark Sanford said yesterday the “worst is yet to come” for the states because the economy is bound to fall back into a recession as government spending contracts both in the U.S. and elsewhere.

    Kodrzycki said researchers at the Fed have become “much more sensitive” to the prospect of a so-called double-dip recession. She said the economy needs to grow at an annual average rate of about 4 percent in order for the unemployment rate to fall back to 5 percent by 2015.

    “The road to economic recovery is a long one,” she said. “It’s a sobering picture.”

    To contact the reporters on this story: Michael McDonald in Boston at


    • #3
      Re: State & municipal bankruptcies

      we should start a contest to predict which state and which of our 10 largest cities will be the first to declare bankruptcy. california and san diego wouldn't be bad picks.


      • #4
        Re: State & municipal bankruptcies

        Illinois and Miami?


        • #5
          Re: State & municipal bankruptcies

          I'd vote Illinois for 1st state myself.

          As for city - I'd think Detroit would be in a world of hurt far more than San Diego, though of course the bubble there was smaller.


          • #6
            Re: State & municipal bankruptcies

            does anyone really believe that these states won't in the end get a bail-out ... the white house is just jaw-boning .... remember NY in the 1970's?


            • #7
              Re: State & municipal bankruptcies

              Originally posted by vinoveri View Post
              does anyone really believe that these states won't in the end get a bail-out ... the white house is just jaw-boning .... remember NY in the 1970's?
              i think political paralysis might prevent a timely bailout. perhaps 1 or 2 states could get to bankruptcy before the pols all became sufficiently scared. [for themselves, of course.]


              • #8
                Re: State & municipal bankruptcies

                Most likely solution: Federal Reserve Municipal Securities Purchase Program. After buying $1.25T of mortgages, $500B of munis would be nothing.


                • #9
                  Re: State & municipal bankruptcies

                  Originally posted by mmreilly View Post
                  Most likely solution: Federal Reserve Municipal Securities Purchase Program. After buying $1.25T of mortgages, $500B of munis would be nothing.
                  That's the one that would get my vote. Better yet - they might end up on the balance sheet of the IMF/BIS through a couple of trillion of newly minted SDRs - thus completely bypassing the Fed's balance sheet.


                  • #10
                    Re: State & municipal bankruptcies

                    Fed buys bonds. Fed collects interest. Fed refunds interest to Treasury. Treasury pays bankers. Bankers are fat and happy.

                    I believe this is a likely outcome.


                    • #11
                      Re: State & municipal bankruptcies

                      I remember the website received a lot of traffic for a couple years(I was a frequent visitor when it was relevant), anyone know of a city, municipality, county, state bankruptcy one stop shop website?

                      I reckon if there is it could receive a firehose of traffic in the next couple of years.