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For localities worried about facing big bond-market penalties if they go bankrupt, consider Jefferson County, Alabama. The county of 659,000 people — once the largest municipality to ever seek bankruptcy protection — has sold debt several times since emerging from court protection in 2013, Bloomberg News reported. Carrying an investment-grade rating of AA- in May, the county completed a refinancing of its general-obligation debt by paying yields of 2.86 percent on bonds due in 2026, just about half a percentage point above top-rated debt. While Jefferson County has gotten market access and its investment-grade rating back, the process was far from painless. Contending at the same time with revenue lost when a court struck down a key tax, it fired 1,300 employees, put off roadwork and shuttered inpatient services at its hospital that cared for the poor. To exit bankruptcy, officials agreed to raise sewer rates 8 percent annually through October 2018, followed by yearly jumps of 3.5 percent until 2053. Creditors including JPMorgan Chase & Co. forgave $1.4 billion of debt.

Banks reduced their quarterly municipal-bond holdings for the first time in nine years, a sign of how much new U.S. tax rules damped demand for debt from state and local governments, the Wall Street Journal reported. Municipal securities held by U.S.-chartered depository institutions fell in the first quarter by nearly $16 billion to $554 billion, according to Federal Reserve data published on Thursday. Banks emerged over the past decade as one of the biggest buyers of tax-exempt municipal debt because the investments were viewed as stable and safe. They currently hold 14 percent of outstanding municipal bonds, according to the Fed data. But new legislation passed late last year by Congress dropped tax rates paid by banks to 21 percent from 35 percent, making tax-exempt bonds less appealing.

When is a fiscal emergency not an emergency? When it’s in California, according to a Bloomberg News commentary. The phrase may trigger images of desolate streetscapes and fiscal pain, or evoke a new risk for investors who buy municipal bond funds in search of tax-exempt income. But for many Golden State cities, the words signal opportunity, according to the commentary. Because of rules designed to limit tax increases, cities can get proposed tax hikes on Tuesday’s primary ballot only by declaring a crisis. At least two have done so this year, following at least 50 since 2008. Muni bond investors and analysts are in on the situation — in many cases giving it the equivalent of a shrug. To get a tax question before voters this week, Santa Cruz has issued such a declaration for the third time in 13 years. Over that time, the Monterey Bay beach town’s bond rating has improved. Unlike other states, which lay out a process for a town to be deemed in distress, California leaves it to municipalities themselves to determine. There’s no checklist or external agency deciding whether a situation meets the layman’s understanding of the words “fiscal” and “emergency.” Read the full commentary.

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

A decade after Vallejo, Calif. entered bankruptcy, the city appears to have turned a corner, according to an analysis by Bond Buyer. “Vallejo has done a ground-up restructuring,” said Karol Denniston, a partner with Squire Patton Boggs LLP. “They are now routinely one of the top 10 cities where people want to live, which is a huge turn-around from when they entered bankruptcy.” Scars still remain from the chapter 9 bankruptcy process. And many of the city's markers of success in 2018, as with the troubles that drove the city into bankruptcy court in 2008, stem from economic factors beyond its control. Credit partly goes to the exorbitant real estate prices in San Francisco, where the median house sells for $1 million. “We are benefiting from the fact that people would rather spend an hour riding the ferry to San Francisco then sitting in their car commuting,” said James Cooper, president and chief executive officer of the Vallejo Chamber of Commerce. Prices have also jumped in communities like Oakland that once offered affordable alternatives, pushing buyers further out.