Stockton: U R Not Alone

[don]

Harrisburg, Pennsylvania, Set to Default on $5.27 Million GO Bond Payments

By Romy Varghese - Mar 9, 2012

Harrisburg (9661MF), Pennsylvania’s insolvent capital, says it will miss general-obligation bond payments for the first time next week as its receiver seeks approval for a plan to sell assets.

The city, carrying a debt load of more than five times its general-fund budget, will miss $5.27 million in bond payments due March 15 on $51.5 million of bonds issued in 1997, according to a notice its receiver posted on the Electronic Municipal Market Access system, a database for filings by debt issuers.

The default is the latest for the $3.7 trillion municipal market, which has seen the number grow while remaining rare. The rate of U.S. municipal-bond defaults doubled to 5.5 a year in 2010 and 2011, from 2.7 in the previous 39 years, Moody’s Investors Service said this week in a report. Stockton, California, last month voted to default on some of its bonds.

“It’s a worrisome trend if it becomes more commonplace” for communities to expect bond insurers to pick up debt payments, said Alan Schankel, director of fixed-income research at Janney Montgomery Scott LLC in Philadelphia. Municipal issuers may become increasingly willing to default even if there is no insurance for bondholders, he said.

“If it’s OK to hurt the bond insurer, is it OK to hurt bond holders?” Schankel said.

Objections to Plan

The default decision was made as some city officials objected to a plan to sell assets and avoid a trip to bankruptcy court. State law bars the city from seeking Chapter 9 protection from creditors until July. A majority of the City Council sought unsuccessfully to make that move last year.

“It’s just an indication of how severe the problem is,” Dan Miller, the city controller and a supporter of seeking court protection, said by telephone. “Without a bankruptcy judge, we can’t get a solution.”

Ambac Assurance, a unit of New York-based Ambac Financial Group Inc. (ABKFQ), insures the city’s general-obligation debt.
“We are honoring and paying” valid claims, Michael Fitzgerald, an Ambac spokesman, said by e-mail. He said the company doesn’t comment on specific cases.

While Harrisburg in 2009 started skipping payments on debt related to an incinerator overhaul and expansion, it hasn’t defaulted on general-obligation bonds. The city’s fiscal crisis is driven by more than $300 million in debt from the project at the waste-to-energy plant, which doesn’t generate enough revenue to cover its costs.

Receiver Appointed

In December, David Unkovic was appointed as the city’s receiver, a first for the state. Pennsylvania Governor Tom Corbett, a Republican, had declared a fiscal emergency to ensure vital services, including making payroll and paying debt obligations, were continued.

“My first priority as receiver is to ensure that vital and necessary services such as police and fire are maintained,” Unkovic said today in a statement. “The city will not be making these payments to ensure sufficient cash flow so the citizens of Harrisburg continue to receive essential services.”

By defaulting, Harrisburg will be able to keep paying municipal workers about $1 million every two weeks, through the third quarter at least, Unkovic said by telephone. He declined to say if other bond obligations may be missed. The city’s debt service, including the March payments, totals almost $12 million this year, not including incinerator-related securities.

To the Brink

Harrisburg almost missed payments on its general-obligation bonds in the past two Septembers. Last year, it covered the obligations with the help of a $7.5 million advance from the Harrisburg Parking Authority for a lease of municipal land. In 2010, the community averted default after then-Governor Ed Rendell, a Democrat, expedited state aid to meet debt service.

Unkovic’s recovery proposal, which must be approved by a state court, calls for the sale or lease of city assets, raising taxes and fees, and winning concessions from municipal unions in the community of 49,500 residents.

“From my perspective, this doesn’t diminish my determination to proceed with the plan,” Unkovic said of the default. “This preserves my ability to do that.”

In court papers, Unkovic estimated the city’s deficit at $9.53 million this fiscal year, without concessions from labor unions, while net revenue is forecast at about $48.5 million.

A bid by the council majority to put Harrisburg into Chapter 9 proceedings was dismissed on Nov. 23 by U.S. Bankruptcy Judge Mary D. France in Harrisburg. She said the filing wasn’t allowed under state law. The council is seeking to appeal that decision.
The default “shows what a charade this receivership is,” said Mark Schwartz, a lawyer hired by the council, in a telephone interview today.

One of the general-obligation bonds to be in default, maturing in September 2021, traded at an average of 49.3 cents on the dollar on March 5. That’s up from an average of about 38.7 cents in October, the month the council sought bankruptcy protection, according to data compiled by Bloomberg.

http://www.bloomberg.com/news/2012-0...-payments.html

transfer of wealth proceeds . . . unabated . . . .

[c1ue]

Re: Stockton: U R Not Alone

First talked about 2 years ago:

http://www.itulip.com/forums/showthr...ger-of-default

Amusing also the link to 'climate change': renewable energy in the form of the waste to energy plant noted above is directly to blame for Harrisburg's financial state.

[Thailandnotes]

Re: Stockton: U R Not Alone

How Orange County got in Trouble a Second Time

Full article...

http://www.citywatchla.com/lead-stor...-orange-county

In 1998, the Performance Incentive Program (PIP) was initiated for county workers, billed as an easy, smart way to incentivize superior performance. But an Orange County Grand Jury report in 2003 detailed how PIP amounted to disguised bonus program in which at least 95 percent of employees were being given annual 2 percent raises.

In June 2000, county supervisors voted unanimously to give themselves a 6 percent raise for a third straight year. They also gave nine senior county administrators a 14 percent raise.

But the most devastating decisions involved pensions.

Pension Spiking

In December 2001, supervisors Jim Silva, Todd Spitzer, Tom Wilson, Cynthia Coad and Chuck Smith – all Republicans who claimed to be fiscal conservatives – approved a 50 percent retroactive increase in the pension formulas for 2,000 sheriff’s deputies, allowing them to earn up to 90 percent of final pay in retirement.

“It’s a mind-blower,” Moorlach said in a recent telephone interview. “Not one of those supervisors called me up [in his role as a member of the county retirement board and as county treasurer] to ask if it was a good idea.”

The pension boost was passed so quickly and with so little fanfare that it didn’t even make the pages of The Orange County Register or The Los Angeles Times. The Nexis news archive shows no contemporaneous media coverage of any kind.

A subsequent pension proposal – to provide a 62 percent retroactive increase in the pension formulas for more than 14,000 county workers – drew far more advance attention. But it was nonetheless enacted in August 2004 on a 3-2 board vote, with the support of self-styled Republican fiscal conservatives Silva, Wilson and Bill Campbell. Their fig leaf: a requirement that affected county employees had to pay more toward pension costs when funding lagged.

Even with that concession, however, the unfunded liability for the Orange County Employees Retirement System soared from $85 million in 1999 to $3.7 billion on Dec. 31, 2009, the most recent figures available on the OCERS website. In the process, the pension system went from being 98 percent funded to 69 percent funded.

‘Funny Money’

Moorlach, who left the county treasurer job in 2006 to replace the Assembly-bound Silva on the county board, expresses amazement at how quickly Orange County’s rebound went sour.

Supervisors didn’t “seem to treat money like it’s real. It’s all funny money, and it will keep coming” was their attitude, he told me.

Moorlach believes the county is now well-managed, with appropriate safeguards and smart long-term planning. But he described how difficult it was for county leaders to replace $48 million in vehicle license fees taken by the state government in June 2011. And he noted that, in the next fiscal year, additional pension costs alone will be $53 million.

As in 1994, he said, “We are dependent on what the investment markets will do.” That year, when Citron’s offbeat investments tanked, bankruptcy became inevitable. “Now, we have to place all our bets on the stock market [portion of the county’s investment portfolio] doing 12 percent a year” – for the indefinite future.

Moorlach’s conclusion: By themselves, board members Silva and Wilson“caused more financial havoc” than the county boards which failed to oversee Citron.

And so in short order, Orange County went from being a nationally recognized model of smart governance to just another California government in which elected officials and top bureaucrats blithely showered taxpayer funds on public employees.

Spending Every Tax Dollar

Chriss Street is an Orange County investment banker who succeeded Moorlach as county treasurer from 2006-2010 and who also voiced alarms about Citron’s strategy before it went haywire. Street has a particularly astringent view of the relevance of Orange County’s second self-created fiscal debacle.

Even in a county buffeted by a recent bankruptcy, “Governments and politicians by their nature will try to find a way to spend every dollar possible and push the liability for that spending into the future, either through borrowing or creative accounting,” Street said in a phone interview.

Far from acting prudently with taxpayer funds, Street said, government officials instead work overtime to enable their spending schemes by crafting narratives that depend on “false impressions of spendable cash flow.”

In other words, they lie now and let the public pay later.

Orange County’s experience in the 1990s does show a Chapter 9 municipal bankruptcy filing can help local governments when it comes to the “pay later” part of this disastrous public policy one-two punch. But the blithe way the county government created a fresh fiasco illustrates a larger truth about the need for citizens to show perpetual and eternal vigilance in monitoring their leaders.

“One of the common failings among honorable people is a failure to appreciate how thoroughly dishonorable some other people can be, and how dangerous it is to trust them,” Thomas Sowell once observed. In less than 20 years, Orange County’s citizens learned this painful lesson twice.

[don]

Re: Stockton: U R Not Alone

When local (loco) government officials act like TBTF CEOs it usually turns out badly.

What were they thinking?