Municipal bankruptcy becomes mainstream

by Brian Leubitz

When Vallejo was looking at bankruptcy, it still seemed a little taboo. There was a stigma attached.  However, since then, municipalities, especially when right-wingers are involved, figured out that municipal bankruptcy is a great way to break the back of the public employees.  And, so hooray, they are becoming more acceptable. Stockton is already considering it, and now add Fresno to that mix:

Fresno Mayor Ashley Swearengin on Monday warned that the city is in “severe financial stress” that demands immediate action and presented a 10-year plan calling for more concessions from city workers.

But the presidents of the city’s two public-safety unions said they sense Swearengin is being overly dramatic for political reasons, and urged the public to get all the facts before choosing sides.

Fresno’s budget season has come early this year, and it’s already turning into a war.

At a morning City Hall news conference where she was joined by City Manager Mark Scott, Swearengin warned that “there is no Plan B” to the cost reductions, and Scott warned that even bankruptcy could not be ruled out if expenses don’t come down.

“It is not in our employees’ best interest for their employer to be so financially unstable,” Swearengin said. “I hope they will see that.”(Fresno Bee)

The city is facing a $15mil shortfall in the next fiscal year, doubling a few times over in the next 5 years. For a city like Fresno, this is a really big deal, and changes they way they provide services.  At the same time, this isn’t as existential as Mayor Swearingen is making it seem. This is a negotiation, and cities have discovered that they have a nuclear weapon in their pocket that they didn’t know about.  And, oh, look, at that…it’s a nuke, it sure would be bad if that went off in here, wouldn’t it?

Mayor Swearingen isn’t necessarily a right-winger. She’s hardly a progressive, but not one to really be pushing the ball forward too much on the big conservative issues. But, perhaps that tells us more about the role of muni bankruptcy now that is being used in this situation. Fresno seems unlikely to ever get there, but anything to beat down the unions, I suppose.

Fortunately after the Vallejo bankruptcy, the Legislature passed, and the Governor signed, AB 506  that requires a mediation process before they can actually declare.  It’s something of a credit counseling service, that brings the City and the creditors together to work things out before the situation becomes a toxic waste site for future credit for the relevant city. It still isn’t as restrictive as some other states are with their municipalities, but it was a step forward from the old situation of playing with the nukes out in the open.  Whether this will actually prevent bankruptcies is still to be determined.