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Even as a relief bill is expected to be introduced in Congress today, if it passes and works, Puerto Rico will not be able to pull out of its financial tailspin for years, according to a commentary in today’s New York Times. Across America, dozens of cities, counties and states may be heading down the same financial rabbit hole. Illinois, New Jersey, Philadelphia, St. Louis and Jacksonville, Fla., to name just a few, are all facing their own slowly unspooling financial disasters. The blame lies with what economists call “deferred costs.” Generous pension promises made decades ago, without enough funding, are now coming due as baby boomers retire. Bonds issued in the distant past to build bridges, highways and other projects also must be paid — even as the projects themselves could by now use expensive makeovers, according to the commentary. “New York City has $85 billion of retiree health obligations all by itself,” said Richard Ravitch, the former lieutenant governor of New York State and an informal adviser to Detroit’s financial control board. He helped New York City resolve its financial crisis in 1975; today he worries about possible replays across America. “We’ve promised more than we can pay without confiscatory levels of taxation,” Ravitch said. “Puerto Rico is just, arithmetically, the most egregious example of borrowing to cover up deficits.” Read more. 

What are the next steps for Puerto Rico to resolve its financial distress? A panel of experts at ABI’s New York City Bankruptcy Conference tomorrow will examine potential remedies. Click here to register. 

What do experts think of the mounting crises in public and private pensions? Watch the latest “Eye on Bankruptcy” segment that was filmed live at ABI’s Annual Spring Meeting in April. 

For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage. 

Moody’s Investors Service said that the deteriorating finances of Detroit’s public schools may result in a bankruptcy filing if Michigan lawmakers don’t agree on a rescue package within the next two months, Bloomberg News reported yesterday. The state’s House of Representatives last week approved a plan to restructure the cash-strapped district that has “stark” differences with the package approved by the Senate in March, Moody’s said in a report yesterday. The school system, which is rated Caa1, seven steps below investment grade, will soon run out of money. The $50 million of emergency funding that the state appropriated in April is supposed to last only through June. “The legislature now has less than two months to compromise on a reform package or the district’s financial position will possibly force a bankruptcy filing,” Moody’s said in the report. “Failure to implement a solution increases risks to all of the district’s bondholders.”

Puerto Rico is pushing for its water utility to borrow hundreds of millions of dollars to avoid a July bond default, seeking to overcome investors’ skepticism as the island’s fiscal crisis pushes it to skip payments on a growing share of its $70 billion of debt, Bloomberg News reported yesterday. The commonwealth’s lawmakers are working to reach a compromise this week on legislation that would create a new public corporation to sell securities for the Puerto Rico Aqueduct and Sewer Authority, known as PRASA. The debt would be repaid with a charge on customers’ bills steered straight to the new agency, providing some measure of security to bondholders by putting it beyond the utility’s reach. “Once we get this bill done and it becomes law, I’m confident that the market will see it as a good way to invest and lend money to PRASA,” said Senator Ramon Luis Nieves, who chairs that chamber’s committee on energy affairs and water resources and is working on the bill. The legislation is an effort to revive a sale that was scrapped after Puerto Rico in August defaulted on some bonds for the first time since it became a U.S. territory more than a century ago. The commonwealth has since failed to make full payments on other securities and has given Governor Alejandro García Padilla the authority to declare a moratorium on a vast swath of its debt, including PRASA’s. Read more. 

In related news, a new version of a congressional bill to help Puerto Rico address its $70 billion debt crisis may advance next week toward floor action, according to Rep. Rob Bishop of Utah. The new draft won’t have significant changes and the basic concepts of the bill, to get Puerto Rico out of its fiscal crisis, are the same, Bishop said yesterday during an interview at Bloomberg News. Bishop serves as chairman of the House Natural Resources Committee, which has been tasked with crafting the Puerto Rico measure. It’s feasible that the bill could reach President Barack Obama’s desk by July 1, Bishop said. The bill would create a federal control board to approve Puerto Rico’s spending plans and oversee any debt restructurings. The measure would also provide a framework for Puerto Rico to lower its $70 billion debt load as the island doesn’t have access to the municipal bankruptcy laws, as Detroit did. Read more. 

What are the next steps for Puerto Rico to resolve its financial distress? A panel of experts at Thursday’s New York City Bankruptcy Conference will examine potential remedies. Click here to register. 

For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage. 

Lawmakers have missed one deadline to prevent Puerto Rico from defaulting on its debt, and they’re trying to figure out how to build support for legislation that could prevent a second missed payment, Bloomberg News reported today. Republicans are seeking to produce a revised bill as early as Wednesday, while U.S. Treasury Secretary Jacob J. Lew is heading to the commonwealth Monday to keep up the pressure for Congress to act. All sides are under pressure after a week-long congressional recess, punctuated by Puerto Rico’s default a week ago on most of a $422 million debt payment. Puerto Rico is in an economic recession that’s poised to worsen as residents continue to leave, threatening to deepen the fiscal crisis that’s pushing the island to default on a growing share of its $70 billion of debt. House Natural Resources Committee Chairman Rob Bishop (R-Utah) plans to craft the Republican legislation that would create a federal oversight board to help manage the island and supervise a debt restructuring, according to a committee aide. It will be similar to an earlier version that ran into snags, the aide said, adding that the measure could be advanced by the panel as early as next week. Read more. 

What are the next steps for Puerto Rico to resolve its financial distress? A panel of experts at ABI’s New York City Bankruptcy Conference on Thursday will examine potential remedies. Click here to register. 

For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage. 

Standard & Poor's issued a report saying that upgrades to credit ratings of municipal debt issuers outpaced downgrades for a third consecutive year in 2015, the strongest such run since 2001, Reuters reported yesterday. Upgrades outpaced downgrades by a ratio of 2.20 to 1 during the year, the report found, although this was at a slower pace than the previous year when upgrades led by a ratio of 3.33 to 1. The outperformance of upgrades coincides with a period of recovery for many state and local governments that have rebuilt revenues after the financial crisis and recession of 2007-2009. "The year ended with 13 straight quarters of more upgrades than downgrades, the longest streak since the first quarter of 2001," said Larry Witte, senior director of S&P Global Fixed Income Research. Municipal bankruptcies, however, also rose, climbing to 12 last year from eight in 2014. Over the last five years, defaults have exceeded the long-run average of three per year since 1986. There were 21 defaults of appropriation debt between 2011 and 2015, after only three in the previous 25 years, according to the study. Read more. 

Is chapter 9 coming to a city near you? Panel at ABI’s Central States Bankruptcy Workshop will examine in June. Click here for more information and to register. 

Lawmakers are planning to roll out a new bill to help Puerto Rico restructure its debt on Wednesday, MorningConsult.com reported yesterday. A legislative staffer said that the new language will be introduced under a new bill number. The current plan is to have Rep. Sean Duffy (R-Wis.) remain the bill’s lead sponsor. He sponsors the current bill, H.R. 4900. The new bill, according to the staffer, will contain new language to further clarify the existing legal and constitutional prioritization of Puerto Rico’s creditors, and the fiscal oversight board’s role in preserving that lineup. The Natural Resources panel, which has jurisdiction over Puerto Rico, will hold off on voting for the legislation until the following week, the aide said. That will give members of the committee time to go over the bill, understand its changes, and decide on possible amendments they want to offer at the markup. Read more. 

What are the next steps for Puerto Rico to resolve its financial distress? A panel of experts at ABI’s New York City Bankruptcy Conference on May 12 will examine potential remedies. Rates go up on Friday! Click here to register. 

For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage. 

As the state Assembly readies a vote on an Atlantic City rescue plan that challenges his own proposal, state Senate President Stephen Sweeney (D) yesterday warned that the famed seaside resort could be days away from bankruptcy if his opponents don't put politics aside, NJ.Com. Lawmakers have been staunchly divided for months over how to help Atlantic City, which has seen its tax base decimated by the closure of four casinos. Sweeney and Gov. Chris Christie have been pushing legislation that would allow the state to take over large portions of the local government for five years. Assembly Speaker Vincent Prieto (D-Hudson) has scheduled a vote today on his own plan to give the city two years to fix its problems before a takeover happens. And even if Prieto's measure passes, Sweeney said that he would not put it up for a vote in the Senate because Christie wouldn't sign it.

The city of East Cleveland asked the state last week to approve a petition for municipal bankruptcy — a step that could give breathing room to the city's problems, Cleveland.com reported yesterday. The move, described as an "urgent matter" in a letter from Mayor Gary Norton Jr. to state Tax Commissioner Joseph Testa, is an effort to keep payroll funded and to maintain services. Council President Thomas Wheeler said that even if approved, filing for bankruptcy would be a "Band-Aid" to keep the city going, not a solution. Norton said that the bankruptcy filing would be a temporary fix for the cost side of the city's economic distress, but the real problem is with income. There's simply not enough revenue coming in to support the city, he said, and upping taxes or adding fees won't provide an immediate solution. Changing the city's borders by merging with Cleveland would help in many ways, Norton said, including creating possibilities for economic development, giving the city financial tools, and adding stability.