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Chicago Mayor Rahm Emanuel unveiled his 2017 budget proposal to close a $138 million gap while absorbing some of the expense of hiring 1,000 new police officers over the next two years. "It is a budget free of an immediate pension crisis, free of the black cloud of insolvency threatening the retirements of city employees and the financial future of Chicago," Emanuel said. No new major taxes were announced, but the city has already hit taxpayers' pockets deeply. After turning to various fee and tax increases in recent years to cut the structural deficit and improve water infrastructure, the city council passed a record $543 million annual property tax hike late last year and a new water/sewer tax this year to help stabilize its pension system. Both phase in hikes over the coming years. The pension funds' collective $33.8 billion of net pension liabilities — for a funded ratio of 23 percent — have dragged the city's ratings down as low as junk from one rating agency. "Five years ago, Chicago was on the financial brink. Today, Chicago is back on solid ground," Emanuel said.

The California Public Employees’ Retirement System (CalPERS) said that the dwindling town of Loyalton, Calif., had 30 days to hand over $1.6 million, more than its entire annual budget, to fund the pensions of its four retirees, the New York Times reported today. Otherwise, Loyalton stood to become the first place in California — perhaps in the nation — where a powerful state retirement system cut retirees’ pensions because their town was a deadbeat. Patsy Jardin kept Loyalton’s books for 29 years, and she retired in 2004 with an annual pension of about $48,000, but because of Loyalton’s troubles, CalPERS is threatening to cut that to about $19,000. Of all the states, experts say, California has the most protective pension laws and legal precedents. Once public workers join CalPERS, state courts have ruled, their employers must fund their pensions for the rest of their careers, even if the cost was severely underestimated at the outset — something that has happened in California and elsewhere. The showdown in Loyalton is raising the possibility that California’s pension promise is not absolute. There may be government backstops for bank failures, insurance collapses and pensions owed to workers by bankrupt airlines and steel mills — but not, apparently, for the retirees of a shrinking town.

Atlantic City won’t have to immediately repay New Jersey $62 million it borrowed after it broke the state’s conditions for the loan, but it won’t get the remainder that had been pledged, Bloomberg News reported yesterday. The distressed gaming hub failed to approve actions needed to dissolve its water authority, as required by the state as collateral for the $73 million loan package that helped pull it from the brink of bankruptcy. New Jersey could have demanded full payment of the amount already advanced after notifying the city of the breach on Tuesday, but chose not to, said Tammori Petty, a spokeswoman for the Department of Community Affairs, which oversees the seaside resort. The loss of the remainder of the loan and the specter of even less cash assistance make it more difficult for Atlantic City officials to stabilize municipal finances. The city, which has been headed toward insolvency since a third of its casinos closed in 2014, has until Nov. 3 to develop a five-year fiscal blueprint and avoid a state takeover.

After years of rising costs and declining revenues, Atlantic City officials are embarking on an ambitious and risky gambit that could save their city from bankruptcy — or plunge them deeper into the financial doldrums, The Hill reported today. City officials have told New Jersey regulators they will miss a deadline today to meet conditions of an August agreement to secure a $73 million bridge loan. The city has asked for more time to finalize a plan that would provide a new infusion of money, while loading up their last remaining valuable public asset with a mountain of new debt. A key element of the plan, according to Mayor Don Guardian, would have the city’s water works, the Municipal Utilities Authority, purchase a city airfield that has been closed since 2006 for $100 million. But municipal budget and bond experts say the deal is far from finished. The Municipal Utilities Authority would have to finance the purchase almost entirely through new bonds, and investors may be wary about purchasing bonds from such a financially precarious institution, albeit one in better position than the city itself.

A federal jury yesterday found that the city of Miami and its former budget director had defrauded bond investors by failing to truthfully disclose the city’s deteriorating financial condition, the Wall Street Journal reported today. The verdict came in the first federal jury trial by the U.S. Securities and Exchange Commission against a municipality. The SEC last month settled other civil cases with 71 municipal issuers as part of an agency initiative to improve disclosure. “We will continue to hold municipalities and their officers accountable, including through trials, if they engage in financial fraud or other conduct that violates the federal securities laws,” Andrew Ceresney, director of the agency’s enforcement division, said Wednesday. The jury found that Miami had committed securities fraud while reporting on the city’s finances in 2007, 2008 and 2009. According to the SEC’s complaint, Miami transferred dollars earmarked for specific capital projects between funds, enabling the city to meet its own reserve-fund requirements.

Puerto Rico, which triggered the biggest default in the municipal-bond market by skipping nearly $1 billion of debt payments in July, is set to pay Millstein & Co. as much as $8.4 million in the next year to provide outside restructuring advice, Bloomberg News reported yesterday. The commonwealth extended its contract with Millco Advisors LP, an affiliate of Washington, D.C.-based Millstein, through June 30, 2017, according to a review of the agreement provided by the island’s Office of the Comptroller. The commonwealth’s Fiscal Agency and Financial Advisory Authority is set to pay the firm as much as $8.4 million, according to the contract. Millstein has been advising Puerto Rico since February 2014 on how the commonwealth and its agencies can reduce its $70 billion of debt and has been negotiating on the island’s behalf with creditors. A seven-member federal control board will begin overseeing any restructuring of Puerto Rico’s obligations and help end its reliance on deficit borrowing to fill budget gaps. President Barack Obama in June enacted PROMESA to create the control panel and establish a framework allowing the commonwealth to reduce its debt load. Millstein has a separate $3 million contract with Puerto Rico that runs through December and would compensate the firm if a restructuring deal is finalized.

A man who was clubbed by Vallejo police while trying to walk away from them in 2003 is entitled to $50,000 in damages plus legal fees, a federal appeals court ruled yesterday in rejecting officers’ arguments that the damages should be slashed because the city later filed for bankruptcy, the San Francisco Chronicle reported yesterday. Vallejo’s 2008 bankruptcy, California’s largest municipal insolvency in 15 years, left its creditors with only 20 to 30 cents for every dollar they were owed. But the U.S. Court of Appeals for the Ninth Circuit said that Jason Deocampo’s suit and the jury’s verdict were aimed at the officers who injured him, not the city that employed them. Deocampo was also awarded at least $400,000 for his legal fees, a sum that might increase by another $100,000 for costs of the appeal.