Tag Archives: local finance

Municipal bankruptcy is all the rage?

Cities throwing in the towel on fiscal issues

by Brian Leubitz

The budget issues in cities across the state are trying at best. With state cutbacks and lower than expected growth in sales tax revenue, many are facing severe budget issues.  So…

Facing the same financial stressors that pushed San Bernardino toward bankruptcy, cities across California are slashing day-to-day services and taking other drastic actions to skirt a similar fiscal collapse.

For some, it may not be enough.

San Bernardino on Tuesday became the third California city to seek bankruptcy protection in the last month and, while no one expects the state to be consumed by municipal insolvencies, other cities teeter on the abyss.(LATimes)

Now, decreasing the pressure to pay back bond holders in a time of crisis might be the best course for some of these cities. However, the other side of this issue is that benefits that were agreed to many years ago in a negotiation process are now being reversed. Typically, the cities negotiate  in order to reduce the fiscal strain at some point in the process, but when it comes to bankruptcy, all bets are off. And in many cases, this is putting some real stress on retirees.

“I am already taking generic meds for cholesterol and triglycerides against my doctor’s advice, I can’t afford the $70 co-pay. My wife cries all the time. She don’t understand how when they promise you all this stuff, then they can] just take it away,” he said in court documents.([LA Times)

The stigma of muni bankruptcies may be decreasing but the impacts are still substantial.  At this point, let’s hope that we can move forward through the traditional budgeting process for a while to come.

Fresno Also Looking at Bankruptcy

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.