If the smaller governments cannot hold it together, where do you think the money is going to come from?
In this new case in Stockton, the bondholders are going to get slammed. Do you think anyone will want to invest in Stockton again? What should have been a safe investment has become high risk.
Don’t invest in government bonds if you can avoid it. They are being treated like the GM debacle. Unions first, investors last, despite the law and promises made.
Instead of dealing with the problem of unsustainable wages, benefits and pensions, they are going after the investors.
Any bankruptcy has the potential to hit every U.S. taxpayer so keep that in mind.
Stockton, California, may take the first steps toward becoming the most populous U.S. city to file for bankruptcy next week because of burdensome employee costs, excessive debt and bookkeeping errors that misrepresented accounts, city officials said today.
The Stockton City Council will meet Feb. 28 to consider a type of mediation that allows creditors to participate, the first move toward a Chapter 9 bankruptcy filing under a new state law. The council will also weigh suspending some payments on long-term debt of about $702 million, according to a 2010 financial statement.
“Somebody has to suffer and in this case the city manager has decided it should be the bondholders who suffer,” Marc Levinson of the Sacramento-based law firm Orrick, Herrington & Sutcliffe LLP, which represents the city, said at a news briefing at Stockton’s City Hall today.
Stockton, a farming center about 80 miles (130 kilometers) east of San Francisco, has fought to avert bankruptcy by shrinking its payroll, including a quarter of the roughly 425- member police force. At 292,000, the city has more than twice as many residents as Vallejo, California, which became a national symbol for distressed municipal finance in 2008 when it sought protection from creditors.
Stockton’s council will be asked to reduce the current budget by $15 million because of newly uncovered accounting errors and fiscal mismanagement that have left the city almost broke, City Manager Bob Deis told reporters. To keep the city solvent through the end of the fiscal year June 30, the City Council will be asked to default on $2 million of debt payments owned to bond holders.
“Our employees and the citizens of Stockton who receive city services have borne the entire brunt of our restructuring efforts so far and now it’s time for others to do the same,” Deis said in a report to the council. “We can’t ‘grow our way’ out of the problem and no amount of forward looking financial planning will properly fix it.”
Deis said the city is facing a $20 million deficit in the next fiscal year. Expanded retiree health insurance commitments in the 1990s have left the city with a looming $450 million unfunded liability.
“Next year, we expect to pay more for retiree health insurance than for our current employees,” Deis said, likening the promises to a “Ponzi scheme.”
A state law backed by unions and passed last year in response to Vallejo’s bankruptcy requires cities to work with a “neutral evaluator” for at least 60 days before seeking bankruptcy court protection. The process is similar to mediation and gives creditors a right to participate. It can be bypassed if the city declares a fiscal emergency, according to the law.
Entering the 60-day mediation process could cause a “run on the general fund” by vendors, bankruptcy attorney Lee R. Bogdanoff of Klee, Tuchin, Bogdanoff & Stern LLP, the firm that filed the biggest municipal U.S. bankruptcy on behalf of Jefferson County, Alabama, said today in a telephone interview…Read here: Global Economic Analysis
The house of cards could fall. Keep your eye on the smaller government entities collapsing.