The Second Wave of Municipal Defaults

On sait tous que les retraites dorées sont insolvables.

Que font nos politiciens? RIEN.

À part de Régis Labeaume qui dit ouvertement que les syndicats vivent sur une autre planète, nos politiciens carriéristes font comme d’habitude jouer à l’autruche, ils vont emprunter sur le marché financier ces déficits, jusqu’à tant que le robinet se ferme.

Après on se demande, pourquoi le peuple ne croit plus à ces marionnettes, si on avait géré nos finances personnelles ou d’entreprises comme l’État, on serait tous en faillite.

C'est justement, ce qui se passe avec nos voisins du Sud, puisque les syndicats n'ont plus de cervelles qu'un oiseau, et ne veulent pas comprendre le bon sens économique, une deuxième vague de ville se met en faillite.

Vive l’État sous le joug des groupes d’intérêts

Je vais dire comme Mish’s :

Who is to blame for this mess?

·         Public unions

·         Politicians in bed with public unions

·         Voters who vote for politicians who are in bed with public unions

Extrait de: The Second Wave of Municipal Defaults, The American Interest, April 21, 2012

Reuters reports that a growing number of U.S. cities, from Rhode Island to California, are now facing municipal defaults. Up to now, the crisis has primarily affected localities that  made particularly poor decisions on expensive public works projects, but last year the number of municipal defaults in America doubled from 6 to 13, and that number could continue to rise.

The reasons for the defaults are well known by now. The recession hit cities hard. Falling employment and stagnant wages eroded tax bases, and foreclosures and the slump in the housing market are keeping property values low, depriving cities of another top source of revenue. And many localities were profligate spenders when times were good, giving cushy contracts to public unions that have proven difficult to rescind when they become unaffordable. In the past, cities and towns could turn to state or even federal government when times got tough; these sources are no longer in a position to extend aid.

Fortunately, there is a way forward.

Most municipal and state governments have not been constructed with an eye to efficiency.

·         School boards and other administrative positions are often overstuffed with, essentially, patronage posts. Many cities have done little to streamline their operations; techniques the private sector has used to increase white collar productivity can reduce headcount and costs even as services improve.

·         Bankruptcy, grim as it is, offers the opportunity to restructure pension obligations and union contracts to make them sustainable.

Combing through city regulations to eliminate unnecessary rules, simplify and rationalize necessary ones, and to find ways to make compliance less time consuming can both cut the costs of administering cumbersome regulatory systems and give a boost to economic growth and new business formation which will help the revenue picture down the road.

Not all of these steps will be easy or pleasant, but they offer real hope to America’s cities and the people who live in them. Thinking beyond blue can restore the economic vitality of America’s cities.

Extrait de: Bankruptcy, the Best Way to Deal with Public Unions; Mish’s, April 01, 2012

Distressed cities are finally doing what they should have been doing long ago, declaring bankruptcy to force concessions from public unions. Numbers are still a trickle, but at soon as a major city such as Oakland or LA selects that option, we will likely see a torrent of municipal bankruptcies.

At a packed, two-day conference on municipal woes sponsored by Michael Stanton, the publisher of The Bond Buyer 
Distressed Cities Discuss Bold Tactics in a New Fiscal Era.

The conference was devoted to a discussion of the strengths and weaknesses of the more powerful tools being used in many cities these days, including receiverships, emergency declarations and even bankruptcy.

Attempts to plug budget holes with one-time transactions are giving way to other approaches, “This is truly a new era for dealing with troubled municipalities,” said Stanton. 

New woes were unfolding elsewhere even as a capacity crowd of government officials, investors, lawyers and credit analysts were gathering here to discuss the trend. 

In Jefferson County, Ala. — which filed the biggest Chapter 9 municipal bankruptcy in American history this fall after its sewer-construction financing fell apart and a court threw out one of its taxes — county commissioners were voting to default on a general obligation bond payment.

In Detroit, city and state officials were sparring over how much emergency aid the city might be able to get, and how much state oversight and control would accompany it.

Stockton, Calif., was in negotiations in a last-ditch effort to avoid becoming the biggest American city yet to declare bankruptcy.

And just two hours west of Philadelphia, Harrisburg, the state capital, recently announced that it would default on a payment coming due to general obligation bondholders. 

Robert G. Flanders Jr., the state-appointed receiver for Central Falls, R.I., said his city’s declaration of bankruptcy had proved invaluable in helping it cut costs. Before the city declared bankruptcy, he said, he had found it impossible to wring meaningful concessions out of the city’s unions and retirees — who were being asked to give up roughly half of the pensions they had earned as the city ran out of cash.

“The municipality is on bended knee asking the retirees and unions to come to the table and give up their contract rights,” he recalled. “All of that leverage shifts once you have the gumption to
pull the Chapter 9 trigger.

And guess what? That produces agreements quicker and more effectively than otherwise.

Les syndicats ne sont pas fous, si la ville emploie l’arme de destruction massive (faillite), il risque de tous perdre alors ils font des compromis dans l’intérêt des concitoyens  et des syndiqués.

Naomi Richman, a managing director at Moody’s Investors Service, wondered aloud whether it might become more acceptable for cities to declare bankruptcy.

“Back in the ’80s, the stigma against corporate bankruptcy fell away, and it became viewed as a strategy a corporation might pursue for various reasons,” Ms. Richman said. “Recently, with the residential housing collapse, individual bankruptcy has less of stigma in society — it’s a strategy that a person might be advised to follow if they have a debt that they can’t afford. Could the same thing happen for municipal bankruptcy?”

Rhode Island City Offers Gloomy Lesson

The Huffington Post reports
As Detroit Bankruptcy Looms, Rhode Island City Offers Gloomy Lesson

PHILADELPHIA -- Bankers, consultants and elected officials gathered at a conference here on Wednesday to discuss a hot political question for the formerly sleepy municipal bond industry: how to sell the need to protect the rights of bondholders -- the often large, distant financial institutions who extend the credit that keeps towns humming -- when cities enter financial crisis. The issue has most recently been thrown into relief as a Monday deadline for the city of Detroit to accept a consent order to fix the city's budget looms.

"While the economists have declared the recession to have been over for almost three years now, the problems of state and local governments continue to mount," said Bob Kurtter, the managing director for U.S. state and regional ratings at Moody's Investors Service. "Default continues to be rare," he said, but "our ratio of downgrades to upgrades has been negative for the past 12 quarters."

As more cities and states struggle to fill the
$1.26 trillion gap between what they have actually set aside for pensions and retirement benefits and what they have promised
, municipal accountants will grapple with questions that will increasingly resemble those faced by Detroit or former Rhode Island Supreme Court Justice Robert Flanders when he was appointed last year as receiver for Central Falls, a struggling former factory town in the Ocean State.

From the comments of Flanders and others at the municipal bonds conference, it seems like the industry is in agreement about one thing going forward: someone is going to have to suffer, and it shouldn't be bondholders.

Bondholders and Unions Should Both Share the Pain

This idea that bondholders should not take losses is ludicrous. Anyone stupid enough to buy Detroit bonds should pay a hefty price. Moreover, since untenable promises made to public unions are generally a leading cause of bankruptcy, public unions should suffer as well.

$1.26 Trillion Pension Gap

The only way to fill a pension gap of that size is to reduce benefits.

·         Tax hikes are out of the question. And the fastest, easiest, and best way to get pension concessions from public unions is to reduce benefits and tell the unions what they get.

·         There is no need to negotiate. Central Falls did not negotiate, they said take 50% or you may end up getting even less.

·         Ultimately, the only way to deal with public unions is to strip them of all power including collective bargaining rights, then claw back ridiculous benefits in bankruptcy court.