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Atlantic City, N.J., is about to get a long-awaited state loan to help it stave off default and possibly bankruptcy, the Associated Press reported today. But it will pay a steep price if it can’t pay it back: The state will be able to step in and seize prized assets like a much-coveted water utility, and a former airport property that could be home to a huge development. The City Council called an emergency meeting to accept the $74 million loan to help the nearly broke city get through the rest of the year. Moody’s Investors Service warned that the city likely would default on a $3.4 million debt service payment if the loan did not go through by Monday. The funds will relieve the short-term pressure as it tries to come up with a fiscal reorganization that would prevent the state from taking over its finances and major decision-making power in November. The loan is part of a wider agreement between the city and Gov. Chris Christie that was reached earlier this year giving Atlantic City until early November to get its financial act together. The deal avoided a state takeover that would have taken effect this summer.

There is an unsettling aura of silence these days about the background to the City of Detroit bankruptcy case: We know how Detroit got into bankruptcy but we do not know what happened along the road to the bankruptcy, according to a guest writer post yesterday in the Detroit Free Press. We know that in 2005-06, Detroit borrowed some $1.5 billion to shore up shortfalls in its revenue, and in 2009, restructured the terms of repayment of that borrowing. Finance officials of the city, as well as outside financial advisers, lawyers and bankers, participated in the borrowing. All this at a time when, in the view of now-retired Bankruptcy Judge Steven Rhodes, who presided over the chapter 9 case, the city had no way of repaying the borrowed money. It appears that, today, the State of Michigan lacks a mechanism to review the legitimacy of a municipal borrowing before debt instruments are issued. It is fair to say that the state steps in only and after the barn door is closed and the horse has escaped. In other words, it is only after a municipality loses its financial footings can the state take action. What is now needed is a postmortem of why and how, as the City of Detroit declined in population, revenue and expenses, it continued borrowing money until a point in time that only bankruptcy could save it from a financial disaster.

Just a day after City Manager David Chiverton stunned elected leaders by resigning his office in the course of a federal criminal investigation, Opa-Locka, Fla., officials announced they were close to broke and would not be able to pay their workers come September, the Miami Herald reported yesterday. With just $350,000 left in the general fund, Opa-Locka may have to consider bankruptcy. The impoverished city has been under the oversight of a state financial emergency board since June. Florida Inspector General Melinda Miguel said that she was riled by the city’s failure to meet critical deadlines in filing a budget and recovery plan by Aug. 1 in what was once a firm deadline. Miguel blasted the city’s elected leaders, saying that they were not doing enough to keep costs down or tackling the critical problems that threaten the entire operation of the city. The revelations about the city’s grim financial picture provided even more drama that began with news that Chiverton had stepped down. A target of an ongoing FBI probe into corruption in Opa-locka, Chiverton took a leave of absence this spring after it was revealed that he paid himself tens of thousands in unused sick and vacation pay to which he was not entitled. Local business owners working as informants for the FBI paid Chiverton and other city officials thousands of dollars in bribes to get operating licenses and water connections.

Detroit sold its first general obligation (GO) bonds since exiting bankruptcy in 2014, lured back into the market to refund debt by near-record low interest rates and high demand from investors, Reuters reported today. The city's 10-year tax-exempt debt yielded 2.34 percent, or 0.92 of a percentage point higher than top-rated municipal bonds as measured by Municipal Market Data's (MMD) triple A scale. That was significantly better than when it sold revenue bonds nearly a year ago. The bonds are backed by state aid, so the sale is not solely a vote of confidence in the city's turnaround story since it exited bankruptcy in December 2014. Continuing caution over Detroit reflects concern that while the city is heading in the right direction its financial condition is still tenuous. Some fear the city could declare bankruptcy again, possibly within 10 years, with an even more painful outcome for investors than before. The city sold a total of $608.9 million in bonds, issuing $223.8 million in tax-exempt securities. Even though the deal is backed by state funds, tighter spreads highlight demand for tax-free debt and investors' "reach for yield" in the current near-record low interest rate environment.

Atlantic City is likely to default on $3.4 million worth of debt — and become more likely to go bankrupt — if a loan promised by the state isn't received by Monday, the Associated Press reported yesterday. Moody's Investors Service issued a report saying that the nearly broke city is likely to default on a debt service payment if it doesn't get a $74 million loan the state agreed to in May. Negotiations on the terms of the loan are continuing. The loan was part of a temporary agreement reached between the state and the city to allow it to get its finances in order by November. If that doesn't happen, the state is poised to seize control of the city's finances and major decision-making power. The city's finances have crumbled as its main employer, the casino industry, has contracted. Four of the city's 12 casinos went out of business in 2014, and surviving casinos have successfully challenged their tax assessments, blowing large holes in the city budget.

Another U.S. territory is sliding into junk-bond status: The Virgin Islands Water and Power Authority, the Caribbean archipelago’s utility, had the credit rating on its most secure debt cut below investment grade by S&P Global Ratings, Bloomberg reported yesterday. The rating company cited its low levels of cash and a backlog of unpaid bills, some owed by the government. The Virgin Islands, with about 100,000 residents, is contending with some of the same forces that pushed Puerto Rico into a cascading series of defaults: a declining population, retirement-fund debts and a history of borrowing to cover budget shortfalls. Its $2.4 billion of debt, issued by various arms of the government, amounts to some $23,000 per person, even more than Puerto Rico’s $20,000. The pressure on the utility is also similar: The Puerto Rico Electric Power Authority, squeezed in part by unpaid bills from government agencies, struck a deal with creditors to restructure its debt.

With Puerto Rico carrying $72 billion in debt, and an independent, federally appointed control board poised to take charge of its finances, the island’s 78 municipalities — with their mayors, employees and government offices — represent one of the island’s most intractable problems, The New York Times reported today. What was once a venerable tradition has become a symbol of government bloat and deficit spending. There are renewed calls to do away with a sizable number of municipalities, most of which are ailing financially, by folding smaller ones into larger ones and creating regional hubs. The debate pivots on a simple question: Does an island with a footprint slightly bigger than Delaware’s really need 78 municipalities to serve its citizens? Each municipality has a mayor, many of them well paid. Then there are assistants and a string of administrative offices. Most also have their own municipal police (in addition to the state police), who deal with complaints and low-level crimes. With jobs hard to find in Puerto Rico, smaller municipalities are often the biggest employers in town.

The House on Monday appointed Sen. Orrin Hatch (R-Utah) to serve as chairman of a bicameral task force charged with investigating the causes and possible solutions to Puerto Rico’s debt crisis, the Morning Consult reported yesterday. The House also formalized the appointments of Reps. Sean Duffy (R-Wis.) and Tom MacArthur (R-N.J.) as the House Republican appointees to the task force. Rep. Nydia Velázquez of New York and Pedro Pierluisi, Puerto Rico’s nonvoting representative in Congress, are the two House Democratic appointees. In addition to Hatch, who is chairman of the Senate Finance Committee, Sens. Marco Rubio (R-Fla.), Robert Menendez (D-N.J.) and Bill Nelson (D-Fla.) are members of the task force. The Puerto Rico bill that Congress passed in June lets Speaker Paul Ryan (R-Wis.) decide who gets appointed as the task force’s chairman.

Record low interest rates so far have failed to spur a wave of new borrowing in the $3.7 trillion U.S. municipal debt market, with one exception: its weakest borrowers are seizing the opportunity to prop up their finances at costs they can afford, Reuters reported today. As of July 19, total municipal debt issuance this year fell 1.6 percent to $227 billion from the same period last year. However, new borrowing rather than refinancing of existing debt is up 12.5 percent at $88.8 billion, with lower-rated debt rising the most. An analysis shows the total amount of municipal junk bonds rated by S&P Global Ratings at BB-plus or below issued this year rose 170 percent to $1.2 billion over the same period in 2015. Many higher-rated issuers are using the rock-bottom rates to refinance old debt, but have been slow in boosting borrowing for new projects because of a lengthy approval process and many communities' reluctance to take on new burdens. Those that struggle financially face similar problems, but some simply need to borrow to keep going and many are able to issue revenue bonds, which do not require voter approval. Some cash-strapped areas can also issue bonds for new spending without taxpayer approval at the ballot box.