The City Survival Project: A Blog on Leadership in Fiscal Crises

Welcome to The City Survival Project: News and Information on the Local Government Financial Crisis

All across America, cities and counties are struggling to balance their budgets amidst the greatest economic downturn since the 1930's.  While relatively few have opted to seek Chapter 9 bankruptcy protection or have fallen into state receivership (or are likely to), many elected officials are being forced by circumstances to attack costs and rethink taxes and labor contracts as though they were.  This blog is for them, and for all observers of the survivalist knife fight that municipal budgeting has now become.

For cities like Harrisburg and Birmingham, the problems are largely event-driven, with a single project or investment dragging down the entire budget.  Some Rust Belt and New England cities have been struggling with the fiscal effects of deindustrialization for years, and are now in complete collapse.  Still other cities spent lavishly in boom times only to be caught in an intractable structural squeeze when revenues went south.  Superior leadership is saving some of these, while others descend into political chaos.  

My hope is that the news and commentary presented in this blog will forewarn and inspire its readers, and help everyone understand that survival in these circumstances is usually all about leadership...and perhaps who plans to run against you in the next election.  I welcome your contributions.

Steve A. Steckler, Editor

Weekly Survival Kit: Pennsylvania municipalities are facing $6 billion in unfunded liabilities, Harrisburg officials are being investigated, and experts expect more cities to seek protection in CA.

A round-up of the recent news regarding city survival:

California:One of the important lessons from the recent California bankruptcies is that political constraints are setting up the state and local governments to be financial disasters.

Pennsylvania: New figures show municipalities in Pennsylvania are facing more than $6 billion in unfunded liabilities.

Harrisburg, PA: Lawmakers will explore whether Harrisburg officials obeyed the law when the city ratcheted up hundreds of millions in debt at the taxpayer’s expense.

San Bernardino, CA: The official bankruptcy filing by San Bernardino, California underscores the financial stress faced by cities in the state and the potential that more might seek Chapter 9 protection from their creditors. Many in the municipal debt field expect other distressed municipalities to similarly consider bankruptcy.

California: California lawmakers won’t consider changes to a law that failed to avert three municipal bankruptcies in the past six weeks. The new bill would have broadened the mediator’s powers and loosened deadlines on negotiations.

Distressed Municipalities: As more municipalities begin to experience financial distress, bankruptcy laws are becoming a source of contention. Unlike California, municipalities in Michigan (where none have filed for protection) can only receive state approval to file for bankruptcy after an emergency manager has recommended it.

 

Amin Haririnia

Weekly Survival Kit: Bond analysts don't predict a wave of defaults in California, Jurupa Valley, CA is in danger of dissolving, and Anahuac, TX is experiencing severe financial distress

A round-up of the recent news regarding city survival:

San Bernardino, CA: Although San Bernardino became the 3^rd city to file for bankruptcy, municipal bond analysts do not predict a wave of defaults in the state.

Nebraska: Despite having a relatively small population, the state of Nebraska is home to the highest number of bankruptcies since 1981. The only difference is, the types of governmental bodies seeking protection are not towns, cities, or counties.

California: With the exception of Mammoth Lakes, California cities that have recently filed for bankruptcy protection are in similar financial situations as an exorbitant amount of spending on employee salaries and fringe benefits could not be sustained.

Jurupa Valley, CA: The city of Jurupa Valley could be dissolving by this time next year, making it one of the shortest-lived municipalities in California history.

Anahuac, TX: Anahuac, Texas has become one of the many financially distressed cities in America; however, city leaders are confident that they won’t actually have to seek bankruptcy protection or resort to severe austerity measures.

 

Amin Haririnia

Weekly Survival Kit: San Bernardino files for bankruptcy protection, public employee wages reduced to minimum wage in Scranton, and Stockton, CA will attempt to impose losses on bondholders

A round-up of the recent news regarding city survival:

San Bernardino: San Bernardino, CA is now the third California city in the last two weeks to file for municipal bankruptcy protection when the city council voted to make the move in the face of a $45-million budget shortfall.

Scranton, Pennsylvania: A fiscal and political crisis may be on the verge of breaking out as public employee unions seek to have the mayor held in contempt of court after defying a judge and slashing workers’ pay to minimum wage.

Stockton, CA: Stockton, which became the biggest U.S. city to seek court protection, will begin a historic effort this week to be the first American city to use bankruptcy to successfully impose losses on bondholders.

Middletown, Pennsylvania: Officials have decided to apply for the state’s Municipalities Financial Recovery Plan program after learning that they are $3 million in debt.

York, Pennsylvania: The state legislature adopted and the governor signed a bill that would allow for state intervention in the York City School District, which has requested an advance on its state funding.

Harrisburg, Pennsylvania: Governor Tom Corbett will give creditors and Harrisburg, Pennsylvania’s capital, more time to work out a resolution to the city’s debt by extending a ban on seeking bankruptcy until after Nov. 30.

Victorville, California: The city of Victorville has been accused of sloppy fiscal practices resulting in millions of dollars in losses and possible violations of state law due to a lack of controls.

Read more: http://www.sbsun.com/ci_20973804#ixzz20W48H48u

 

Amin Haririnia

Weekly Survival Kit: Stockton paves way for Chapter 9, Columbus, GA enacted sweeping pension reform, and tax-backed guarantees are causing taxpayers to pay for bonds they never voted on

A round-up of the recent news regarding city survival:

Stockton, CA: Stockton officials voted to adopt a new budget under which it can operate if it is under bankruptcy, a move widely considered the last step before it formally files for Chapter 9 protection.

Harrisburgh, PA: Seven city official filed a federal lawsuit this week against Gov. Tom Corbett and William Lynch, the city's fiscal overseer, in order to prevent the state’s takeover of the financially distressed city.

Columbus, GA: After San Jose and San Diego voted to pass pension reform bills a few weeks ago, the Columbus City Council unanimously approved sweeping pension reform during a Tuesday evening Council session.

Pennsylvania: A state program to help financially distressed cities under Act 47 is getting an $11 million infusion under the state budget as the state anticipates an influx of new cities entering the program in the next fiscal year.

Distressed Municipalities: Because of the proliferation of tax-backed guarantees on bonds to authorities over the past ten years, many municipalities are at risk of steep decline into fiscal insolvency, and taxpayers are being forced to pay for bonds that they never voted on.

Amin Haririnia

Weekly Survival Kit: Detroit drives up utility borrowing costs, Pittsburgh classified as financially distressed, and Stockton may be able to avoid Chapter 9

A round-up of recent news regarding city survival:

Scranton, PA: In Scranton, PA, bankruptcy is becoming a real possibility as city employees face payless paydays and a possible loss of health insurance due to the city’s financial troubles.

Stockton, CA: A detailed report on Stockton's financial woes by California Common Sense concludes that bankruptcy may be avoided if the city and the parties involved in discussions decide their interests are better served by agreeing to negotiated settlements when the legally mandated mediation process ends Monday.

Detroit, MI: The financial distress in Detroit may have elevated borrowing costs for the city’s independently run Water and Sewage Department when it sells $600 million of bonds.

Altoona, PA: Altoona, PA officials want to exit the state’s financial distress program, in contrast to other municipalities that don’t want to give up the ability to lift state caps on earned income and property taxes.

Pittsburgh, PA: The city of Pittsburgh is classified as “financially distressed” by the state and municipal leaders have vowed to lobby state lawmakers for reform as their biggest challenge is paying for skyrocketing employee pensions.

Amin Haririnia

Weekly Survival Kit: Stockton heads for Chapter 9, Detroit legal battle threatens default, and San Diego and San Jose pass pension reforms

A round-up of recent news regarding city survival:

Stockton, CA: The Stockton City Council voted (6 to 1) to authorize the city manager to file for Chapter 9 protection from creditors, putting it on the brink of becoming the nation’s largest city to declare bankruptcy.

Detroit, MI: The Detroit water and sewage department delayed a $596 million bond offering Tuesday, in the midst of political and fiscal controversy that threatens to put the city into default.

Jefferson County, AL: Jefferson County commissioners held the first of at least 3 public hearings on possible sewer rate hikes as they continue to work through what is the largest U.S. municipal bankruptcy.

Central Falls, RI: The timetable for Central Falls’ receivership has been extended to continue through December and the powers of the mayor and city council will not be restored until January 1, 2013.

Nassau County, NY: A bill that would allow Nassau County Executive Edward Mangano to bypass the county legislature and the Nassau Interim Finance Authority to borrow millions of dollars to pay overdue tax refunds moved ahead in the State Senate this week.

San Jose & San Diego, CA: Voters in San Jose and San Diego passed ballot initiatives requiring city employees to contribute more to their retirement plans, as pension expenses continue to soar and strain municipal budgets.

Amin Haririnia

 

Detroit's Dawdling Highlights Need for Speed, Meaningful Reform in Fiscal Crises

Daniel Howes of The Detroit News gave a nice take today on Detroit's lumbering response to dealing with its growing fiscal crisis.  My takeaway: Detroit needs to move quickly and meaningfully, but it is currently doing the opposite in both respects. 

Addressing the need for speed, Howes points out aptly:

Each week of delay costs the city millions of dollars it doesn't have, postpones budget cuts and increases the likelihood that the city will break terms of the consent agreement or terms of its bond covenants or both.

On meaningful reform, Howes puts into proper perspective the effort by Detroit's lead attorney to argue that the consent agreement is void:

Even if the city's top lawyer is proven right and the consent agreement was reached in violation of state law and the city charter, the underlying facts of Detroit's dysfunction and inept management would remain; too many employees serving too few residents would remain; and too many departments consuming dwindling resources would remain, too.

Detroit, like most distressed municipalities, needs to act quickly and meaningfully.  Indecision and denial in fiscal crises, while easier today, come at a significant cost over time.

Mike Poelman

Detroit City Council: Bing Budget Underfunds Elections, Disenfranchises Voters

Detroit's City Council shifted its focus to weightier matters on Friday during budget hearings, arguing that Bing's proposed consent agreement budget signficantly underfunds the City Clerk's office, which is responsible for running elections.  Bing's proposal would reduce the department's budget from $8.5 million to $5 million in fiscal year 2012-13, which Detroit Elections Director Daniel Baxter warned would leave the department unable to adequately hire and train poll workers, maintain voting equipment, notify voters of precinct changes, mail out absentee ballots and even open some polls on Election Day.  The result: a disenfranchised Detroit. 

Budget cuts are no stranger to fierce opposition and require difficult value judgments.  But when it comes to prioritization, budgets for facilitating democracy should be virtually untouchable.  What would be more important?  This is especially apparent in a year when so many Republican-led states have passed laws that make voting more difficult rather than easier, particularly for young and minority voters, with Florida's new election law being the most egregiously suppressive and unashamedly political. 

Needless to say, Mayor Bing should rethink his proposed cuts to Detroit's election budget. 

Mike Poelman  

Detroit Consent Agreement Budget Moving Forward, Facing Resistance

Mayor Dave Bing sent a new budget to the Detroit City Council last week, driven by the consent agreement reached with the State of Michigan.  The budget proposal would cut 2,500 jobs (in addition to the 1,000 job cuts Bing sought previously) and would cut annual expenses by $250 million.  The proposal would also privatize the city's bus system and transfer its lighting department to an independent authority.

As expected, however, Bing's budget proposal received pushback from the City Council, which argued that the cuts to the Mayor's office are disproportionately low relative the cuts to other branches of government ("other branches of government" being code for the City Council's budget).  Bing's proposal calls for a 39% reduction in City Council budget (from $13.6 to $8.3 million), including the elimination of 22 full-time employees, and a 17% reduction in the executive office budget (from $4.8 to $3.9 million), including the elimination of 37 full-time employees. Council members called for parity in cuts. 

Two observations on this complaint: first, given that this was the City Council's opening response to Bing's budget, it may give insight into where the Council's collective head is at; second, these cuts combined account for about $6 million, while Detroit is facing a budget deficit of $265 million and long-term structural debt of $13.2 billion, so... bigger fish to fry maybe?

Finally, Detroit union leaders are pushing back on the proposed cuts under the consent agreement, saying that they are considering an illegal strike. 

So while the consent agreement prevented the imposition of a financial manager on Detroit, and is also preferable to the drawn and costly process of Chapter 9 bankruptcy, it is not without complications.  Indeed, making structural and budget changes to achieve long-term sustainability was never going to be easy in Detroit, regardless of the forum.  But at least the consent agreement allows the difficult work to play out in a more democratic and less costly and drawn-out manner than either of the alternatives.

Mike Poelman

 

Detroit Gets Extension for Financial Review, Bing and Snyder Working Towards Consent Agreement

Michigan Governor Rick Snyder granted Detroit's financial review team a 30-day extension to continue its review of Detroit's finances and make a recommendation on whether to implement a financial manager.  As I explained in a previous post, this decision has both an upside and a downside.  The financial review team's new deadline is March 28.

Meanwhile, the Detroit Free Press reported today that Snyder and Detroit Mayor Dave Bing have agreed that a financial manager is not the right answer for Detroit, and that instead they are working on a financial rescue plan that resembles a consent agreement.  The plan would likely look similar to a managed bankruptcy, with the state of Michigan providing a bridge loan to Detroit and helping the City to develop a repayment and restructuring plan.  As is the case with the tentative Central Falls deal, getting the state legislature on board may be difficult.

This is good news for Detroit, though.  There is no doubt that the cuts under the potential rescue plan will be painful, but the solution is much better than the over-reaching financial manager alternative.  It is also better than Chapter 9.  It appears that Snyder is reluctant to impose another financial manager in the wake of the significant public backlash to Public Act 4.  Moreover, his signature legislation is likely to be suspended until a referendum vote in the fall, pending certification of opponents' signatures.  

Mike Poelman