CITIES IN DISTRESS
July 22, 2013 4:36 PM
Jeff Kowalsky/Bloomberg
Last weeks Detroits Chapter 9 bankruptcy filing was the largest such filing ever, and made Detroit the largest city ever to file for bankruptcy. But its not the only municipality that is experiencing or has experienced financial distress. There is no cookie-cutter storyline for getting into such trouble or getting out of it. Some examples:
NEW YORK CITY
Population: 7.9 million (1970)What happened?After years of deficits, by April 1975 the city lost market access and was on the brink of insolvency and default. A state control board and federal loan assistance that came with unpleasant strings attached allowed the city to remain operational and avoid bankruptcy.
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CLEVELAND
DefaultWhat happened?In 1978, the city defaulted on $15 million of short-term notes when local banks refused to roll over the debt, the first major American city to default on its paper since the Depression.In 1979 the state placed the city under a Financial Planning and Oversight Commission that would develop a recovery plan and police every fiscal move. The panel was in place until 1978.
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ORANGE COUNTY, Calif.
BankruptcyPopulation: 2.4 million (1990)What happened: The county filed for bankruptcy after massive losses in its investment pool.Date of Filing: Dec. 6, 1994Date of Exit: June 12, 1996Time in bankruptcy: 18 monthsBonds impaired? No.
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VALLEJO, Calif
BankruptcyPopulation: 115,000 (2010)What happened: With generous employee contracts and a withering tax base, the city found itself on the brink of missing payroll.Date of Filing: May 23, 2008Date of Exit: Nov. 1, 2011Time in bankruptcy: 3 years, 5 monthsBonds impaired? Yes.
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HARRISBURG, Pa.
Continuing crisisPopulation: 49,000What Happened?The city is burdened with about $350 million in city guaranteed debt from an incinerator project with costs that spiraled out of control.Its city council rejected recovery plans under Pennsylvanias Act 47 program, prompting state lawmakers to pass a law putting the city in a receivership, where it remains.The city council attempted to invalidate the receivership by filing a Chapter 9 bankruptcy petition that a federal judge invalidated in November 2011. In May the Securities and Exchange Commission charged Harrisburg with securities fraud for misleading public statements about its financial condition.Bonds impaired? Yes, the city has defaulted on general obligation bond payments.
CENTRAL FALLS, R.I.
BankruptcyPopulation: 18,000What happened?Severe pension underfunding combined with severe financial distress in a small, poor community.Date of Filing: Aug. 1, 2011Date of Exit: Oct. 25, 2012Time in bankruptcy: less than 15 monthsBonds impaired? No. State law protected GO bondholders.
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JEFFERSON COUNTY, Ala.
BankruptcyPopulation: 658,000What happened? The county was squeezed by a corrupt sewer system financing that unraveled during the financial crisis, while losing a major general fund revenue source when an occupational tax was overturned in court. Date of Filing: Nov. 9, 2011Date of Exit: Still in bankruptcy.Time in bankruptcy: 20 months and counting. The county hopes to exit by year-end.Bonds impaired? Yes (creditors have agreed).
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STOCKTON, Calif.
BankruptcyPopulation: 296,000What happened: The city, which borrowed extensively during the real-estate boom years before 2008, building among other things new pro sports venues, found itself deeply in debt, pinched by the recession, the end of Californias redevelopment program, and generous employee compensation agreements.Date of Filing: June 28, 2012Date of Exit: UnknownTime in bankruptcy: 12 months and counting.Bonds impaired? The city has proposed major haircuts for many bonds.
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SAN BERNARDINO, Calif.
BankruptcyPopulation: 209,000What happened: City officials cite a toxic combination of declining revenues and high and rising fixed costs, primarily for employee compensation.Date of Filing: Aug. 1, 2012Date of Exit: Yet to complete eligibility processTime in bankruptcy: Almost a year and counting.Bonds impaired? The city has deferred pension obligation bond payments.
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DETROIT
BankruptcyPopulation: 700,000What happened?After decades of decline the city has lost 63% of its population over 60 years, Detroits shrunken and relatively poor population was unable to sustain its legacy costs left over from its days as a larger, more prosperous city.Date of Filing: July 18, 2013Date of Exit: unknownBonds impaired? The city has proposed major haircuts for many bondholders.
