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A little more than two years after former Governor Don Carcieri first talked in 2010 to Curt Schilling about 38 Studios, the company went bankrupt, blowing a sizable hole in the state’s already strained finances, the New York Times reported yesterday. Current Rhode Island governor, Lincoln Chafee, has called the state’s backing of the company "the worst investment that's ever been made, I think, in the history of Rhode Island." Politicians are debating whether Rhode Island can afford to repay the bondholders, or whether it should simply default. Because the bonds are what’s known as moral obligation bonds, the state doesn’t technically have to repay them, but its credit rating could take a hit, and Gov. Chafee has promised that the bondholders would be repaid. Chafee is also suing Schilling and his partners, along with a raft of former state officials, banks and law firms involved in the deal, and a criminal investigation is under way.

Detroit's emergency manager indicated for the first time that he may end collective bargaining with city employees as part of his effort to shore up the city's sagging finances, Reuters reported. Kevyn Orr alerted state labor officials on Thursday that he has no legal requirement to bargain or participate in compulsory arbitration with Detroit's public safety unions. The statement by Orr, sent in letters to state employment relations officials, is his first public indication that he is actively considering exercising some of the most sweeping powers granted to him under the 2012 state law that created the position of emergency manager. Detroit has agreements with some 48 unions, and outside analysts say the city needs concessions from organized labor if it is to restore public finances devastated by a shrinking population and high unemployment.

The small California city of Canyon Lake has served notice on the state's pension fund that it wants to quit the plan, Reuters reported today. Canyon Lake's decision to quit the powerful California Public Employees' Retirement System (CalPERS)--America's largest public pension fund with $256 billion of assets under management--could presage much larger problems for the system as it battles with Wall Street bondholders in the bankruptcy cases of California's San Bernardino and Stockton. Canyon Lake, which says it is ready to pay a termination fee, sent a letter on April 4 to CalPERS stating that it wants to end its relationship with the pension fund. A major factor in its decision was a likely move by CalPERS to raise its employer contribution rate by 50 percent in coming years--a decision the fund's board approved yesterday.

The Detroit City Council on Tuesday approved a controversial contract to restructure the city's debt, despite a protest that temporarily shut down the meeting, Reuters reported yesterday. In a 5 to 2 vote, the council approved a six-month, $3.4 million contract to hire the Jones Day law firm, the former employer of Emergency Manager Kevyn Orr, to help negotiate agreements with creditors. Under Michigan law, Orr has the final say on contracts for the cash-strapped city. Among the concerns raised about the contract was perceived conflicts of interest. Protesters said that Jones Day's clients include big banks that are Detroit creditors and stand to lose a lot of money under bankruptcy or a settlement.

Bond insurer Assured Guaranty Municipal Corp. was blocked by a judge from proceeding with a lawsuit against JPMorgan Chase & Co. on the grounds that it would interfere with the reorganization of Jefferson County, Alabama, the biggest U.S. municipal bankruptcy to date, Bloomberg News reported today. Bankruptcy Judge Thomas B. Bennett found that the case Assured has against JPMorgan in New York state court involves the same facts, circumstances and lawyers as a similar case in which Syncora Guarantee Inc. sued Jefferson County. Because Assured had not named the county in its case, the insurer argued that its lawsuit should proceed. "The degree of sameness between the Assured action and the Syncora action requires equality of treatment," Bennett ruled. In 2011, Jefferson County filed for bankruptcy protection from its creditors, blaming the loss of a business-related tax and more than $3 billion in warrants that the sewage system could not repay. Syncora and Assured insured some of the sewer warrants. They argued in their lawsuits that the insurance policies were only written because the county and JPMorgan, the underwriter for the warrants, committed fraud.

Detroit Mayor Dave Bing proposed a $1 billion budget on Friday that allows the deficit to balloon to $380 million, despite a financial crisis that led the state to appoint Emergency Manager Kevyn Orr to take over the city's purse strings, Reuters reported on Friday. At nearly the same time on Friday, Orr issued an order underscoring that it is the emergency manager, not city officials, who has final say on appropriations, contracts and other substantive matters. Any such acts "will not be valid or effective unless and until approved by the Emergency Manager or designee in writing," Orr wrote in his Order No. 3. The order does allow the city to take all actions necessary to deliver city services. Orr has final say over the city budget, and the state law creating the emergency manager position requires Orr to deliver a financial and operating plan for Detroit by May 9.

Assured Guaranty Corp., fighting to avoid losses in the bankruptcy case of Stockton, Calif., asked a judge to reverse a ruling that it and other creditors failed to negotiate in good faith with the city, Bloomberg News reported yesterday. The insurer asked Bankruptcy Judge Christopher M. Klein to reverse his April 1 finding that so-called capital markets creditors acted as a "stone wall" during pre-bankruptcy negotiations with the city. Assured and other creditors had argued that the city should be thrown out of bankruptcy because it failed to negotiate with them in good faith. The judge rejected their arguments and found that the creditors were the ones who failed to negotiate seriously because they "voted with their feet" by quitting the talks, a ruling the company denied in court papers.

Alabama's Jefferson County fired its attorney for not working in its best interests, weeks before the county is expected to present a plan to emerge from the nation's largest municipal bankruptcy to date, Reuters reported on Friday. Jeff Sewell, who was placed on administrative leave earlier this week, had been in the legal department for 25 years. More than 800 workers have been let go since the county filed for bankruptcy in 2011. The county commissioners said the dismissal on Friday was due to directions given by Sewell to the county's outside attorneys "that were not in the best interests of Jefferson County." They added that the termination would not affect the recovery plan, which would detail how the county intends to fix its debt to exit municipal bankruptcy.

Bankrupt San Bernardino will resume paying into the state pension fund on July 1, but the California city will continue to renege on other debts, including payments to bondholders, according to a new budget released yesterday, Reuters reported. Nearly a year after it halted contributions to America's biggest pension fund, San Bernardino will resume payments to CalPERS at the start of the new fiscal year—but continue to withhold pay to other creditors, according to the budget. San Bernardino will not make interest and principal payments on $50 million in pension bonds issued in 2005, according to the new budget. The city council on Monday will review the budget, a blueprint for how the city proposes to manage its finances since declaring bankruptcy last August.

San Bernardino said yesterday that it hopes to soon resume paying into CalPERS, the California state employees' pension fund, after not paying the fund since the city filed for bankruptcy last August, Reuters reported yesterday. The attorney representing the California city in its quest for bankruptcy protection told the judge overseeing the case that the city planned to present a new, detailed budget by April 15, for approval by the city council on May 6. The attorney, Paul Glassman, added that along with the new, pre-bankruptcy budget, the city hoped "to resume payments to CalPERS." San Bernardino halted its $1.2 million, bimonthly employer contributions to the California Public Employees' Retirement System—the largest U.S. public pension fund with assets of $256 billion—when it declared bankruptcy on Aug. 1, 2012.