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« Open Thread | Main | College Game Stuff »
December 29, 2012

Municipal bankrupty, disease or cure? [Purp]

Looking for that fresh thread smell? You've come to the right place...

...because these guys are working with a not so fresh smell.

Its a good question

Robert Stout, interim finance director for Los Altos Hills, Calif.

Vallejo, Calif., became the largest city to declare for bankruptcy when it filed in 2008.

Stout, who served as the city’s finance director at the time, said revenues had plunged and citizens opposed any tax increases to maintain services. He faced a challenge in trimming payroll expenses, with minimum staffing levels set in contracts with both the city’s police and fire departments.

Once officials showed employees how dire the situation was, many of them left. It was payments for these employees’ unused sick and vacation time that eventually led the city to declare for bankruptcy, Stout said.

Vallejo has since emerged from bankruptcy, but not before making deep cuts to staffing and city services.

To avoid a similar fate, Stout said municipalities must better understand their long-term costs and risks. “We should be real careful about making promises that won’t come due for 30 years.” he said.

Robert Flanders, former receiver for the city of Central Falls, R.I.

The city of Central Falls filed for bankruptcy in August 2011 after failing to obtain concessions from labor unions and employees. Flanders served as the city’s receiver until being replaced in June...

...“I suddenly became a lot more persuasive after Chapter 9 than I was before,” he said.

One of the city's more drastic measures involved slashing pension benefits for some retirees by more than 50 percent. “You’re going to open an empty envelope unless there is something you can agree to,” he recalled telling retirees.

Although some argued receivership displaces the democratic process, Flanders does not view it this way. He argues the city’s long-term outlook is now much brighter, and a judge recently approved a recovery plan expected to enable Central Falls to emerge from bankruptcy.

While Flanders wouldn’t want to recommend Chapter 9, he said it's a necessary last resort for some localities.

"Bankruptcy is not the disease for these cities and towns, it's the cure," he said.

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