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    Entries in fiscal distress (20)

    Thursday
    Aug252016

    The Story Behind San Bernardino’s Long Bankruptcy

    Unlike Detroit or Stockton, this California city’s insolvency can’t be blamed on debt or pensions.

    BY  AUGUST 25, 2016

    Four years ago this month, San Bernardino, Calif., filed for Chapter 9 protection. Today, it’s still in Chapter 9 -- the longest municipal bankruptcy in recent memory.

    Why so long? Many blame it on San Bernardino’s lengthy and convoluted charter, a document that gives so much authority to so many officials that it’s completely ineffective. “It gets everybody in everybody else’s business,” said City Manager Mark Scott. “And it keeps anybody from doing anything.”

    As a result, officials have spent the last two years trying to ensure the current charter is not part of the city’s future. A specially appointed committee is proposing to completely overhaul it.

    At issue is that unlike many California cities that either have a strong mayor/council form of management or a strong city manager government, San Bernardino’s is a hybrid, doling out authority to both sides. For example, fire and police chiefs are appointed by the mayor and subject to approval by the council, but report to both the mayor and city manager. This confusing structure played a role in the city’s road to insolvency. “You’d have to say,” Scott said, “the charter made it almost impossible to succeed.”

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    Thursday
    Aug112016

    The Benefits of Helping Struggling Cities

    For financially distressed municipalities, it’s good to be in a state that intervenes, according to a new study.
    BY  AUGUST 11, 2016

    Earlier this month, New Jersey stopped Atlantic City from defaulting on its debt with a $74 million bridge loan. While there was plenty of bluster and several hollow threats from legislators that they would not step in to help the financially beleaguered gambling town, it didn’t surprise anyone when they finally did.

    That’s because New Jersey has a reputation in the credit market for going to any lengths to prevent one of its municipalities from entering Chapter 9 bankruptcy. In fact, no New Jersey municipality has defaulted on debt since the Great Depression. This extra layer of protection is not only comforting to local officials in struggling cities like Camden or Trenton, it’s viewed as a big plus by those who invest in New Jersey municipal debt.

    Now, preliminary research affirms the benefits of being a municipality in a more proactive state. Scholars at the University of Notre Dame and University of Illinois at Chicago have found that creditors tend to give municipalities in these states a slightly lower borrowing rate than they do municipalities in states without any kind of bankruptcy intervention program.

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    Friday
    Aug052016

    The Week in Public Finance: The Netflix Tax, Another Atlantic City Rescue and More

    A roundup of money (and other) news governments can use.
    BY  AUGUST 5, 2016

    Taxing Netflix

    Pennsylvania this week became one of a few states that taxes online streaming video services like Netflix and and Hulu, a development that has consumers complaining but other governments watching closely.

    The expansion of the state’s 6 percent sales tax was part of a revenue package passed earlier this year to fill a $1.3 billion hole in the state’s new $31.5 billion budget. Pennsylvania also extended the sales tax to digital downloads like music and ebooks. Sixteen other states already do that, but it has proven difficult to tax streaming services.

    Last year, Alabama lawmakers tabled a study that would have expanded its 4 percent digital downloads tax to streaming services. Vermont looked at the issue but then the technology was more akin to a service than a tangible good. Massachusetts passed a wide-ranging technology tax in 2013 that was quickly repealed after the tech industry complained of the difficulties of complying to it. (For the record, Florida does apply a small communications tax to streaming services.)

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    Thursday
    Jul142016

    Puerto Rico's Warning for States, Cities: You Might Be Next

    Gov. Alejandro Garcia Padilla said the island's rescue might simply be a harbinger of things to come on the mainland.
    BY  JULY 14, 2016

    President Obama recently signed into law a highly anticipated -- and much debated -- rescue bill for debt-laden Puerto Rico. While the bill has its detractors, it marks a positive step toward the promise of recovery for the island. But the bill's impact could go far beyond the commonwealth's shores.

    Puerto Rico, like states and many cities, can't legally declare bankruptcy. Saddled with $70 billion in debt, Gov. Alejandro Garcia Padilla's administration has spent the last few years unsuccessfully trying to reach an agreement with creditors. During that time, the commonwealth watched its tax base decline as residents fled stateside and Puerto Rican government entities defaulted on debt.

    That's what life without bankruptcy protection is like for governments, Padilla said this week in a speech at the Brookings Institution in Washington, D.C. He went on to suggest that Puerto Rico, with its smaller economy and population size, might simply be farther along on a path other U.S. governments are also traveling. "We are only ahead of the curve -- the curve that looms for many states and municipalities," he said. "We are forced to try the route that others have not tried before, to knock on the doors that others may need to approach in the not-so-distant future."

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    Thursday
    Jun302016

    Who Should Police Municipal Markets?

    A questionable bond sale in Illinois has left some wondering why there's no one to stop financially troubled governments from borrowing.
    BY  JUNE 30, 2016

    Borrowers have long assumed that banks and other traditional lenders will only loan them as much money as they can responsibly afford. Almost a decade ago, the subprime mortgage crisis shattered that belief. But it might still persist in the municipal market.

    Take Illinois, whose fiscal woes are no secret. It has the lowest credit rating (BBB+) -- by far -- of all 50 states, its pensions are among the worst-funded in the country and it's entering its second fiscal year without a budget. Yet earlier this month, Illinois borrowed more than a half-billion dollars from municipal market investors with relative ease.

    The state paid a higher interest rate for its troubles. But thanks to the high demand for municipal bonds these days, the rate was actually lower than the one Illinois paid on its last bond issuance in January.

    "That's the biggest weakness of the municipal market," said Matt Fabian, managing director for Municipal Market Analytics. "We will help issuers borrow as much as they say they want, whether or not they can afford it."

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